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Gender impact assessment of the law of georgia on entrepreneurs
Monday, 05 August, 2024

EXECUTIVE SUMMARY

The underrepresentation of women in entrepreneurship in Georgia is a significant problem that disproportionately affects women’s ability to start and to sustain businesses. Despite legislative efforts and economic strategies intended to enhance the business environment, women face considerable challenges, such as limited access to finance, which hamper their ability to start and grow businesses.

The ISET Policy Institute (ISET-PI), in collaboration with EBRD and the Investors Council (IC), implemented a Gender Impact Assessment (GIA) on the Law of Georgia on Entrepreneurs. The GIA detailed within the document aims to evaluate the new Law on Entrepreneurs in Georgia from a gender perspective. The GIA seeks to uncover gender disparities within the law and to provide evidence-based recommendations in order to enhance gender equality in the business and investment climate. This involves assessing the current legislation’s impact on different target groups, focusing on the presentation and representation of women, and offering insights into potential legislative changes that could promote more balanced gender participation in entrepreneurship.

This is an ex-ante GIA, conducted during an early stage of the decision-making process and prior to any legislative changes to the new Law of Georgia on Entrepreneurs. This GIA has significant potential in terms of supporting the development of a legislative package that acknowledges and addresses the differing needs of both female and male entrepreneurs, that minimizes unintended negative impacts, and that helps address existing gender differences. Whilst exploring various issues within the Law, this research retained a focus on 1. Gender Quotas on Supervisory Board Representation and 2. Gender Reporting.

Consequently, the research delves into the gender disparities and inequities prevalent in entrepreneurship, thus identifying various factors that contribute to the underrepresentation of women entrepreneurs. These issues include their limited access to capital; differences in business financing; stringent collateral requirements; knowledge gaps in business management; higher borrowing costs; limited investor networks; the underutilization of business support programs; gaps in venture capital and angel investment; limited access to non-financial resources; inadequate market access; networking disparities; impacts on revenue generation and sustainability; limited access to equipment and technology; inadequate training opportunities; and societal norms, gender stereotypes, and informality in female-dominated sectors. 

The underrepresentation of women entrepreneurs can lead to restricted female employment opportunities, the underutilization of women’s skills, limited gender diversity in leadership, less gender-sensitive corporate governance, a scarcity of role models, restricted social mobility, perpetuation of economic dependence, hindered financial independence, increased vulnerability to domestic abuse, limited influence in economic decision-making, underrepresentation in high-growth sectors, the widening of the gender pay gap, labour migration, reliance on personal finances for entrepreneurship, and to necessity-driven entrepreneurship.

To tackle the various gender gaps in entrepreneurship, the research team, in close cooperation with the IC and EBRD, proposed two Policy Options:

Policy Option 1: Gender Quotas on Supervisory Board Representation - enforcing gender quotas for supervisory board representation in large companies, those listed on both Georgian and international stock exchanges, joint-stock companies (JSC), as well as state-owned enterprises. The initial mandate for women’s participation is suggested at 30%, with anticipated compliance by 2026, and a subsequent increase to 40% by 2030.

The quantitative impact assessment of Policy Option 1 focuses on five aspects: (1) measuring the potential impact of the option on participation in executive and non-executive boards (as well as on CEOs); (2) evaluating the potential impact on company performance and corporate governance; (3) estimating the potential impact on gender pay and employment gaps; (4) appraising the investment costs; and (5) estimating the administrative burden.

The introduction of gender quotas within supervisory boards has resulted in notable advancements in the representation of women. However, this progress has not been as pronounced in executive roles, such as directorates. While there has been some improvement in the presence of women in these positions, the link between quotas on supervisory boards and increased female involvement in executive bodies remains somewhat restrained. In addition, there has been a slight increase in the overall size of boards of directors. Interestingly, there has also been an unexpected decrease in the number of female CEOs in commercial banks, indicating the need for a deeper investigation into the reasons behind this trend.

Taking a wider view, research conducted across 18 countries in developed markets across Europe and the Americas reveals varying levels of adherence to board quotas across different sectors and industries. For instance, the basic materials sector demonstrates notable discrepancies in meeting the prescribed levels of female board representation – with particularly low compliance observed in the containers and packaging industry. Conversely, the communication services sector, particularly in diversified telecommunication services, exhibits a significantly higher level of adherence. These sector-specific patterns highlight the diverse effects of gender quotas across different industries.

Overall, while increased gender diversity on boards is not universally linked to direct improvements in firm performance, there is a clear trend towards the enhanced external valuation of those companies with diverse boards. This is especially pronounced in regions with high gender equality and strong shareholder protections, where gender-diverse boards also contribute positively to corporate social responsibility and strategic decision-making. Additionally, the introduction of gender quotas fosters a reduction in the gender pay and employment gaps, and it also shifts the focus of board activities towards more specialized committees, potentially amplifying the influence of female members. These findings suggest that, while the direct costs of implementing and maintaining gender quotas are relatively low, the broader, long-term benefits to corporate governance and social equity are substantial.

Policy Option 2: Gender Reporting - requiring companies to conduct annual gender reporting, which gathers data on the diversity of employees and details the key gender indicators based on international best practices, such as the percentage share of women in senior and middle management; the age distribution of the female and male workforce; the share of female and male employees who attended training and the average training cost per employee; the employee turnover rate disaggregated by gender; the total number of female and male employees taking parental leave and the length of parental leave; the total number of complaints received regarding violations of privacy disaggregated by gender; the total number of cases of information leakage, theft, or loss of data disaggregated by gender; the number of complaints filed, reviewed, or resolved regarding the violation of human rights disaggregated by gender; and the gender pay gap. This Option includes two scenarios: Scenario (1) only large joint-stock companies produce gender reports and Scenario (2) all large-size enterprises produce gender reports.  

The quantitative impact assessment of Policy Option 2 focuses on two aspects: (1) quantifying the benefits associated with gender reporting – the impact on the gender pay gap and on female employment; and (2) measuring the costs associated with gender reporting – the direct compliance and the administrative costs for enterprises.

Overall, Policy Option 2 is likely to lower the gender pay gap by making companies more transparent and accountable. Furthermore, introducing gender reporting is expected to encourage more women to work in prominent joint-stock and in larger companies, demonstrating how this policy can help achieve gender equality within the workforce. Although the costs for public administration and enterprises are minimal, the overarching benefits in terms of gender equality and organizational transparency highlight the significance of pursuing such measures.

Additionally, the GIA team formulated recommendations to address gaps in the legal framework of the Law of Georgia on Entrepreneurs, those which focus on 1. legal enforcement, 2. awareness-raising and skills development, and 3. data collection for impact monitoring (To view the study in full, see attached research report above).

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