Gender quotas and corporate performance

I think quotas of any sort are inherently wrong and likely to be bad for corporate performance. In recent times, many of those in favour of quotas have shifted their claims from “quotas are necessary to treat under-represented groups fairly”, to “quotas are good for business performance.” It is not easy to prove or disprove such claims.

Conceptually, the skills needed to perform well in business are not held in exclusively in the domain of any particular group of people. Those skills are held by all different sorts of people. And plenty of people do not have the necessary skills. Consequently, the best corporate performance will emerge from the companies with the best collection of people with those skills, regardless of who they are or where they came from.

Adding a degree of empirical research to the debate, the authors of a study conducted in Norway and published last month (accessible here), considered corporate performance controlling for gender composition of the board. Among the conclusions was this:

“Analyzing the causal effects of the Norwegian gender-balancing quota, we find the quota significantly increases the share of women directors on the boards of treated firms. Further, we find the quota significantly adversely affects the performance of treated firms and firm risk is significantly reduced.”

That is, if the law imposes quotas on gender balance, gender balance will improve. (No surprises there.) Also, firm risk reduces. Finally, corporate performance is significantly adversely affected.

Corporate performance changes as a result of gender quotas. Lower performance and lower risk is not the same as improved performance with no increase in risk.

2 thoughts on “Gender quotas and corporate performance

  1. Good questions, but I can’t answer all of them, I’m sorry.
    q1a, b Don’t know. q1c, ‘risk’ measures include instability of earnings, reputation damage, etc. q1d, read the paper.
    q2 -agree with your premise. I’d argue that the people hired to make that judgement are the executives, although we know the agency problem, we know the Peter Principle and so often the executive stuffs up quite badly, in my view. But, I don’t see any other party as being better informed or incentivised (apologies for that word) to make the call. As to your suggestion of some independent unaware of the business? No, I don’t think that would add anything that throwing a dart at the board of stocks couldn’t.
    Thanks for commenting!

  2. 1) In general, what percentage of studies are replicable? Has this study been replicated? What is ‘firm risk’ and what aspects are (allegedly) reduced?
    2) Quotas mean employing someone a business would not otherwise employ and not employing someone the business would otherwise have employed. Who is the best judge of the best fit for a particular business? Someone in that business, or someone who does not know of the existence of that particular business?

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