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Rethinking Quotas

In a true meritocracy, a corporate board should look like the markets it serves. In the United States, however, only 16.9% of Fortune 500 board seats are held by women. Globally, women hold only 11% of board seats at the world’s largest companies.

We have all been taught to believe that gender and racial quotas carry a stigma of inferiority – nobody wants to believe they received a position as a result of their race or gender. Think for a moment about that. How many current corporate directors express concern that their position may be connected to their membership in an all-male golf club?

Quotas are no threat to meritocracies; quotas are a threat to privilege and prejudice. If we had a true meritocracy, we would not need quotas. It has become clear with respect to the composition of corporate boards that only legally established quotas will get us to where we really want to be – a true meritocracy.

A survey of 1,500 global business leaders, across all industries, revealed that a majority recognize that gender diversity is a performance driver for companies. A diverse board can best understand the complex make-up of a company’s customer base and their needs. Studies suggest that women in the United States make more than 70% of household purchasing decisions. The inclusion of women and minorities can also enhance public trust by demonstrating the company’s commitment to the interests of all stakeholders.

If all of this is true, then why haven’t the free markets solved this problem already? Corporate boards in the United States are largely self-perpetuating. At the majority of S&P 500 companies, average director tenure is between six and ten years, with a turnover rate that has trended downwards over the past decade. In addition, shareholders have very limited ability to elect or remove directors. The Domini Funds consistently vote against non-diverse boards, but the corporate governance process, working under its own steam, will take decades to achieve equal representation.

This brings us to quotas. Gender diversity is now a legal requirement for corporate boards in a growing number of European jurisdictions, including Norway, Sweden and Finland, the world leaders in gender diversity, where women hold 40.5%, 27.0% and 26.8% of board seats, respectively.

We can get there too, but first we need to overcome this notion that quotas are a threat to freedom, equality and capitalism when, in fact, the opposite is true.

Learn more about how Domini addresses diversity issues.