“The pressure of the market was not strong enough"

2020-12-08 In November, the grand coalition agreed on a future mandatory quota of women on management boards of listed companies with more than three board members. Patrick Velte, professor for Accounting, Auditing & Corporate Governance, and Kathrin van Riesen, equal opportunities officer at Leuphana, talk about the new regulation and explain why the new quota is necessary.

Why is the coalition planning this law right now, even though the CDU has opposed it for a long time?

van Riesen: The Bundestag elections are coming up again soon. There was still work to be done on the improvement for women on company boards as agreed in the coalition agreement. In the last ten years, however, something has also changed in the social debate. For a long time, nobody wanted to touch the quota issue, because the discussion was dominated by the fact that people are simply being promoted to certain positions by gender and not by competence. This should not be the way to discuss the quota issue. Performance and competence also count in this so-called "hard" quota. It probably took these ten years of discussion to realise that the hard quotas are justified. There are many qualified women who cannot make the final step through the glass ceiling without the quota. 

Why is a mandatory quota for women on management boards an important signal?

Velte: For ten years now there has been a voluntary commitment in the form of a codex to increase the quota of women on the supervisory and management boards of listed companies. However, the voluntary commitment did not work well, so a "law for the equal participation of women and men in management positions in the private sector and public service (FüPoG I)" was passed as early as 2015. For the first time, this law provided for a mandatory quota of women on supervisory boards of 30% in listed companies with parity co-determination. An important milestone in strengthening sustainable corporate governance! With the new planned law, the FüPoG II, the management board is now also to be included in the quota regulations. However, only a "micro version" or "one-woman quota" is planned. If there are more than three board members in the companies mentioned above, at least one woman must be represented when new appointments are made in future. It is estimated that this extension will only affect 30 companies in Germany. Against this background, this is therefore only a small step forward in terms of numbers, but in my view it sends an extremely strong signal to the economy.

van Riesen:  In particular, the obligation to include women on management boards is a very positive development when compared internationally. In other countries that introduced these quotas much earlier than Germany - Norway, for example, introduced them already in 2003 - it is clear that the proportion of women has risen much more clearly and steadily. The above-mentioned voluntary commitment here in Germany tended to stagnate, whereas in other countries it has always been progressing.

Are there any scientific studies that show that a company performs better with a more diverse top management?

Velte: Yes, there has been a lot of empirical business management research on this topic in recent years. In addition to meta-studies on the influence of female representation at management level on financial performance, there are also analyses of the impact on companies' sustainability performance. There is a tendency to show that the CSR performance of companies is enhanced by an appropriate consideration of gender diversity in the management board. It is important in this context to no longer focus solely on the financial performance of the company, but also to take into account environmental, social and governance characteristics. However, since there are comparatively few studies on the German capital market on this subject, we as researchers are called upon to close this gap. In a recent keynote speech in the "10-Minute Talks" of the Gender & Diversity Network given on ZOOM, I reported that initial international studies are also investigating the influence of gender diversity at management level on climate reporting and CO2 emissions. This field of research is becoming increasingly explosive, especially against the background of the EU Green Deal project and the climate protection policy of the German Federal Government. 

However, Mr Velte, your opinion on this does not seem to be the predominant opinion in the business world. Critical voices have also been raised now about state intervention in the economy. 

Velte: For decades, we economists have been involved in a conflict over the question: do we want to leave corporate governance largely to the market through codes or do we want to regulate it more strongly by law? From an economic perspective, I say: as much market as possible, but also as much regulation as necessary. In my opinion, there is a market failure in Germany on the issue of diversity in management. Listed companies have so far not voluntarily decided to appoint a sufficient number of women to their boards, and recent studies point to an average quota of about 10%. In some cases, target figures of 0% for the coming years can still be found in the gender diversity reports. The industry's outcry is exaggerated in this respect: the planned gender quota in the management board is supposed to be quite moderate compared to the supervisory board. According to the critical mass theory, at least 30% would be necessary to achieve a significant change in the decision-making process in the management boards within a group dynamic process. In future, the few companies affected will only have to achieve a statutory female quota of 25% (at least one woman if there are four board members). Given this limit, it is doubtful whether a desired strategic change in thinking at board level can succeed at all. 

Are enough women being prepared for a possible management position?

van Riesen: We have 46% women in the Bachelor's programme at the Faculty of Business and Economics at Leuphana who successfully complete their studies. That increases significantly in the Master's programme to 57% female graduates. Business studies, for example, is now a subject that is in high demand among women, and that is also the case throughout Germany. The problem is rather that when it comes to recruiting for executive boards, there is a tendency to look around in a too small, homogeneous group. If you look around the network of an existing male board, that is not enough. The resulting reproduction of personal characteristics and professional backgrounds has long been proven. To be forced to look beyond that and look for women who have the right qualifications - that can be seen as a great enrichment. We at Leuphana also try to reflect on this ourselves: How do we actually recruit for the appointments for professorships? At the university, we have developed guidelines for recruitment and against gender stereotypical personnel selection, which we actively work with before and during the appointment process. Women usually have to over perform to be seen and to be placed in appropriate positions. We try to help women to reflect on themselves, so that unconscious biases can be uncovered. We have to have the courage to overcome these biases. This is also important during the studies. With the Gender Diversity Certificates in Bachelor and Master programmes, we want to enable the next generation of specialists and leaders to enter the world of work with a trained eye and professional skills.

The interview was conducted by Gina La Mela.

Kathrin van Riesen und Patrick Velte ©Leuphana/Patrizia Jäger
Kathrin van Riesen und Patrick Velte im Interview.