Introduction
Across the world, women remain a minority on corporate boards (Brieger et al.
2019; Carrasco et al.
2015; Grosvold et al.
2016). While a growing body of studies indicates some positive effects of gender-diverse boards on company performance, it cannot be denied that, overall, the empirical evidence to date is inconclusive (for overviews see Adams et al.
2015; Kirsch
2017; Post and Byron
2015). Indeed, the slow rise in the number of female board members suggests that nominators are unconvinced of the benefits of gender-balanced boards. Increasingly, gender diversity is positioned as an ethical issue of social justice and thus a matter to be addressed by political decision-makers (European Commission
2016; Ferreira
2015; Stein and van der Vlies
2014; World Economic Forum
2017). Affirming that the low proportion of women in top positions clearly contradicts the democratic principle of equality, governments in various Western countries have constituted gender diversity on boards as a political goal, promoting the introduction of gender diversity as a principle of corporate governance (Gabaldon et al.
2017b; Klettner et al.
2016; Terjesen et al.
2015), enshrined in voluntary ‘codes of good governance’
1 (Aguilera and Cuervo-Cazurra
2004,
2009).
Since around 2004, national codes of good governance have increasingly come to feature provisions recommending that gender diversity should be considered when nominating directors (Gabaldon et al.
2017b). Voluntary by definition, these collections of best practices are implemented through self-regulation: Their comply-or-explain logic offers companies the flexibility to either adopt recommended practices or explain why these are unsuitable for them (Boyd
1996; Klettner et al.
2016; Terjesen et al.
2015). Yet many governments have recently withdrawn their support for codes, turning from self-regulation to coercive regulation via legislative quotas (Labelle et al.
2015). By 2018, for example, nine European countries
2 followed the example of Norway, a forerunner in this regard, in implementing mandatory quotas (Mensi-Klarbach and Seierstad
2019). As their primary motivation, regulators argued that voluntary self-regulation had proven ineffective in raising gender diversity on boards (Grosvold et al.
2007; see also Deutscher Bundestag
2014).
The literature on women on boards, however, does not support the general assertion that self-regulation of gender diversity on boards is always ineffective (Sojo et al.
2016). On the contrary, empirical evidence indicates that voluntary approaches can successfully increase the proportion of female directors (European Women’s Lobby
2012; for Australia, see Klettner et al.
2016; for the UK, see Doldor
2017). In addition, scholars even argue that, compared to legislative quotas, self-regulation is more likely to foster a cultural shift towards gender equality as well as to transform prevailing gender roles favoring men in board positions (Iannotta et al.
2016; Klettner et al.
2016). While previous research suggested that mandatory quotas could initiate cultural change (Wang and Kelan
2013), recent findings are more pessimistic. For example, the quota in Norway was found to have “very little discernible impact on women in business beyond its direct effect on the women who made it into boardrooms” (Bertrand et al.
2019, p. 191). Moreover, mandatory quotas bear the risk of evoking strong resistance by companies, who may be inclined to follow “the letter rather than the spirit of the law” (Boyd
1996, p. 12), leading to the appointment of ‘token women’ (Du Plessis et al.
2014) as well as few ‘golden skirts’ (Seierstad and Opsahl
2011), i.e., women who acquire numerous board positions. Hence, we find here a basic contradiction: While scholars have emphasized the potential of self-regulation to improve gender diversity on boards, many regulators have turned to mandatory quotas in the belief that voluntary self-regulation has failed.
The aim of the current study is to shed light on this dilemma by broadening our conceptual knowledge of how voluntary codes impact gender diversity on boards. More specifically, we ask:
Under which conditions is self-
regulation via
principles of good governance effective? In our analysis we follow the example of recent studies in the scholarly field of women on boards by applying an institutional-theory lens to the topic (Carrasco et al.
2015; Gregorič et al.
2017; Grosvold et al.
2016; Perrault
2015; Terjesen et al.
2015). We focus on two factors identified in the literature as driving the diffusion of new practices (Kennedy and Fiss
2009) and argue that these also promote the adoption of practices recommended by codes: First, when companies are motivated by the perceived likelihood of benefits such as increased reputation, prestige, or profits; and second, when they respond to the perceived danger of losses incurred by non-adoption.
While gender diversity on boards is frequently mentioned in codes of good governance across the world (Gabaldon et al.
2017a,
b), overall the numbers of female directors remain low. This indicates that nominators are skeptical of potential gains from gender-diverse boards and do not fear losses resulting from non-diverse boards. In addition, we argue that the overall number of adopters is too low to initiate those pressures usually imposed by code mechanisms on remaining non-adopters. Therefore, our key point is that, due to the insufficient number of companies that expect benefits from adoption and hence (in complying with code recommendations) initiate pressures on non-adopters, additional forces must be exploited to ensure the success of self-regulation via codes. We suggest that code provisions can generate these forces by supplementing best-practice recommendations on gender diversity with measurable outcomes, i.e., targets for female representation and the public monitoring of fulfillment. Further, we assume that regulators can trigger additional pressures by threatening to legislate mandatory quotas.
Empirically, we focus on one particular institutional environment, namely the case of Austria, where voluntary self-regulation has taken different forms over time. Drawing on longitudinal data from 2005 to 2016 on listed and state-owned companies, we test three hypotheses on the effects of self-regulation via voluntary codes on the proportion of female board members. Using a log-linear Poisson model, we find that code recommendations have indeed been ineffective in Austria unless supported by other forces. In particular, our analysis shows that the inclusion of specific targets for the proportion of female directors and the threat of legislated quotas can serve to pressurize nominators, resulting in more gender-diverse company boards.
Our study thus makes a threefold contribution to the literature on women on boards: First, by giving an empirical account of the conditions under which the self-regulation of gender diversity on boards via codes of good governance is effective. Second, we identify two potential ways of boosting the impact of voluntary self-regulation towards gender diversity on boards, and discuss the inherent limits and opportunities of these approaches. Third, and perhaps of greatest interest, we argue that codes of good governance suffer from what we call an ‘opportunity bias’, i.e., their underlying mechanisms require a sufficient number of companies to implement a practice because of expected gains, thereby triggering pressures on non-adopters. Therefore, we conclude that political goals such as gender equality based on ethical rather than instrumental considerations are unlikely to be effectively implemented by codes alone.
The remainder of this article is structured as follows: in the next section we outline the conceptual background to our research and develop our hypotheses. This is followed by a presentation of our study design, the Austrian case, as well as data, our method, and findings. Finally, we discuss these findings, reflect on implications for policy-making, and address limitations.
Empirical Setting: The Case of Austria
The history of voluntary self-regulation of gender diversity on Austrian boards started in 2008 when the country’s code of corporate governance recommended for the first time that appropriate consideration be given to gender diversity in [supervisory
3] board nominations (Rule 42). The Austrian code was originally drawn up in 2002 by various representatives of the capital market such as listed firms, investors, the Vienna Stock Exchange, and the Austrian Institute of Auditors (Schenz and Eberhartinger
2002). From 2004 the Vienna Stock Exchange required all companies listed on its prime market to subscribe to the comply-or-explain principle and to publish an annual report on corporate governance. In 2008 the Austrian parliament codified these requirements in the Austrian Commercial Act (Article 243b). Subsequently, listed companies have been legally required to publish annual corporate governance reports. Compliance with code recommendations, however, remains voluntary.
In the 2000s gender provisions were implemented in national codes of corporate governance in many other European countries (Gabaldon et al.
2017a,
b). Mandatory quotas also gained momentum in the late 2000s when several European regulators followed the example of Norway, the pioneer in this regard (Seierstad et al.
2017; Terjesen et al.
2015). In 2010 the European Commission announced the development of an EU-wide regulation of gender diversity on boards. The Commission’s Vice-President, Viviane Reding, said that, since all calls for voluntary self-regulation had failed to deliver, the commission was prepared to introduce mandatory quotas (European Commission
2010). In 2011 the European Parliament endorsed this approach in a resolution on the issue (European Parliament
2011); and in 2012 the Commission published a draft directive (European Commission
2012). Although this initiative did not in fact lead to any further legislative steps, these developments at the European level contributed to the lively public debate on how to achieve gender diversity on boards. Intense media coverage placed considerable pressure on companies as well as national regulators to decide whether to stick to voluntary self-regulation or turn to mandatory board quotas.
From 2010 the Austrian Federal Minister for Women and the Civil Service, Gabriele Heinisch-Hosek, began to argue for the introduction of specific targets in the Austrian code recommendation on gender diversity on boards. At the height of heated EU-wide discussions on the implementation of mandatory board quotas, she courted controversy in Austria by announcing the implementation of mandatory quotas if voluntary self-regulation proved insufficient.
4 As a reaction to the code issuers’ decision in 2012 not to include any targets in their revised code, the regulator withdrew support for the self-regulation of gender diversity on boards, imposing a legal requirement in the Austrian Corporate Act (Article 87) that gender diversity be appropriately considered. However, the regulator stopped short of introducing mandatory quotas for listed companies and continued with the vague formulation of the relevant provision
Parallel to these developments, in 2012 the Austrian government established a voluntary regulatory framework for state-owned companies and implemented a ‘public’ code of good governance (Bundeskanzleramt
2012), which recommended working to achieve gender equality on supervisory boards (Rule 11.2.1.2). In addition, the government required state-owned companies to publish annual corporate governance reports clearly indicating the ratio of women on supervisory boards as well as to subscribe to the comply-or-explain principle. One year earlier, the government had committed itself to voluntary targets for female representation on the supervisory boards of all state-owned companies, namely 25% by 2013 and 35% by 2018 (Österreichische Bundesregierung
2011). To document progress made, since 2012 the government has published the ratios of women on these supervisory boards.
Discussion
Our findings indicate that self-regulation of gender diversity on boards is ineffective if merely based on recommendations in codes of good governance. Nominators appear skeptical of gains from gender-diverse boards, which also indicates that the overall societal demand for gender equality is too low to reward the abandonment of prevailing male-oriented nomination practices. Nevertheless, we found evidence for the effectiveness of self-regulation via code recommendations under particular conditions: Even in the absence of a sufficient number of early adopters to initiate pressures on non-adopters, self-regulation was effective when additional forces for compliance could be triggered. In the case of Austria, we showed that the threat of the regulator introducing mandatory quotas could reinforce nominators’ motivation to comply, leading to an increased proportion of female directors in listed companies. We also found that for state-owned companies, self-regulation via a code recommendation was effective when supplemented by specific targets for outcomes and the public monitoring of fulfillment.
In the following subsections, we discuss conceptual as well as policy implications, and reflect on the limitations of our study as well as avenues for further research.
‘Opportunity Bias’ of Codes Limits Potential for Gender-Diverse Boards
Drawing on literature from institutional theory (Kennedy and Fiss
2009), we have argued that companies comply with code recommendations either because of expected benefits or the perceived danger associated with non-adoption. Yet our data shows that codes of good governance alone were insufficient to effectively promote gender-diverse boards.
Therefore, codes of good governance are not an apt means to implement gender-diverse boards unless supported by other forces. We believe that this can be explained by the mechanism underlying codes, which draws on a positive feedback loop initiated by early adopters causing bandwagon pressures on later adopters (Abrahamson and Rosenkopf
1993). Deviating companies then respond to those pressures as they do not wish to suffer competitive disadvantage from public exposure or blame for deviating from a code recommendation (Boyd
1996). Yet in our case, the number of early adopters failed to meet the adoption threshold.
For codes to be effective, a sufficient number of early adopters is required to initiate bandwagon pressures, which then increases with the number of adopters. However, in contrast to later adopters, who wish to avoid losses incurred by such pressures, early adopters need to be motivated by expected gains. Yet while gender equality may be societally demanded and, hence, socially expected to a certain extent (Perrault
2015; Terjesen et al.
2009), very few nominators expect to enjoy specific benefits from gender-diverse boards.
From a conceptual perspective, the mechanism of codes thus suffers from what we call an ‘opportunity bias’, as a sufficient number of adopters (motivated by expected gains) is needed to unfold the pressures described as central to its functioning. In the case of recommendations for gender-diverse boards, however, where nominators do not see a sufficient opportunity to achieve gains, additional forces must be triggered to ensure compliance. In sum, we can say that political goals such as gender equality originating from ethical rather than instrumental considerations are unlikely to be effectively implemented by means of codes of good governance alone.
Policy Implications: Introduce Specific Targets, Threaten to Legislate Quotas
Regulators around the world have turned to mandatory quotas to increase female representation on boards, believing voluntary self-regulation to be ineffective (Grosvold et al.
2007). In this study we have identified ways to improve the effectiveness of self-regulation for gender-diverse boards that draw on voluntary codes. For policy-makers, this implies two potential options to boost the impact of self-regulation: First, code issuers may focus on measurable outcomes by introducing targets to otherwise unspecific recommendations while publicly monitoring their fulfillment. Second, regulators should threaten companies with the imposition of mandatory quotas if self-regulation does not work. However, both approaches have some limitations:
Targets: Drivers But Also Caps
Our data shows that voluntary self-regulation via a code of good governance recommendation is effective when supported by specific targets. Such targets may, however, produce an unintended dysfunctional effect. While targets usually define objectives that should be met as closely as possible, in the case of gender diversity, targets set minimum standards that should eventually be exceeded in order to achieve gender equality on boards (i.e., equal representation of women and men). Equality requires a balance between women and men of at least 40:60 (Du Plessis et al.
2014; see also European Commission
2012). Yet targets for female representation specified in national code recommendations usually range between 30 and 35% (Gabaldon et al.
2017a). Here we can identify a potential downside of the binary hit-or-miss logic of targets: As companies strive to meet but not exceed them, they function not merely as drivers for gender diversity but also as caps, which actually impede gender equality. Clearly, this potential side effect must be taken into account when setting gender targets.
The Threat of Legislative Quotas: Credibility is the Key
In our study, we have shown how recommendations in codes of good governance are rendered effective by the threat that the regulator might impose a mandatory quota. Drawing on the ‘shadow of hierarchy’ concept, we argue that such a threat only has the potential to impose pressures on nominators when credible, i.e., when they believe that the regulator is able and willing to legislate if self-regulation fails (Mayntz and Scharpf
1995; Héritier and Eckert
2008). In our case, the Austrian capital market accepted that the European Commission as well as the Austrian government were both willing and able to introduce mandatory quotas if self-regulation proved ineffective. However, there are also limits to this mechanism: It is difficult for regulators to keep a threat credible over time, as they have to constantly signal their willingness and capacity to deliver.
Limitations of Our Study and Avenues for Future Research
It has been shown that the societal demand for gender-diverse boards, in particular, and gender equality, in general, have increased around the world (Perrault
2015). The particular extent, however, varies across countries and cultural contexts (Brieger et al.
2019; Gregorič et al.
2017; Grosvold and Brammer
2011; Grosvold et al.
2016). Austria has been described as an example of a ‘conservative gender regime’ (Langan and Ostner
1991), i.e., a country with a strong welfare-state system that nevertheless supports a male-gendered ‘breadwinner’ model (Gresch and Sauer
2018). This results in unequal economic participation (World Economic Forum
2017) and limited career opportunities for women—a characteristic that Austria shares with many other gender-conservative countries such as Germany, France, or Italy (Bambra
2007; Langan and Ostner
1991). We believe, therefore, that although derived from the single case of Austria, our results provide insights into self-regulation for diverse boards in conservative gender contexts, in general, as well as in countries that in addition share other cultural features of Austria such as the regulatory tradition and corporate governance characteristics (e.g., Germany), in particular. Furthermore, we are convinced that our study implications are also relevant for contexts more favorable to gender-diverse boards than Austria: Here, we argue, targets and public monitoring as well as the threat of legislated quotas will additionally boost the ratio of women on boards. Future empirical studies could take a comparative cross-country perspective in order to confirm the generalizability and validity of our implications.
Even with boards becoming more gender-diverse or even gender-balanced (sometimes at the expense of other diversity dimensions: Gregorič et al.
2017), gender segregation may continue in more subtle forms such as in a persistent pay gap (Gregory-Smith et al.
2014) or the exclusion of female directors from strategically-relevant positions on board sub-committees (Rebérioux and Roudaut
2017). This can be interpreted as a sign that gender disparities do not necessarily disappear through increased female participation; instead they shift onto boards where women often hold less powerful and prestigious positions than their male co-directors (Harrison and Klein
2007). We thus see a need for further empirical studies to investigate the wider implications of voluntary self-regulation on gender equality, i.e., how it contributes to a cultural shift and changing gender roles within the boardroom and ‘beyond’ (Bertrand et al.
2019).
Recent literature has emphasized the fact that gender diversity on boards, in particular, and gender equality, in general, do not result from single measures but rather from an interplay of various activities (Brieger et al.
2019; Iannotta et al.
2016; Klettner et al.
2016), involving multiple actors such as policy-makers, companies, but also the wider public (Seierstad et al.
2017; while hardly comparable to other regulatory contexts, the UK has been described as pursuing such a ‘multi-stakeholder approach’; see Doldor
2017). While self-regulation via codes of good governance has the potential to mobilize a variety of actors and activities, it nevertheless is merely a single measure whose overall impact is limited. Therefore, future research should focus on various efforts that, in concert, increase gender diversity.
Conclusion
While scholars have emphasized the potential of self-regulation for gender diversity on boards, many regulators have turned to mandatory quotas, believing voluntary codes to be ineffective. The aim of our study was to shed light on this dilemma. We sought to broaden our conceptual knowledge of how codes work in the specific case of gender diversity on boards. More specifically, we investigated the conditions under which self-regulation via codes can be effective. In answering our research question, we expanded recent institutional-theory perspectives on women on boards to consider the topic of self-regulation via codes of good governance. We showed that code recommendations in Austria have been ineffective unless supported by other forces. In particular, we found that the inclusion of specific targets for the proportion of female directors and the threat of legislated quotas can serve to pressurize nominators, resulting in more gender-diverse company boards. The contribution of our study to the ongoing discourse around women on boards is threefold. First, we give an empirical account of the conditions under which the self-regulation of gender diversity on boards via codes of good governance is effective. Second, we identify two potential ways of boosting the impact of voluntary self-regulation for gender-diverse boards. Third, and perhaps of greatest interest, we argue that codes of good governance suffer from what we call an ‘opportunity bias’, i.e., their underlying mechanisms require a sufficient number of companies to implement a practice because of expected gains, thereby initiating pressures on non-adopters. However, this is not currently the case regarding gender-diverse boards. Therefore, we conclude that political goals such as gender equality based on ethical rather than instrumental considerations are unlikely to be effectively implemented by codes alone.
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