EU Leadership quotas: The power of ‘AND,’ Vs. the tyranny of ‘OR’

Ritu Mohanka questions whether 'quotas' are a blessing or burden

Just last month (June 2022), the EU passed legislation setting quotas for the number of women on boards. Listed companies across all twenty-seven countries are now required to have 40% female representation of women on boards. OR, if you choose to apply the quota to exec positions too, you can reduce your target to 33% of executive AND non-executive roles by the middle of 2026.

As Shaheena Janjuha-Jivraj described in Forbes this week, quotas are a ‘sensitive issue’ – “at best…a catalyst for change. At worst, they instil a culture of resentment and tokenism, undermining the calibre of women appointed into leadership roles.”

She’s not wrong, but equally, the thinking needs a little nuance. Sure, quotas have limitations and, alone, realise little meaningful change. But that doesn’t mean quotas don’t have a meaningful role to play. Making real progress often requires a target. Ensuring accountability requires measurement.

The EU leadership quotas were intended to be a bold first step, but compromise may halt true progress. Why allow companies to choose between 40% board diversity or 33% exec and non-exec ranks – is it a clumsy compromise and “buy down”?

Expanding board diversity is relatively painless. According to Bloomberg, the average number of female directors in March 2022 on the Stoxx Europe 600 was unchanged from the previous year, four out of an average board size of nearly 11. The same is true in the UK.

In other words, the EU just set a target that the average company can achieve with limited effort.

That’s not a real change. Real change comes from addressing the composition of an organisation’s middle and executive ranks. We change the lives of working women when we expand opportunities among the greater mass—not adding a solitary board member far removed from the actual business.

Achieving gender equity isn’t one solution Vs. another. Inclusion of that troublesome “OR” – allowing companies to comply with almost no effort puts any progress at risk.

Making changes throughout a company is admittedly not easy. The theory might be that adding more women to the board means they’ll press for better gender diversity, but why should it be their burden? How does a board member effect change when they are not actively engaged in the underlying business of making/influencing hiring decisions? 

How does it change the reality for women outside of the top ranks? To make real change in the middle and executive ranks, you must set actionable goals. Aspirational goals set many years into the future is code for “it will be my successor’s problem.” Annual progress aligns with how most organisations run in terms of plans and budgets. People’s goals should work the same way.

Here are three things that businesses can do – in conjunction with quota targets – to help realise smarter diversity.

1. Choose ‘AND,’ reject ‘OR’– quotas can be a helpful starting point for action, but organisations need to resist the temptation to settle for mere compliance at the lowest possible level- especially where the targets are so achievable! Target hitting or maintaining 40% at the board level and 33% in the ranks. No two companies are the same, so change needs to be designed accordingly. Most organisations reflexively focus on hiring, but better retention is equally effective. But to retain, you also have to pay them equally – Pay Equity.

2. Equal pay for equal work – Pay is foundational. Ensuring pay equity is a critical first step for any organisation serious about keeping female talent. And, pay is often a proxy for so many business day-to-day decisions – how you valued me when I was hired, what level you placed me in, your assessment of my performance, high potential designations, and much more. 

Organisations serious about gender progress must measure the foundation and each of these things that impact compensation for bias regularly as part of their ongoing business.

3. Promoting not just appointing, resulting in retention. It is more effective to retain your way to aspirational goals than to make great efforts to hire more women if they don’t see a future for themselves. This is the so-called leaky bucket. Enabling women to succeed within an organisation is not the same as filling board role opportunities. 

Companies need to scrutinise more closely where they can empower women to succeed at all levels, which can be simple things like advertising roles internally or reviewing if promotions need to be rewarded elsewhere. In conjunction with quotas, this can help avoid their perception as simply tokenistic.

To make real progress, we need to change the way we think about the problem. Smart diversity across businesses needs to address the whole ecosystem – a myriad of challenges: senior representation, the pay gap and opportunity equity. It’s a complex problem that doesn’t have a perfect solution – nor should it!

There’s no ‘golden hammer’ in the toolbox to fixing diversity imbalances. Employers need to take an approach that’s right for them and should use all the tools at their disposal, not just looking for the perfect one!

By Ritu Mohanka, Managing Director of EMEA at Syndio

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