May 18 2011

IWF in the News: Quotas Aren't the Answer to Germany's Gender Crisis

Sabrina Schaeffer

A recent study conducted by the German Institute for Economic Research found that women only make up 2.2 percent of the country's top 100 executive boards. Out of more than 900 board members, only 29 are women. Add to this the fact that not one of the top 100 companies maintains a female CEO and you have a mini-gender crisis in the making.

The gender disparity in Germany is not unique. In fact, across Europe women are underrepresented on corporate boards. In France, women make up 9.5 percent of members, in the UK 8.5 percent, and in Spain only 8 percent. Concern over gender equality in business has been percolating in Europe for some time. In fact, in 2002, Norway's parliament passed a quota law requiring that women make up 40 percent of all companies' corporate boards. Now several other countries have similar laws pending.

As Germany considers possible ways to boost the number of female board members, it should keep a few things in mind.

First, the effect of the gender quota in Norway wasn't so great. A University of Michigan study found that when the law was announced, businesses experienced, on average, a 2.6 percent drop in company value. For those that didn't have any women on their board to begin with, they witnessed an even more serious five-point drop. And that decline continued even as they changed the composition of their boards.

What became clear was that the decline in value was not a function of gender, but occurred due to the fact that companies frequently put less experienced directors on the board in an effort to comply with the law.

In the United States, we know women are good for the bottom line. Companies with more women in top management positions perform better. We also know it has something to do with what women bring to the table. Women now earn more bachelor degrees, master's degrees and even Ph.D.s than men. They make up nearly half the workforce, and their role in management positions is growing.

Before Germany considers passing gender parity legislation, it should consider the risks involved with forced equality. A better solution might be for the state to stay out of the boardroom and let the marketplace reward businesses that hire the best people - men and women. If they look for talent - rather than gender - they are sure to find plenty of women.

Sabrina L. Schaeffer is managing partner of Evolving Strategies and a senior fellow at the Independent Women's Forum.

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