How to Improve Gender Diversity: The Pros and Cons of Quotas in Executive Hiring

Ideally, executive hiring should be entirely gender-neutral. Gender has no direct bearing on corporate leadership’s operational, cognitive, or interpersonal requirements. For that exact reason, the extreme imbalance of male directors and executives in biotech attests to an apparent industry-wide failure to identify and appoint the most qualified candidates possible. Further evidence comes from research on the effects of leadership diversity for firm performance – more representation leads to better results, with even small increases yielding positive financial outcomes. Other benefits include company cultures that are more welcoming and equitable (and therefore more productive), broader strategic perspectives, and higher employee satisfaction. 

With the problem so clear and the benefits of solving it so straightforward, the persistence of a massive gender gap at the highest levels of biotech firms can be something of a puzzle. Perhaps the most direct attempt to solve it has been the adoption of diversity quotas – whether “soft quotas” that lack enforcement mechanisms or “hard quotas” that come with incentives for compliance and penalties for failure to change. 

Do gender diversity quotas work?

The short answer is that quotas for the employment of underrepresented groups are highly effective, provided they are implemented well. Most high-profile examples come from Europe, where several countries began adopting strict gender quotas for publicly traded companies in the early 2000s. For example, Norway first implemented a 40% hard quota for boards of directors, followed by France, Germany, Belgium, and Italy. Results have been uniformly positive in both business and politics, and overall hard quotas increase representation quickly and efficiently.  

Other European countries have implemented soft quotas of various kinds, with results that are less dramatic but do still show some improvement. The main difficulty in these countries, which include Austria, Denmark, Greece, Ireland, Spain, and Sweden, is that it is difficult to tell whether increases in diversity can be attributed to official policy or simply to gradual cultural change. There is significant variation – for instance, the UK does not permit the hiring of a less-qualified minority candidate, requiring instead that any diversity hire be equally qualified according to concrete metrics – but there is at least no evidence of clear negative outcomes. 

Other countries have made similar moves. For example, Israel was the first nation to implement a hard gender quota for corporate boards in 1999. In addition, India was the first developing country to require all publicly traded companies to have at least one female director in 2013. 

The United States has lagged far behind its economic peers, with only California creating actual penalties for failing to include women on the boards of publicly-traded companies. Their 2018 law has been effective, increasing the proportion of female directors from 12.9% to 23.2% in just two years. However, it is still the subject of fierce resistance from free-market-minded business leaders. In general, Americans’ objections to diversity quotas differ from those typical in Europe: where European companies have been most concerned about the difficulties of finding talented candidates, the debate in the US has focused on ideological issues of government mandates and interference in markets. Perhaps for that reason, internally developed targets for gender diversity in US firms remain in the low single digits on average. However, positive pressure has been increasing from other quarters, most noticeably from venture capitalists and asset managers. Many of them have adopted their own private diversity requirements before investment. 

A systemic advantage

Part of the efficacy of hard quotas stems from the nature of the problem they are addressing. Gender and racial inequalities in hiring and promotion have diffuse, large-scale causes, both deep-rooted cultural assumptions and biases and decades- or centuries-old differences in education, economic achievement, and public recognition. Because quotas are system-wide interventions, they don’t depend on erasing or undoing those biases and injustices. Instead, quotas offer a direct pathway to increased employment and influence, with all of the cascading positive effects that entail.

Part of what this means is that increases in diversity compound over time. Companies with women on the board are more likely to hire and promote qualified women, for example. That’s why quotas are, by design, temporary: they function as an outside force correcting a structural problem. And, once enough cultural and institutional momentum has built up, they can be removed. 

What are the downsides?

There are some complications, however. First, quotas need to be implemented well. Unenthusiastic companies can, for instance, hire female directors but relegate them to the least significant committees. And without adequate incentives, penalties, or explicit targets, quotas have few observable effects.  

Second, there are several minor or misplaced objections. One is that quotas are themselves a form of unfair or discriminatory hiring. But because any hard quota is designed as a temporary measure, this problem solves itself over the medium and long term. Similarly, concerns about limited talent pools or increased search costs have the issue backward. The limited talent pool is, after all, the exact problem quotas are designed to solve. 

However, there are several genuine downsides that need to be mentioned. One is that quotas can influence public perception of minority candidates, leading to a belief that they are less qualified even when that is demonstrably untrue. Another issue, even more troubling, is that a quota aimed at equity for one group can inadvertently reduce the representation of others. In India, for instance, the implementation of gender quotas reduced the representation of more marginalized castes and socioeconomic groups. Both problems can be addressed through strong leadership, clear messaging, and transparent implementation. 

So, what can we do to address gender diversity?

While the gender imbalance in biotech leadership is slowly improving, we need to move from commitment to real action, breaking down the barriers women face in accessing board seats and other private sector leadership roles. Here at LifeSci, we recently established a Diversity and Inclusion practice focused on accomplishing that goal by empowering our clients and partners with the tools, perspective, and support they need. In addition, we are sponsoring the BIA’s Women in Biotech and Female Leaders program to facilitate their efforts in the same direction. 

Please get in touch at Caroline Hunt at chunt@lifescisearch.com to discuss how we can help your company’s efforts to fill out a diverse, influential, and talented leadership team.