Wednesday, October 30, 2013

Quotas For Women On Company Boards

Merkel's conservative CDU/CSU Union and the social democrat SPD are still working towards a coalition contract. According to Sueddeutsche, they have come closer to a agreement on quotas for women for supervisory (Aufsichtsrat) and management boards (Vorstand) of the largest German companies.

Women are clearly under-represented on the boards of German publicly traded corporations, but the situation has significantly improved since 2011. Today according to FiDAR, only 17.4 percent of the supervisory board members are female and men make up 93.9 percent of the management boards of the 160 firms in the DAX, SDAX, MDAX and TechDax. For the Supervisory boards that is 74 percent more than in 2011 and on management boards the number of women has more than doubled (from a measly 3.0 percent). Still, further improvements are desperately needed. For example, there are no women on either management boards of the the two largest German banks (Deutsche Bank and Commerzbank); and in both firms only 6 out of 20 supervisory board members are female.

SPD politicians favor mandatory 40 percent (pdf - German - SPD government program page 51) quotas for women on both supervisory and management boards. The Union wants a "Flexi-Quota" - this means that the companies themselves publish a goal (yeah, well...) - and for 2020 onwards a mandatory 30 percent (pdf - German - Union government program) quota only for supervisory boards.

Many companies are already trying to increase the number of female managers by tying the bonus of department heads to the share of females promoted. It's already causing problems, too. At Daimler we have seen two examples this year. Andrea Jung, the former head of Avon, who "achieved" the third place in Businessweek's worst CEOs of 2012 list, was appointed to the supervisory board. Louis Lavelle wrote:

Jung has been unable to fix the company’s operational problems, failed to groom a successor, and turned down a $10.7 billion offer from the beauty-care company Coty that, in retrospect, it should have leaped at. Since 2004, the company’s market value has fallen under her watch from $21 billion to $6 billion.
Fund manager Marco Scherer was quoted saying that she is nothing but a "cosmetic increase" of the share of women. Also, a seemingly innocent internal Daimler blog post titled (my translation) "Male or female boss? Doesn't matter" caused a significant outcry within the company. Why? Germany has another problem, which is directly connected to the low number of women on the boards of some firms.

According to the VDI (Association of German Engineers), only 16.9 percent (pdf - German - page 13) of engineers in the workforce are women. Even worse, in the for Daimler relevant fields mechanical and electrical engineering only 6.7 percent and 5.6 percent (though the number of female students is increasing) of the engineers are female. You can make as many diversity and gender workshops as you want, this fact will not go away, and the engineers are obviously not idiots politicians. They know that trying to achieve 40 percent women in the management board can only be possible though choosing women over men based solely on gender if one assumes that on average both are equally qualified. On the Daimler management board there are currently eight persons. Six of those are (industrial) engineers one is a lawyer (also the only woman) and one economist. If the company tries to keep the share of engineers in those positions at that level - which it should - and also tries to increase the number women to 40 percent then the firm has to turn most non-engineering management positions into female-only jobs and additionally promote female engineers more likely than male counterparts.

Daimler is also not alone. Of the 30 DAX companies eight are in industries where women make up not more than 20 percent of the central field of study (mechanical or electrical engineering, computer science): BMW, VW, Continental, Infineon Technologies, Siemens, SAP, ThyssenKrupp. The picture isn't much different for the MDAX, and  for the TechDax the share of these companies is even higher (duh!). Of course, there are many firms like the aforementioned banks, medical companies, or chemical firms where we don't see any women in the management boards, even though the share of women studying the primary fields is much higher (chemistry : 40-45 percent) than in engineering.

I think that the ideas of both parties are not the right way forward. But perhaps the compromise will be better than the current plans. It should, in my opinion, look like this: the share of women on both the supervisory and the management boards has to be at least the share of women studying the primary subject at universities (on average during the last 20 years) minus ten percentage points in ten years. For banks that would mean at least 40 percent, for the chemical industry 30 percent to 35 percent, and for automotive manufacturers 0-5 percent women by the year 2023. Of course, that would change if more women decided to study engineering in Germany, which seems to be happening. For example at the University Duisburg the share of female electrical engineering students tripled between 1998 and 2012 from 6 to 18 percent, also there was an increase in female mechanical engineering students from 8 to 13 percent (in Munich from 8 percent to over 15 percent from 2003 to 2010), but it will still take some years until the share of female engineers also starts to increase significantly.

Obviously, we need mandatory quotas for women because the share of female management board members is in fact too damn low, but a quota should also reflect that some fields of study and therefore industries* don't seem to be very attractive to women. An easy way to make sure that quotas which aimed at solving discrimination against women do not become a tool to discriminate against men is to use the percentage of women studying the relevant fields at colleges and universities as a guide. If more women should in the future choose to become mechanical engineers then the quotas will also automatically reflect this increase.

* it actually seems to be the industries because at the TU Munich up to 50 percent of the students of medical engineering were women. It's a trap! It is mechanical engineering in disguise (in fact TUM will discontinue medical engineering and make it possible to specialize in it in mechanical engineering). Architecture and civil engineering are also chosen more often by women, while the share of women studying automotive/transportation design seems to be lower than I expected (I don't have any numbers here but it seemed to be around 20 percent).

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