Starting with Norway in 2005, several European countries have responded to their own corporate leadership gap by passing laws establishing minimum gender quotas for company boards. The hope was for a positive outcome where female board members could enhance women’s careers at both senior and lower levels through hiring decisions and corporate policies.
However, despite the first evidence of this phenomenon, researchers David Matsa and Amalia Miller recently found that European quota laws have not had the desired effect.
“We found that when a US board became more diverse, it was more likely to add a woman to the executive team,” says Matsa, the Alan E. Peterson Distinguished Professor of Economics at Kellogg. “But when European countries have instituted board quotas, no executive leaks have followed.”
Indeed, some countries are already attempting more aggressive policies. In 2021, Germany passed a law requiring large, public companies to have at least one woman on their executive team. New research by Matcha and Miller finds that this more direct intervention was better at elevating women to the C-suite – but without the downstream effects policymakers wanted.
“What we’re finding is that in response to these new mandates, women are being placed in that executive group, but that’s not necessarily changing the other hiring practices at the companies very much,” Matsa says.
Top-down change search
Over the past two decades, both government policy and investor campaigns have sought to address the executive gender imbalance from the top down. In 2005, a Norwegian law required corporate boards to be at least 40 percent female, eventually inspiring similar rules across the European Union. Female representation on US boards has also grown rapidly in the 21st century, in part due to pressure from large institutional investors such as Vanguard, BlackRock and State Street.
But initial optimism that these demands would translate into more female leaders did not materialize. In their analysis of European public companies from 1999 to 2023, Matsa and Miller found that gender quotas for corporate boards led to a 20 percent increase in the number of female board members, but had little effect on the number of female senior executives or senior managers.
“The broader goal of these policies was probably not just to change these particular companies at the board level, but to instigate changes in all these organizations that would spread throughout the economy,” Matsa says. “And that doesn’t seem to have happened.”
Diversity without disruption
A second study by Matsa and Miller looked at a German law enacted in 2021 that requires listed companies with more than 2,000 employees and a management team of at least four members to have at least one female executive. Companies didn’t have to make the switch immediately, but if a position opened up on an otherwise all-male team, the company had to appoint a woman to the role.
“The law was both extremely intrusive and cautious at the same time,” Matsa says. Unlike a board of directors, which meets periodically to oversee management and important strategic decisions, the executive team is tasked with managing the company on an ongoing basis.
But the very narrow eligibility rules—only about 65 German companies met the criteria—and the minimum requirement of one female executive per company made her less radical, she says. Two-thirds of the targeted companies were already in compliance with the new law when it was passed.
However, the effect of the law on the share of female executives was significant. By 2023, the percentage of companies with at least one female executive increased from 67 percent to 87 percent. And the overall percentage of women in executive positions at these companies increased by two-thirds, from 9 percent to 15 percent.
What’s more, the companies didn’t have to compromise on quality to meet these demands, the researchers found. Women hired after the law went into effect were just as experienced as their male counterparts. Many of the women came from leadership roles in private or smaller companies. Women were often hired from outside the company rather than promoted from within, but not at a higher rate than male executives hired during the same period.
And companies mandated to hire women did not differ from comparable companies in profitability, stock price or other business outcomes during the study period.
“There are qualified women who can take these positions,” says Matsa. “In terms of their characteristics that we can observe, it’s not that they’re better than men or worse than men. They seem to be equivalent.”
A ripple that contains
Despite the overall gains, the researchers found no effect on hiring women for the top executive roles of CEO, CFO, or COO. Instead, most of the new female executives took on roles responsible for human resources and labor relations, which already had higher female representation before the law was enacted.
But companies weren’t just adding a “token” woman to their executive team. The researchers found little evidence that German companies are bending the rules by simply expanding their executive team to include these HR or workforce leadership positions. (In fact, two companies, clothing company Hugo Boss and healthcare company Rhön-klinikum AG, actually reduced Their executive team size is three, avoiding the requirement.)
“Companies were not complying by changing the CEO,” Matsa says. “But the optimistic interpretation could be that maybe once women are in these less central roles on the team, they will grow into having the central roles organically.”
The analysis also found no significant effects of adding more female executives. There was no increase in female representation among managers and no expansion of corporate initiatives to address gender inequality, such as action plans to reduce the gender pay gap, new flexible working policies or employee resource groups for women.
“One might be skeptical about whether an employee resource group for women is effective or could change the company, but it would be easy to implement,” Matsa says. “And we don’t find that companies affected by this quota are any more likely to form one of these groups.”
The overall result, Matsa and Miller write, is “diversity without disruption”—a reassuring message for a company’s bottom line, but perhaps a disincentive for deeper structural changes to close the executive gender gap. Over time, researchers are interested in examining the long-term effects in Germany, as well as how executive quotas spread to countries such as France, which adopted a similar law in 2021.
“The biggest thing we’re watching is whether these policies are adopted elsewhere,” Matsa says. “And then to understand, in other settings, are we seeing the same results or something different, and try to understand why.”
