The U.S. Court of Appeals will soon rehear the New Civil Liberties Alliance’s National Center for Public Policy Research v. SEC lawsuit challenging SEC-issued “Board Diversity Rules” with oral argument set to begin the week of May 13th. These diversity mandates would require gender, race and sexual orientation quotas to be met on board membership by companies listed on the Nasdaq stock exchange. If the quotas are not met, the companies will be forced to explain why they failed to meet the requirements.
Gender board disclosure mandates like the one attempted by SEC may be well-intentioned, but they fail to deliver on intended outcomes. Advocates of greater board diversity commonly argue it improves a firm’s financial performance. The data are less certain. Plus, these mandates ignore the gains women have made over the past 40 years.
The case for increasing gender diversity on corporate boards is usually made on economic and ethical grounds. However, a large body of research over several decades is inconclusive at best. Some studies find a mutually supportive relationship between diversity and corporate performance to support the arguments above and others find limited or no effect.
Proponents also attempt to justify gender board rules on the grounds that increasing female board representation will lead to better outcomes for all women, especially younger women. Unfortunately, evidence doesn’t support that claim either. The presence of one female board member has led some companies to feel the gender diversity box is checked, and no other women are needed, undermining the goal of seating the most qualified individuals.
The gains for women appointed to boards have not trickled down to women at executive, managerial or entry levels. Neither have young women been drawn to education programs or career tracks that would lead to the C-suite.
But advocates like board disclosure mandates because they provide ammunition for public shaming and pressure campaigns by activists, stakeholders and staff. In the charitable sector, board mandates could lead to the loss of charitable resources as corporate donors flee while saddling financially stretched organizations with higher compliance costs.
Most concerning, gender mandates are unjustifiably discriminatory. The Equal Protection Clause of the 14th Amendment prohibits government policies that differentiate on the basis of race or sex unless there are important government objectives. For example, the Supreme Court has held a state cannot require just husbands to pay alimony upon divorce but not wives, ruling “gender was not an ‘accurate proxy’ for financial need.” Nor can a military academy only admit men. Sex-based discrimination has faltered under judicial scrutiny. How can we legalize treating individuals unfairly based on gender to achieve parity?
The reality is the shift is happening without destructive mandates. Over my lifetime women have seen tremendous growth in executive roles and on corporate boards. Women run over 10% of the nation’s Fortune 500 companies. They comprise 46% of new independent directors of S&P 500 boards–up 92% in 10 years. Last year, a third of all S&P 500 board directors were women.
The steady rise of women in leadership shows companies and organizations recognize more and more the value of merit. As individuals, women bring a wealth of knowledge, expertise, experience and connections that can improve corporate performance. The problem arises when the selection of women for such positions becomes a check-the-box exercise to meet arbitrary mandates.
Disparities tend to emerge because of choices women make that impact their career trajectories. As Nobel Prize-winning Harvard professor Claudin Golden confirmed through her research, mothers (and fathers) face career penalties. Women seek greater flexibility to manage other important personal priorities such as raising children and caregiving for aging parents. They choose career paths, occupations, industries and schedules that impact their career development, pay and opportunities. Those choices likely play a role in women’s qualifications and availability for leadership and board positions.
Perhaps the expansion of opportunities and choices, rather than an obsession with parity, is the right measure for women’s success. Women today make many different work-related choices to balance other aspects of their lives that affect their individual career trajectories and, cumulatively, women’s progress.
When merit and capabilities are valued and opportunities increase, whether or not we see greater female representation on boards, in executive positions or high-paying occupations, it becomes a function of what women prioritize, not what is mandated by a body such as the SEC. In a free society, those are decisions best left to women.
