By Shirley Lu, Harvard Business School


In 2012, the European Commission released an impact assessment showing the average percentage of women on corporate boards was a disappointing 13.7%. The one outlier was Norway at 42%, and this was attributable to the mandatory 40% quota that came into effect in 2008. Many countries chose to follow in Norway’s footsteps, but some preferred self-regulation through public disclosure of gender diversity. In this paper, I study the different effects on board gender diversity from implementing a quota versus a disclosure policy. As more countries consider potential board gender policies, this paper may shed some light on policy design and implications.

Conceptual differences between quota and disclosure

A quota policy generally requires publicly traded firms to reach a specified gender quota on corporate boards. Failure to do so results in consequences such as delisting or invalid board elections. On the other hand, in a disclosure policy, the standard setter provides guidance on a target board-gender-diversity ratio, and requires firms to disclose their policy on board member gender diversity, target ratio, and current progress toward the goal. Firms can comply or explain, but they do not face a penalty if they do not reach the target. In other words, under a quota regime, the government monitors and enforces penalties, whereas under a disclosure regime, monitoring and scrutinising fall on the public and the market.

In this setting, quota and disclosure policies are two different methods to achieve the same goal, namely, to induce firms to enhance their board diversity and gender equality. A quota policy directly controls firm behaviour by mandating quantities, which in this setting is the percentage of women on boards. This results in a strong enforcement effect because there is a definition of violation, making enforcement of a quota policy easier than a disclosure policy. However, the trade-off is that the quota is uniformly applied to all firms, regardless of what causes low female representation on boards in the first place. When a low supply of female candidates is the root cause of board gender inequality, which I label a supply constraint, a quota may cause distortion, such as a lower quality of newly recruited female directors, or even firms delisting to avoid the policy.

A disclosure policy, on the other hand, works through a pricing channel, where the stakeholder’s response to the disclosure affects how the firm is priced. If the increased transparency leads to public scrutiny on corporate board’s gender diversity, this is equivalent to imposing an additional cost for having low female representation on boards. As a result, some, but not all, firms may find it optimal to increase the number of women on boards. The benefit of this market mechanism is that firms are differentially affected, and I argue that it leads to a higher female ratio for firms with low female representation for demand-side reasons, which I label a demand constraint, but does not force firms with a supply constraint to reach a female ratio beyond the optimal.

Key results

Result 1: Quotas lead to a higher increase in the percentage of females on corporate boards than disclosure

To study the effects on board gender diversity, I line up the different policy announcement dates in 12 European countries from 2006 to 2015. I compare the board gender ratio for each country before and after the policy announcement, and relative to other European countries that did not have such a policy shock in the same year. Figure 1 shows that quota firms experience a higher growth in board female ratio relative to disclosure firms after a policy announcement.

Quota or disclosure-01

Figure 1: Board gender ratio around policy announcement

Result 2: Result 1 only holds in industries with high supply constraint

In Figure 2, I split Figure 1 into industries with low, median, and high supply constraint on female director candidates. Quota and disclosure policies are equally effective in increasing board female ratio in industries with a higher supply of potential female directors. Conceptually, disclosure firms will hire female directors until the marginal cost equals the marginal benefit, and hence firms facing a high supply constraint will find it costlier to increase the board female ratio. However, firms under a quota policy face the same board gender quota regardless of the source of friction.

Quota or disclosure-02

Figure 2: Split by industries with different supply constraints

Result 3: In industries with high supply constraint, quotas lead to more female directors with no prior board experience

Consistent with the supply constraint, I find that quota firms recruit more female directors from a foreign nationality, with no prior public board experience, and with a PhD degree. The results illustrate the difference between a quota and disclosure policy as a trade-off between enforcement and market discipline in the presence of female-director supply constraints.


The merits of using a quota versus disclosure policy is widely debated when countries seek to enhance corporate board gender equality. This paper aims to provide empirical evidence in how the choice of policy results in different outcomes. I find that disclosure policies can be just as effective as quota policies to increase board gender diversity in industries with lower supply constraints. In contrast, firms that must adhere to a quota in industries with a limited supply of female director candidates recruit more female directors with less experience. I do not speak to which is more desirable, and future research can study the long-term effects of both policies. It will be interesting to examine if the supply constraint goes away in the long term as a result of quota policies bringing more new female directors into the labour market.




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