Board Diversity and the Need for Access (Part 2)

So what's the problem with a legislative imposition?  In Norway, boards must have 40% women.  This approach would be an anathema in the United States where the reigning culture leaves these things to the market (despite the obvious evidence of market failure).  Moreover, a broader concept of diversity would be tough to define much less legislate. 

In addition, however, the legislative approach may be dysfunctional.  France is proposing a requirement similar to the one in Norway.  Unlike Norway, however, the need for gender balance does not appear as strongly imbedded.  The result, according to the Economist may be a culture of circumvention.

• In private, chief executives [in France] say they will look for female board members of a particular type: those who will look decorative and not rock the boat. One boss asked a headhunter for photographs of candidates and said he would treat looks as his first criterion, ahead of industry experience. A board member of a multinational company who opposes the 40% quota said that bosses could simply appoint their wives or—more subtly—their girlfriends.

The magazine noted some appointments that "raised eyebrows." 

• In March Dassault Aviation, a manufacturer of fighter planes and corporate jets, said it would nominate Nicole Dassault, the 79-year-old wife of Serge Dassault, its controlling shareholder, to its board. Mrs Dassault has little hands-on business experience. LVMH has nominated Bernadette Chirac, the 76-year-old wife of the former French president. Mrs Chirac’s qualifications, explained the company, were that she was female and that as first lady she supported fashion and regularly attended catwalk shows.

The solution in the United States is not to legislate quotes but to take away some of the control from existing management over the nominating process.  Proxy access moves in that direction.  Those seeking to run competing slates can include nominees in the company's proxy statement, reducing (but not eliminating) the costs of the proxy solicitation process.  Given the desire to nominate directors who will bring to the board a different viewpoint, it is likely that access will result in an increase in non-traditional nominees, including women and people of color.

In short, access is another one of those reforms that will encourage boards to become more diverse.