In 2003, Norway passed a law giving all public and state-owned firms in the country five years to attain 40 percent female representation on their boards of directors or face harsh penalties, including closure. The law was aimed at remedying a near-universal phenomenon in which the percentage of women on the governing boards of companies is far lower than the percentage of women in the workforce. By 2008, the law’s target year, all of Norway’s public and state-owned companies had achieved the 40 percent goal.
Female representation on boards in the United States is stagnant at around 10 percent, but structural and cultural differences among countries leave open the question of whether similarly ambitious quotas would work here — or elsewhere. “The challenge of understanding how quotas could work was to provide an analysis of a possible world that does not yet exist,” says Professor Bruce Kogut, who worked with Mariano Belinky of McKinsey and Jordi Colomer, then of Politecnica in Barcelona, on the problem. “So we turned to simulations to analyze the question of whether or not quotas can work in the United States.”
Much of the researchers’ work is built upon insights from Rosebeth Kanter, Herminia Ibarra, and Ronald Burt, who have shown that women who are not directly connected to powerful women must rely on male mentorship to move up in their careers. Other research shows that while women seek out other women for personal advice, they seek out male colleagues for career and business advice. Although male mentorship of women can be effective, such as the recent grooming of Virginia Rometty by Sam Palmisano at IBM, the data suggest that these female-male contacts have not generated many female leaders. Without a critical mass of connections to other powerful women, ambitious women are dependent on the dominant group — men — to select them, perpetuating inequality in board leadership. Kogut points to Xerox, led from 2001 to 2009 by Anne Mulcahy, who mentored her female successor, Ursula Burns. Many women are now being brought to the upper levels of management at Xerox.
Kogut and his coresearchers, using the 2007 BoardEx database that reflects board membership for all US public companies, employed network science to create a simulation of how directors get chosen for boards. In short, they ran a variety of combinations of various boards’ thresholds and quotas to simulate the “detokenization” of boards, in which a board must bring on a female director if the ratio of women on the board is below a given threshold. They accounted for the organic processes that result in board membership shuffling and spaces opening up on the board, such as when existing members retire or reach the end of their board tenure. The researchers’ analysis shows that even low quotas can result in substantial power for female directors and that this can be self-sustaining over time.
“If the goal is to give more power to women overall, you can do so at a much lower level than Norway’s 40 percent quota,” Kogut says. “We estimate that the United States can achieve a substantial increase in the importance of female directors by just asking all boards to have at least one female director. This is enough to generate growth, putting enough women on boards so that they don’t drop below a critical percentage of representation.”
A common objection to the use of quotas is that a truly democratic system for boards would limit directorships that might otherwise be held by relatively few individuals, female or male. But with quotas, Kogut says, comes diversity and power, and a critical mass of women directors that will keep a representative proportion of women on boards across companies.
The world of board directorship is a relatively small one. The US network is characterized by high multiple-network directorships, in which many directors sit on multiple boards, effectively creating a director network. Connectivity is key to board composition and to enabling directors to influence and organize across other boards: if women sit on too few boards, then how are female board directors able to influence the other boards? That’s why any low quota can help: if each board brings on at least one woman, female connectivity in the network increases.
“Norway probably needed a high quota because there wasn’t a lot of connectivity among even the male board directors,” Kogut says. “But in countries like the United States or, for an extreme example, India, which has very high multiple-network directorships, low quotas can be very powerful.” The goal of the paper was not to propose a universal solution, Kogut notes, but to show how the new tools from the science of complexity can explore possible future worlds that we may want to achieve.
Bruce Kogut is the Sanford C. Bernstein & Co. Professor of Leadership and Ethics in the Management Division and director of the Sanford C. Bernstein & Co. Center for Leadership and Ethics at Columbia Business School.