Lifting Women Up: Gender Quotas and the Advancement of Women on Corporate Boards

Research Question/Issue

The introduction of gender quotas on corporate boards can disrupt the status quo, resulting in externalities that affect women's advancement within the company. This study investigates whether boardroom quotas contribute to promoting women further up the corporate ladder and facilitate access to a broader spectrum of positions.

Research Findings/Insights

Using legislative changes in Germany as a natural experiment, we find that quotas increase female representation on affected boards. However, quotas may also have adverse effects on women's executive careers; they fall short of eliminating the glass ceiling and fail to level the playing field for women, both inside and outside the firm.

Theoretical/Academic Implications

The incentives provided by the quota to hire female candidates for a mandated board may hinder their prospects for advancement to executive roles. Drawing from institutional theory, we interpret this as evidence of decoupling—firms comply with the law but do not necessarily change their stance on gender diversity at the top. Additionally, when women accessing the board have backgrounds more closely aligned with executive positions (proxied by their affiliation with the capital side of the board), the negative effect on the non-affected executive board is larger. This suggests a substitution effect, whereby women enter nonexecutive positions instead of pursuing executive careers.

Practitioner/Policy Implications

Policy design needs to consider the desired outcomes and unintended effects, carefully weighing the trade-offs among them. Relying solely on quotas is insufficient to achieve gender equality in corporations.

1 Introduction

Gender diversity at the top of corporations has become an increasing concern in recent years. One of the most popular measures for promoting diversity is the implementation of gender quotas on corporate boards. In 2003, Norway passed a groundbreaking law mandating that women occupy at least 40% of board seats in all public companies. This case garnered significant attention as it successfully increased the proportion of women directors from 5% in 2001 to 40% in 2008. Following Norway's example, other countries such as Austria, Belgium, France, Germany, Iceland, Italy, the Netherlands, and Portugal have implemented national gender quotas in their legislation. More recently, the European Union reached a political agreement to establish a 40% female quota for nonexecutive director (NED) positions in all European listed companies (Bravo and Pronina 2022). Quotas are also gaining momentum in the United States, as evidenced by California's pioneering move in 2018 to implement the first state-level mandate for gender quotas on corporate boards (California Corporations Code Section 301.3).¹

Numerous studies have examined the effects of boardroom quotas and, for the most part, the financial consequences of increasing the percentage of women on board seats (Ahern and Dittmar 2012; Matsa and Miller 2013; Nygaard 2011; Eckbo, Nygaard, and Thorburn 2016; Tyrefors and Jansson 2017; Ferrari et al. 2018; Greene, Intintoli, and Kahle 2020; Maida and Weber 2022). Others have focused on the consequences of quotas on a firm's nonfinancial outcomes, particularly regarding environmental policies and corporate social responsibility (for a review, see Nguyen, Ntim, and Malagila 2020). However, research on the effect of gender quotas on women's advancement is not as extensive (Kirsch 2018). Given this, our study aims to fill this gap by examining the consequences of gender quotas on women's representation on boards and their impact on female career trajectories.