Research Finds Diversity Quotas Don’t Benefit Firms or Employees

In a new Philanthropy Roundtable paper, “Improving Board Diversity: Lessons from Sweden and Norway,” Patrice Onwuka reviews two very different approaches to increasing diversity on corporate boards – both mandatory and voluntary gender quotas – to determine the effectiveness of these approaches on increasing diversity. 

But before diving into what works or doesn’t work, consider what Onwuka means when she refers to diversity. In her paper, she writes:  

Diversity can be broadly defined to include a variety of visible (race/ethnicity, gender, age, etc.) and less visible characteristics (religion, educational background, geographic background, occupation, worldview, etc.). The basic argument is that heterogeneity allows boards to engage in deeper conversations or debates and then to develop a broader range of alternatives. On homogeneous boards, members share similar opinions, which leads to a high level of unity and cohesion, but also conformity and the potential failure to challenge the thinking of management, which is critical to the monitoring function of the board. 

Unfortunately, measuring board diversity is often reduced to observing one or two visible dimensions: gender and race. Such a myopic view of diversity glosses over the less visible characteristics that can add insight, experience and knowledge to a board even if the members share the same gender or ethnic background. 

Onwuka’s explanation offers insight into what Philanthropy Roundtable calls True Diversity. By embracing the richest possible diversity of traits that each individual brings to the table – unique backgrounds, perspectives, experiences and talents. True Diversity offers a way for charitable organizations to most effectively advance their missions, help communities in need and make every person feel they truly belong – and matter.  

As lawsuits over board quotas have surfaced in the United States, such as the NASDAQ case in the 5^th Circuit, many in philanthropy are girding their loins for any coming mandates that may emerge for nonprofit boards. 

As Onwuka writes, “For decades, societies pushed companies to adopt diversity practices voluntarily. Impatient with the pace of progress, some legislative bodies now pursue mandatory gender and racial quotas. The United States does not mandate gender diversity for corporations on a federal level, but the state of California has attempted to impose gender and racial quotas. Recently, lower courts overturned these mandates.”  

The paper’s findings assess the approach of Norway’s government-mandated board quotas and Sweden’s voluntary approach to increasing diversity.  

In Norway, “despite the view that younger women would be inspired by greater female representation on boards, the empirical evidence finds no significant change in outcomes for young women, those at the managerial level and even those in the C-suite. Only women at the board level benefited in a significant way. This finding undercuts the nonfinancial argument that gender board quotas are good for the advancement of all women.” 

While in Sweden, “Increased female representation on boards did not lead to an increase in female CEOs, either in the short or long runs. In fact, as women CEOs were recruited to sit on boards, their executive chairs were filled by men. Firms were acting in anticipation of pending legislation, but over time impacts observed may lessen.” 

In response to the common opinion that diversity is good for business, Onwuka finds the data from both countries is not conclusive: “In both cases, empirical research is mixed at best on questions of board effectiveness and firm performance but offer no causal evidence linking the two.” 

Onwuka concludes that a different approach to valuing diversity other than board quotas is needed: “Contrary to conventional wisdom, gender diversity at the board level does not necessarily lead to better corporate performance or guarantee better outcomes for women along the professional ladder. At best, there is little or no effect on firm performance.”  

Read more in her paper here. To learn more about how True Diversity can both advance the most effective solutions and fully achieve the benefits of diversity in a complex world, visit TrueDiversity.org.