Theory to Practice

Gender quotas: costs or benefits?

The context

The glass ceiling denotes a widespread phenomenon in our societies, an invisible barrier that stops women from holding top positions in their professions. It’s an acknowledged fact that even in countries that count more women workers, only a few manage to break into corporate leadership. 


To fast-track the goal of gender equality (or at least economic equality), several countries have advanced policies that set gender quotas over the past twenty years. For example, in 2005, Norway paved the way to introducing minimum gender quotas for company boards, with Italy, France and Germany following suit in Europe. And in 2018, California’s state legislature was the first in the US to approve a bill mandating the inclusion of women in the boardrooms of public companies.  


When these measures were introduced, there was collective concern that companies wouldn’t be able to recruit qualified women, which would create a drag on company performance and lead to negative reactions from the stock market. What we know so far about the impacts of gender quotas on corporate boards is based on the Norwegian experience, where a law was passed in 2003 that required listed companies to have at least 40% of each gender on their boards. 


In a different setting, Spain adopted an approach based on voluntary compliance, offering economic incentives to respect gender quotas, but no sanctions for companies that didn’t follow through. These efforts failed to promote gender balance. So we need to look elsewhere to get a broader view to assess the effects of gender quotas in the boardroom. 


The Italian case gives us a unique, innovative opportunity to take stock of the economic outcomes of gender quotas on corporate boards. In fact, in the ten years prior to their introduction, the number of women in the workforce in this country held steady at around 48%, the lowest level in Europe except for Malta. By comparison, across the rest of the continent, the average is 60%. In such a scenario, gender quota seemed like the only viable path toward gender balance. But at what cost? 

The research

This study analyzed the introduction of gender quotas on the boards of listed companies in Italy. Here the 2011 Golfo-Mosca Law requires listed public companies to achieve gender balance on their management and supervisory boards or face dissolution.  


Unlike Norway, Italy introduced quotas for a limited time. The target of obligatory gender representation for all companies would start at one-fifth (20%) for the first board election scheduled to take place after August 2012, and eventually reach one-third in the subsequent two elections. In 2019, the law was extended for three additional elections, and the quota stepped up to 40%. 


CONSOB (the Italian regulatory authority for the securities market) provided the names of 4,732 members of management and supervisory boards of 243 listed Italian companies from 2007 to 2014. To glean details on the qualifications of these individuals, we hand-collected information from their CVs. These data were then aggregated with the characteristics of relative boards: the number of women (relative to the 20% target set by law, the number of women presidents and CEOs), the percentage of university graduates and their relative fields of study, the number of board members under 55 years of age, the percentage of the company owner’s family members sitting on the board, the number of positions that each board member holds simultaneously. Next, we collected data on business performance from 2011 to 2015, dividing the companies in our study into four sectors: consumer goods, finance, industry and other. 


In analyzing the impact of the law on the makeup of company boards, the first thing we note is a higher percentage of women in top positions, from 11% to 16%. Second, the overall number of college-educated members rose by 2.5% to 4%. This finding is particularly significant considering that the average before the reform was 7.5%. We also saw more people who had attended university abroad, a higher number with post-graduate degrees, and younger board members overall.  


One of the main concerns around introducing mandatory gender quotas was the risk of appointing women who have ties to the company owner’s family, but who lack the necessary qualifications to sit on the board. But the facts don’t bear out these fears.  


Moving on to an analysis of the effects of gender quotas on companies’ economic and financial results, we considered the traditional performance parameters (e.g. the number of employees, assets, production, profits, and so forth) as well as the volatility of stock prices when the law was announced and when new board members were subsequently elected. No significant negative relationship emerges between the percentage of women in top positions and company performance. What we did discover however was that stock price volatility abated and stock market returns improved on the day of board elections with gender quotas in place.  

Conclusions and takeaways

Our study explores various dimensions of the effects of the law on gender quotas for the boards of listed Italian companies. We aimed to answer three fundamental questions: How did the composition and characteristics of the company boards change after the gender quota reform was introduced? What was the impact on company performance? How did the market react when the reform was approved and later enacted? 


What we found was when companies apply gender quotas, they not only have more women on their boards (far above the 20% mark dictated by law), but members are also younger and have a higher level of education. This tells us that quotas may be modifying the general selection process. In addition, companies led by women see no significant short-term effects on performance, in fact, quite the contrary: stock prices show less variability, a critical aspect of performance for listed firms.