A compulsory quota to increase the number of women board members in European businesses has been proposed. In November 2012, the European Commission framed legislation that would ensure women fill at least 40% of all non-executive board-member positions by 2020. Expected to affect about 5,000 businesses, the new law would apply only to publicly listed companies, and those with fewer than 250 employees or an annual worldwide turnover of €50 million or less would be exempted.
Background
The scarcity of female non-executive board members of publicly listed companies has been a high profile topic in the gender equality debate at European level. The European Commission stated in its Strategy for Equality between Women and Men 2010–15 (823Kb PDF) that it would address the gender imbalance in business decision-making through targeted initiatives.
In March 2011, Viviane Reding, Vice-President of the European Commission (EC) and Commissioner for Justice, Fundamental Rights and Citizenship, met chief executives and board chairs from major companies to discuss how to achieve greater representation of women in top jobs. The Commission also held a ‘mini-hearing’ on the subject with the EU-level social partners.
Commissioner Reding then called on publicly listed companies to sign a ‘women on the board pledge’ by March 2012. This would mean companies making a voluntary commitment to increase the proportion of women on their boards to 30% by 2015 and 40% by 2020. They would do this by actively recruiting qualified women to replace outgoing male board members (EU1109021I).
Calls for legislation
The European Parliament has repeatedly called for legislation on equality between women and men in business leadership. In its Resolution on women and business leadership of 6 July 2011, it called for a binding minimum quota of 30% by 2015 and 40% by 2020. The European Parliament reiterated this call in a further Resolution on equality between women and men on 13 March 2012.
In March 2012, the Commission launched a consultation of stakeholders on the issue, which ran until May 2012, to feed into an assessment of possible EU-level measures to enhance female participation in economic decision-making.
Following this consultation exercise, the Commission believes that boards are still dominated by one gender. It cites figures that show that 85% of non-executive board members and 91.1% of executive board members are men. It states that:
...despite an intense public debate and some voluntary initiatives at national and European level, the situation has not changed significantly in recent years: an incremental average increase of the number of women on boards of just 0.6 percentage points per year has been recorded since 2003.
The consultation prompted the Commission to propose legislation (COM(2012) 614 final (139Kb PDF) on this issue. The proposal for a directive on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures, issued on 14 November 2012, sets a target of appointing women to at least 40% of non-executive board-member positions in publicly listed companies, with the exception of small and medium enterprises (SMEs).
Where women make up less than 40% of a company’s non-executive board, the company management will be required to appoint sufficient women to reach the 40% target on the basis of a comparative analysis of the qualifications of each candidate. They must do this by applying clear, gender-neutral and unambiguous criteria. In the case of equal qualification, priority shall be given to the female candidate.
The Commission estimates that the 40% target should be met by all enterprises by 1 January 2020, but public undertakings – over which public authorities exercise a dominant influence – will need to reach this target by 1 January 2018.
Company compliance to be monitored
Companies will be required to provide information to national authorities, once a year, about gender representation on their boards. They will have to distinguish between non-executive and executive directors, and provide details of the measures taken to comply with the directive.
The proposal allows Member States to exempt listed companies from the 40% target if women make up less than 10% of their workforce. Member States may also declare that the target has been met where companies can show that women hold at least one-third of all director positions, both executive and non-executive.
Member States may also decide on appropriate sanctions for breaches of the directive. Suggested sanctions include fines and the annulment of non-executive director appointments made in breach of the directive.
The proposal is expected to apply to around 5,000 listed companies in the European Union. It will not apply to companies with fewer than 250 employees and an annual worldwide turnover of €50 million or less, or to non-listed companies.
Commentary
This proposed directive is the latest step in the Commission’s initiative on the issue of gender equality on company boards. The Commission believes that progress in this area needs the help and support of regulation. This is a position that the European Parliament supports, as it has been calling for legislation for some time.
The European Trade Union Confederation (ETUC) issued a position paper (369Kb PDF) on gender imbalance on corporate boards in June 2012. In it, the ETUC states that:
EU latest initiatives in this regard have led some European countries to start discussions or to adopt binding measures to ensure gender equality in company boards. Nevertheless, in order to ensure a consistent approach and the same level of women’s representation throughout the Member States, the ETUC believes that an EU-level instrument is needed.
The ETUC would ideally like any legislative proposal to apply to SMEs as well, after a transition period.
BusinessEurope takes a different position, however. In its position paper (199Kb PDF) issued in May 2012, it stated:
BusinessEurope does not support binding legislative action at EU level. We are of the opinion that legislative quotas imposed at EU level are not the right way forward to encourage career progression and nominations of women at the top… quotas do not address the real causes of lower percentages of women in senior and executive positions.
BusinessEurope favours a voluntary approach, but agrees that more effort needs to be made to ensure progress.
Andrea Broughton, Institute for Employment Studies