Recent research from the College of Business at the University of Nevada, Reno explores how legislation enacting gender quotas for boards of directors impacts the women on those boards being perceived as tokens.
In their research, Dr. Jessica Rixom, Dr. Mark Jackson and Dr. Brett Rixom found that women are held as tokens when the firm meets but does not exceed the minimum number of women required by the gender quota. When the number of women on a firm’s board exceeds the quota, perceptions of the women as tokens decreases while the firm’s value increases.
“While our research highlights the problem of increased tokenism perceptions that mandated quotas can bring, it also highlights a potential solution,” Jessica Rixom, assistant professor of marketing, said. “Firms can reduce perceptions of tokenism and the associated stigma by exceeding the minimum required mandate.”
Recent discussion of enacting gender quota laws has been highly divisive. While diversifying boards of directors can help increase a firm’s value, gender quota laws can contribute to the idea of tokenism, perpetuating the notion certain board members are there only to fill a requirement.
“When minority members of a group are viewed as tokens, at least two issues arise,” Jackson, associate professor of accounting, said. “First, others in their group may view the minority members as less qualified and treat their ideas and views as such. Second, the minority members themselves may feel that their position in the group is not due to their qualifications and may either act accordingly or overcompensate to ‘prove’ themselves. Investors discern this and will assume that the board has under-qualified members or that the board is dysfunctional.”
Following the proposal of gender quota laws in California, the researchers sought to find how gender quota laws impacted the public view of diverse boards of directors.
Nonprofessional investors participated in an online simulation where they considered the composition of a board of directors of a fictitious company either operating under a quota law or having no quota requirements. After receiving all the information about the company, being reminded of the role of a board of directors and learning about the proposed quota law, participants were asked a series of questions, including how much of a planned $10,000 investment in the company’s industry they would put toward the company in the study and how much they considered the female board members to be tokens.
“It is generally accepted that a more diverse board will be more effective, as different points of view and life experiences will better equip a board to lead the firm,” Brett Rixom, assistant professor of accounting, said. “What we question is the efficacy of a quota law to achieve better gender diversity on the boards of public firms. Instead of rushing to legislation like quotas to increase minority representation, lawmakers can consider whether their solution may undermine the very individuals they are trying to promote.”
An alternative to the quota system, recently adopted by Nasdaq, is mandatory reporting of diversity, without direct requirements to have a certain number of diverse board members. While this system may lead to the same problem of tokenism, it provides the option for companies to explain why they do not meet certain diversity goals, which may help investors see minority members in a different light. The researchers are currently working on another publication to investigate mandatory reporting of diversity.