Are Gender Quotas on Corporate Boards of Directors a Good Idea?

A new study by researchers at the University of Nevada explores how legislation enacting gender quotas for boards of directors impacts the women on those boards being perceived as tokens. Nonprofessional investors participated in an online simulation where they considered the composition of a board of directors of a fictitious company either operating under a quota law or having no quota requirements. After receiving all the information about the company, being reminded of the role of a board of directors and learning about the proposed quota law, participants were asked a series of questions, including how much of a planned $10,000 investment in the company’s industry they would put toward the company in the study and how much they considered the female board members to be tokens.

The research found that women are regarded as tokens when the firm meets but does not exceed the minimum number of women required by the gender quota. When the number of women on a firm’s board exceeds the quota, perceptions of the women as tokens decreases while the firm’s value increases.

“While our research highlights the problem of increased tokenism perceptions that mandated quotas can bring, it also highlights a potential solution,” said Jessica Rixom, an assistant professor of marketing and the lead author of the study. “Firms can reduce perceptions of tokenism and the associated stigma by exceeding the minimum required mandate.”

“When minority members of a group are viewed as tokens, at least two issues arise,” added Mark Jackson, an associate professor of accounting and co-author of the study. “First, others in their group may view the minority members as less qualified and treat their ideas and views as such. Second, the minority members themselves may feel that their position in the group is not due to their qualifications and may either act accordingly or overcompensate to ‘prove’ themselves. Investors discern this and will assume that the board has under-qualified members or that the board is dysfunctional.”

The full study, “Mandating Diversity on the Board of Directors: Do Investors Feel That Gender Quotas Result in Tokenism or Added Value for Firms?” was published in the Journal of Business Ethics. It may be accessed here.