Is Quota Rule for Women Executives the Only Way?

Following the 2013 election of Korea’s first female president, PARK Geun Hye, her administration has proposed legislation designed to increase significantly female leadership in government-owned enterprises. The initiative, part of a campaign pledge to support the “women’s revolution,” includes a requirement that women fill 15% of executive positions in government-owned companies by 2015 and 30% by 2017.

According to Glass Lewis’ review of Korea’s 2013 proxy filings, only 61 women serve as directors for Korea’s 462 publically listed companies, representing only 1.8% of all board seats. In contrast, women make up more than 20% of board membership in Taiwan and more than 10% in Hong Kong, both of which demonstrated higher levels of board gender diversity than other Asian countries.

In Japan, where we found that women represent less than 2% of the directors at 1,920 listed companies, the government has proposed legislation similar to that of Korea. In April 2013, the Tokyo Stock Exchange suggested that listed companies disclose information on their current status or future plans to ensure that women serve as executives and directors.

While we view the Japanese regulators’ attempt to enforce such disclosure practice by listed companies as a positive step toward ensuring gender diversity on boards, we are concerned about the practicality of Korean regulators’ quota approach. Current challenges, such as the limited female resource pool in Korean corporations and the lack of a fair evaluation tool to identify appropriate female candidates, complicate the search for qualified candidates. And reports suggest that both Korean corporations and the public also consider extended 30% quota unrealistic.

While we recognize the urgent need for an institutional framework to promote women to the executive levels in both the private and public sectors in Korea, we are not convinced that government-imposed quotas are the best way to promote female leadership. Regulations solely based on gender could adversely affect the ability of companies to attract the right talent for the right position.