The German Female Leader Quota – Should Canada Follow Suit?

By: Christine Persaud

May 12, 2015
Jay Rosenzweig, Managing Partner ,Rosenzweig & Company

Jay Rosenzweig, Managing Partner ,Rosenzweig & Company

Several countries in Europe – most recently Germany – have instituted quota rules for women to lead the largest companies. Is this a good or bad strategy? Should Canada follow suit?

The European Legislations

The German legislation, which passed in early March of this year and will come into effect in 2016, requires that all major companies operating in the country must set aside at least 30% of the seats on non-executive boards for females to occupy. To meet this percentage, companies may be forced to leave vacancies open on their boards, or find suitable females to fill them.

Germany won’t be the first country to pass such legislation – Norway did so back in 2003 with even more stringent terms – at least 40% of board seats need to go to women. Similar legislation also already exists in France, Spain, and the Netherlands. Several successful companies, including Deutsche Telekom, Munich Re, and Adidas, already comply with these rules.

It seems a drastic move to encourage companies to open their eyes to the skills and talents of women who may have been overlooked because of their gender. Indeed, according to Reuters UK, of the 30 largest firms in Germany, not one employs a female chief executive. Of companies’ on Germany’s DAX index, only 7% of executive board seats and a quarter of non-executive board seats are held by women.

The legislation only applies to about 100 companies listed on the DAX index. But it’s clear the expectation is that other smaller companies will be encouraged to follow suit and take a good, hard look at their own boards and gender divides.

The move comes under the leadership of German politician Angela Merkel. Manuela Schwesig, Family Affairs Minister, called it a “historic step” towards equal rights. Heiko Maas, Justice Minister for the Social Democrats (SPD) compared the importance of the initiative to that of the woman’s right to vote.

But would such a strategy work in Canada?

Aside from a still-existent gender bias in the workplace, one of the biggest issues female executives (or those pursuing executive positions) face is maintaining that work/life balance. While times are changing, women who choose to have children are still more often than not the primary child-care givers. And that balance is particularly difficult when you consider the expectations placed on Wall St./Bay St. workers in North America, where there’s a very different always on, go-go-go attitude compared to many parts of Europe where work weeks can be shorter, and family and vacation time encouraged rather than frowned upon.

Jay Rosenzweig, Managing Partner of global talent management firm Rosenzweig& Company, which has several offices in Canada, does not feel that a quota strategy would work for Canada. But he does suggest that the threat of a similar system might help to get Corporate Canada to speed things up.

“…the threat of possible quotas…are about education and information to help further change voluntarily in Canada as ways to eliminate gender inequality,” he says.

Should we do it?

The gender quotas have been a hot topic in Europe, often sparking very polarizing views.

A McKinsey report in 2012, cited by The New Yorker, found that 64% of women feel gender diversity is “an important driver of company performance” while only 40% of men feel that way. The paper also quotes Charlotte Laurent-Ottomane of the Thirty Percent Coalition as stating that companies see better corporate governance when “at least three women sit on their boards.”

But in 2011, The New Yorker points out that a pair of professors at the University of Michigan found that as Norwegian companies added women to their boards, their stock prices actually dropped. This, however, could be a reflection of the women chosen – it’s important not just to choose based on gender and gender alone, but to strip gender out of the equation altogether when looking at potential candidates, considering skilled women just as equally as skilled men.

Another study that year from the Karlsruhe Institute of Technology (also cited by The New Yorker) purports that there’s no notable relationship at all between having female executives on a board and not. In which case quotas may do nothing but improve optics on the issue. Is that worth it?

A good strategy for Canada

Canadian businesses should make candidate choices based on their merits, skills, talent, and capabilities, not meeting quotas. When you think of it this way, it would be hard to imagine a company that doesn’t have three out of every 10 employees as highly qualified females suitable for executive seats anyway. That said, it’s not impossible for this to be the case, and that should be accepted. But when it is the case, those three women should be given an equal opportunity to occupy those seats alongside their male counterparts.

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