In April, the German Chancellor, Angela Merkel, persuaded members of her political party, the Christian Democratic Union, to defeat a measure in Parliament which would have mandated that twenty per cent of public companies’ supervisory boards be comprised of women by 2018; that proportion would have risen to forty per cent by 2023. Merkel has long opposed such quotas, which are popular elsewhere in Europe. At the time, parliamentary elections were approaching, and Merkel appeased a dissenting bloc of her party—which wanted the reforms—by agreeing to write a gender quota into the party’s election program.
On Sunday, her party made good on that promise: the C.D.U. and its new left-leaning governing partner, the Social Democrats, agreed that by 2016 supervisory boards at German public companies should be made up of at least thirty per cent women. (In Europe, companies have supervisory boards, made of outside directors, and executive boards, made of top management.) Companies that don’t achieve the goal have to leave the seats open.
Gender quotas have been an emotional and contentious issue across Europe, and in Germany, where corporate life has long been dominated by men, the issue has been especially divisive. While many of its European neighbors have already instituted such quotas, Germany has long resisted. Supporters of a quota argue that German companies, left to their own devices, are not making fast enough progress in diversifying their boards and their executive ranks: in 2012, only four per cent of executives at Germany’s top two hundred companies were women. Quota opponents, such as the Federation of German Industries, a lobbying group, counter that quotas put undue pressure on companies to fill top positions with unqualified women—especially in typically male-dominated fields, such as technology, chemicals, and construction, where the number of female graduates is relatively low.
Annette Widmann-Mauz, the C.D.U.’s negotiator with the Social Democrats, said the measure marks “a cultural shift in the corporate sector,” though she added that her party still opposes a government-mandated quota for top management, which the Social Democrats also sought. Amid the debate, one question has kept cropping up: Does installing women in top management positions make any difference in how well a company performs?
Perceptions differ among men and women. Sixty-four per cent of women surveyed by McKinsey for a 2012 report said they strongly believe that “gender diversity is an important driver of company performance.” Only forty per cent of men agreed.
Further complicating matters, much of the research on financial performance and female leadership tends to be sponsored by groups with an interest in boosting women’s representation in business, like Catalyst, a U.S. nonprofit. In a 2011 study, Catalyst looked at American companies in the Fortune 500 and found that those in the top quartile in terms of female board representation—with women making up between nineteen and forty-four per cent of their boards—had a return on sales (that is, net income as a percentage of revenue) that was sixteen per cent higher than for companies with no women on their boards.
Charlotte Laurent-Ottomane, of the Thirty Percent Coalition, an American lobbying group devoted to having women fill thirty per cent of U.S. board seats by 2015, told me that companies start to see better corporate governance when at least three women sit on their boards—which amounts to thirty per cent on a ten-person board. With that critical mass, she said, female board members are more likely to speak out, pose challenging questions, and encourage the entire group to become more collaborative and less hierarchical.
Other research, though, appears to show that female representation on boards may not make much of a difference to a company’s performance. A 2011 study by two University of Michigan professors showed that the stock price of Norwegian companies actually dropped when they began adding women to their boards to comply with the country’s requirement that women comprise forty per cent of supervisory bodies. (“The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance, consistent with less capable boards,” according to the study.)
Better performance by companies with female board members doesn’t necessarily suggest that the women led to the stronger performance, either; it could also mean that companies that are financially successful tend to be more inclusive. Last year, professors at the Stanford University Graduate School of Business and the University of Edinburgh examined two thousand firms and found that larger companies with bigger boards were more likely to add women.
The Credit Suisse Research Institute, acknowledging that it’s hard to make sense of the many confusing and contradictory findings, last year offered its own figures. It studied publicly traded companies and found that, over the past six years, the share prices of companies with at least one woman on the board outperformed those with no women on the board. Interestingly, while performance seemed to have little correlation with female board membership when the economy was booming, from 2005 to 2007, this changed with the recession. From 2008 to 2012, the stock prices of companies with at least one female board member were, on average, twenty-six per cent higher than for companies with no female board members. The authors concluded that “more balance on the board brings less volatility and more balance through the cycle.”
What about German companies? Hagen Lindstädt, a management professor at the Karlsruhe Institute of Technology, found no relationship, in a 2011 study of a hundred and sixty German public companies between 2002 and 2010, between female board membership and stock-market performance. There were, however, two exceptions: consumer-oriented companies gain from placing females in decision-making positions, because women tend to control household purchases, and other women understand better what appeals to them. In addition, he said, companies with a large female workforce benefit from female leadership because they can hold onto talent better and decrease employee turnover.
It will likely take years for Germany to assess whether quotas will have an impact on corporate finances. And yet, in focussing on profits, perhaps we’re asking the wrong question. Lindstädt believes advocates of gender diversity should stay away from arguing that female leadership boosts financial performance—not because it’s untrue, necessarily, but because it shouldn’t be relevant to the conversation. There are plenty of reasons to improve women’s representation on boards that have nothing to do with financial performance—among them, for diversity’s sake. “This is about equality in our society,” Lindstädt said, “and fairness for all women.”
Photograph: Richard Baker/Corbis