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European Commission launches public consultation on boardroom diversity quotas

David Woods , 06 Mar 2012

board diversity

A European Commission report published yesterday shows “limited progress” towards increasing the number of women on company boards has been achieved one year after EU Justice Commissioner Viviane Reding called for credible self-regulatory measures.

To identify appropriate measures for addressing the persistent lack of gender diversity in boardrooms of listed companies in Europe, the Commission launched a public consultation. The Commission is seeking views on possible action at EU level, including legislative measures, to redress the gender imbalance on company boards. The public consultation will run until 28 May 2012. Following this input, the Commission will take a decision on further action later this year.

Today's report on gender balance on company boards comes one year after EU Justice Commissioner Viviane Reding challenged publicly-listed companies in Europe to voluntarily increase the number of women in their boardrooms by signing the 'Women on the Board Pledge for Europe'. By signing this Pledge, companies commit themselves to raise female representation on their boards to 30% by 2015 and 40% by 2020. However, during the past 12 months, only 24 companies across Europe have signed the Pledge.

Just one in seven board members at Europe's top firms is a woman (13.7%). This is a slight improvement from 11.8% in 2010, but it would still take more than 40 years to reach a significant gender balance (at least 40% of both sexes) at this rate.

Gender balance in top positions has been shown to contribute to better business performance, improved competitiveness and economic gains. For example, a report by McKinsey found that gender-balanced companies have a 56% higher operating profit compared to male-only companies. Ernst & Young looked at the 290 largest publicly-listed companies. It found the earnings at companies with at least one woman on the board were significantly higher than in those that had no female board member.

Reding said: "One year ago, I asked companies to voluntarily increase women's presence on corporate boards. My call was supported by the European Parliament and forwarded to business organisations by Ministers of Employment, Social Affairs and Gender Equality in many EU Member States. However, I regret to see that despite our calls, self-regulation so far has not brought about satisfactory results,

"The lack of women in top jobs in the business world harms Europe's competitiveness and hampers economic growth. This is why several EU Member States - notably Belgium, France, Italy, the Netherlands and Spain - have started to address the situation by adopting legislation that introduces gender quotas for company boards. Some countries - Denmark, Finland, Greece, Austria and Slovenia - have adopted rules on gender balance for the boards of state-owned companies. Personally, I am not a great fan of quotas.

"However, I like the results they bring. I also note that businesses operating across borders in the internal market may have to comply with different national quota laws if they want to participate in tenders for public works. This is why the Commission's Legislative Work Programme for 2012 includes an initiative to address this situation. Today, I am inviting the public - individual businesses, the social partners, interested NGOs and citizens - to comment on what kind of measures the EU should take to tackle the lack of gender diversity in boardrooms. I believe it is high time that Europe breaks the glass ceiling that continues to bar female talent from getting to the top in Europe's listed companies. I will work closely with the European Parliament and all Member States to bring about change."

Progress on improving the gender balance in Europe's boardrooms over the past year has been the best for a long time (a 1.9-percentage point increase from October 2010 to January 2012, compared to a long-term average rise over the last decade of 0.6 percentage points per year). This increase can be attributed to calls from the Commission and European Parliament and a number of national legislative initiatives. France, which introduced legislation on gender balance in boards in 2011, alone accounts for around half the increase in the EU. But overall, change remains stubbornly slow. The number of women chairing major company boards has even declined, falling to 3.2% in January 2012 from 3.4% in 2010.

People in Europe clearly agree that this situation should be changed: 88% of Europeans believe given equal competences women should be equally represented in the top jobs in business, according to a Eurobarometer survey published yesterday. Meanwhile, 76% of Europeans believe women have the necessary skills. Finally, 75% of those asked are in favour of legislation on gender balance in company boards with the relative majority of respondents (49%) saying that monetary fines would be the most appropriate mechanism to enforce such legislation

Ines Wichert, senior psychologist at the Kenexa High Performance Institute added: "With gender diversity comes an increase in the range of opinions, along with better decision making, a better reflection of customer demographics and better financial results.

 

"Quotas may be what employers need to ensure that gender diversity remains a priority. After 30 years of legislation, the number of women in senior roles is low and I doubt discretionary efforts along are enough. Quotas will only work if we build a pipeline of talented women at all levels.

 

"Improving the number of board women requires effort and one-off initiatives seldom achieve this effect. Action is needed from the individual women, the immediate work environment and the organisation where addressing of gender bias plays a role.

 

"My research highlights the importance of women having stretching job assignments. These are ways for women to develop personally and as leaders, improving their promotability by showing senior decision-makers they are up to the top job."

Elena Morrissey CBE, CEO Newton Investment Management and Founder of the 30% Club, added: "The 30% Club is a group of Chairmen and organisations committed to bringing more women on UK boards - through a business-led approach. While we applaud any move to encourage greater female representation at an executive level, we believe mandatory quotas are both unnecessary and potentially damaging."

 

"Quotas actually undermine the principle of equality and are patronising to women. Even those countries with quotas are still struggling with genuine equality and there's evidence that shareholder value can be destroyed if quotas are imposed. Directors need to be there on merit."

"We encourage business leaders to take affirmative action in moving voluntarily towards a better gender balance at all levels in their organisations. Progress is already being made through self-regulation here in the UK and we expect this to accelerate. Investors don't want quotas, Boards don't want quotas and women don't want quotas."

 

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