California is making a big push for more women in the boardroom. On Wednesday, the state legislature passed a bill requiring publicly traded companies to have women on their boards. If Gov. Jerry Brown signs the bill into law, California-based companies must have at least one woman on their boards by the end of 2019 or face financial penalties.
Research has revealed the benefits that women leaders bring to companies, like better financial results and employee satisfaction among many others, but Europe already experimented with requiring companies to appoint women board members and the move didn’t exactly help women. Because ultimately women will still be the minority on corporate boards.
In the STOXX Europe 600, a quarter of women are board members. Norway and France have already mandated that at least 40% of a company’s board should be women, but according to The Economist more diverse boards may not actually boost the company’s productivity, increase return on equity, sales and attract investment capital.
The Economist argues “snapshot studies” produced by the proponents of quotas on companies with more women on boards don’t prove that the change was the reason companies recorded better returns. When studies were conducted before and after quotas were imposed, performance results were inconclusive: some studies found positive effects, others negative or none at all.
But one study by Catalyst.org, a global nonprofit that works with CEOs and companies worldwide to build inclusive workplaces for women, found that companies that had more women on boards had better financial results than those who had fewer. Companies with the most women board directors had 16% higher return on sales than those with the least, and 26% higher return on invested capital.
Katherine Klein, a professor of management at the Wharton School of Business of the University of Pennsylvania, wrote in a recent blog post that studies done by consulting firms and financial institutions are not as rigorous as peer-reviewed academic research.
“Results of numerous academic studies of the topic suggest that the presence of more female board members does not much improve — or worsen — a firm’s performance,” writes Klein.
Yahoo Finance’s Tech Editor Dan Howley argues the California bill may set women up for failure. Howley said there’s potential for backlash if companies are forced to take on a woman on the board when it is fully comprised of men who could push back in covert ways.
“Maybe they’re going to put the woman in the corner and be like, well, OK, you’re not going to have any intro or any kind of say in what we actually do,” said Howley. “I think it’s in the right place, but I don’t know if it’s the right way to do it, by mandating it.”
There should be other, better ways of achieving gender diversity and parity without having to resort to government mandates. The American culture of free markets and capitalism are not as receptive to quotas, whereas Europe is.
Yahoo Finance’s Dan Roberts summed it up, “As Dan said, heart’s in the right place with this effort.”
Maylan Studart is a reporter for Yahoo Finance.