Summary
In my project on Board Gender Diversity and Resilience of European Firms, I am exploring how gender diversity impacts the resilience of SMEs across Europe. SMEs are the backbone of European economies but face unique challenges, like limited growth options and stricter access to credit, making strong governance essential for their success. The approach to board diversity varies across Europe: some countries, like Spain and the Netherlands, encourage but does not force companies to increase female representation, while others, like Norway, Italy, and Germany, have set mandatory gender quotas. Findings from this research show that companies with more women on their boards often see stronger financial results and better governance. However, just meeting quotas is not enough; true change requires broader support, including improved childcare, maternity benefits, and a commitment to gender equality at the policy level.
This research aims to give policymakers and business leaders practical insights to strengthen governance across Europe, helping build more resilient and inclusive businesses.
Recently, I have been working on a project on Board Gender Diversity and Resilience of European Firms, together with my co-authors professor Elisa Tosetti from University of Padua, and professor Veronica Vinciotti from University of Trento and professor Alessandra Guariglia from University of Birmingham.[i] The project examines three crucial dimensions of business performance: a firm's default risk in times of crisis, its success in international markets, and its commitment to environmental sustainability. At its core, the research acknowledges a fundamental truth of corporate governance: the board of directors serves as the backbone of organisational success, having significant influence over strategic decisions that can ultimately impact on a company success and failure.
The research comes at a crucial time when European SMEs face unprecedented challenges, from post-pandemic recovery to environmental regulations and increasing global competition. Our findings could provide valuable insights for policymakers and business leaders alike as they work to strengthen corporate governance structures across the continent.
SMEs are the backbone of many national economies. Across Europe, more than 20.7 million SMEs account for over 98% of businesses, employing two-thirds of the workforce. According to Eurostat, in 2022, the European Union boasted 32.3 million enterprises, of which 99.8% were SMEs with fewer than 250 employees. Together, these businesses employed 160 million people, representing 63% of the workforce and generating nearly half of the EU’s turnover.
Unlike larger companies, SMEs often face unique vulnerabilities, such as limited diversification, stricter credit constraints, and the inability to scale down further in tough times. This makes effective governance especially vital for SMEs, as board members play a critical role in guiding organisational performance and resilience. Adding a range of perspectives - different skills, backgrounds, and experiences - can be the key to a board’s effectiveness, and one proven avenue for this diversity is gender balance. However, despite various policies promoting gender diversity, women still occupy a small percentage of board positions in European SMEs. In all Europe, men make up the majority of board directors and women are under-represented. This under-representation of women on boards is one of the key gender gaps in Europe. Without closing this gender gap in board representation, gender equality in economic decision-making cannot be reached.
The push for gender diversity on firms’ boards has grown steadily in Europe over the last two decades. Several countries, such as Spain and Netherlands have adopted a voluntary or “soft” approach that encourages but does not force companies to address a lack of gender diversity in the boardroom. Unconvinced of the effectiveness of self-regulation, other governments have resorted to a mandatory-based approach, implementing “hard” gender boardroom quotas with penalties for noncompliance, often to the dismay of business leaders and representatives. Norway led the way in 2003 with legislation mandating that at least 40% of board seats in public-listed companies be held by each gender. Since then, other European nations have adopted similar quotas. In 2011, Italy set a goal of 33% female representation on listed company boards, while Germany introduced a 30% quota for both genders in 2015, with a recent 2021 law requiring any executive board with more than three members to include at least one woman and one man. France and Portugal have followed, introducing or strengthening measures to encourage gender diversity on large corporate boards. The European Commission has also taken steps to address board diversity. In June 2022, it adopted legislation requiring that by mid-2026, women must hold at least 40% of non-executive board seats or 33% of all board roles in listed companies across the EU. Interestingly, although these regulations target publicly listed firms, recent studies suggest that unlisted companies, which aren’t obligated to meet quotas, are also seeing an increase in female board representation due to the wider influence of these policies.
Promoting gender diversity in corporate boardrooms is rooted in the belief that women bring unique perspectives and managerial practices that can strengthen governance and drive better business performance. As Europe continues its journey toward balanced boardrooms, the impact of diverse leadership in fostering resilient, innovative businesses remains a central focus.
Much of the research on board gender diversity explores how it relates to financial performance and lower default risk. Studies indicate that higher female representation often correlates with stronger metrics, like improved returns, Tobin's Q, and lower default probabilities. Additionally, companies with diverse boards also tend to invest more in innovation and demonstrate robust environmental, social, and governance practices.
The top panel of Figure 1 shows that firms with relatively larger female executive-team representation are significantly more likely to outperform those whose fewer women in board in terms of turnover. The bottom panel of Figure 1 shows that company that start with a relatively larger female executive-team representation are likely to see higher turnover growth in three year time. There is a substantial likelihood of outperformance differential between the most and least gender-diverse companies.
Notes: Data source: Orbis. Turnover has been adjusted to account for the number of employees of companies and temporal effects
However, it's important to note that simply force companies to add women to their boards isn't enough. Institutional factors, such as governance quality, cultural attitudes towards gender, and the presence of women in decision-making roles, shape the efficacy of these quotas. Countries with low governance transparency, high power distance, and less established welfare provisions are more likely to enact strict quotas. However, without supportive cultural and governmental contexts, these quotas may face resistance or be insufficient for meaningful integration.
A more sustainable approach could involve enhancing 'women-friendly' welfare-state interventions, such as expanded childcare options and extended maternity leave, which promote female labor market participation. Additionally, fostering a supportive political climate where women are well-represented in government can add normative and cognitive pressure for gender-inclusive policies. By creating an institutional and cultural foundation that values diversity, companies are more likely to cultivate an inclusive culture where diverse voices genuinely shape decision-making.
This inclusiveness allows women to fully leverage their unique skills, experiences, and leadership styles, transforming board diversity from a statutory obligation into a strategic asset that drives better governance and corporate outcomes. Such a foundation goes beyond quotas and aims to unlock the full potential of gender-diverse leadership by ensuring that cultural and institutional contexts support women's contributions at the highest levels.
By fostering an inclusive culture where diverse perspectives are truly valued, companies can unlock the full potential of gender-diverse leadership.
[i] Project genRES, n. P2022BNNEY. From the Ministry of Education, Italy.
Prof Francesco Moscone
Francesco Moscone is a Full Professor of Business Economics at Brunel University London and a part-time Professor of Public Economics at Ca' Foscari University of Venice. He holds a PhD in Health Economics from King's College London, with previous teaching roles at the University of Cambridge and the University of Leicester, and research positions at the London School of Economics and the University of Berkeley. He is currently a visiting professor at the University Cattolica of Rome. Francesco's research, extensively published in top academic journals, has garnered significant global media attention, featuring in outlets like The Independent, The Times, and La Repubblica. He has also appeared on UK television and radio, discussing his work with broadcasters including Nigel Farage and Martin Stanford.