In the latest news from Brussels, the European Commission is currently drafting legislation that would require the EU’s largest listed companies to reserve 40% of board seats for women by 2020. State-owned companies would need to reach this same target by 2018. According to the Financial Times, the proposed quota is binding and would apply only to those companies with over 250 employees and at least €50 million in annual revenues.
Despite these efforts, many countries still have a long way to go in order to achieve more equitable female board representation. The Financial Times reports that, as of January 2012, only 13.7% of European board seats were held by female directors; however, country-specific averages vary widely across the region. Glass Lewis recently published Mind the Gap: Board Gender Diversity in 2011, where we reviewed female board representation in 11 markets. Overall, we found that, of the companies in our review, females represented just 12% of all board members, but that at least 70% of all companies reviewed at had least one woman on their board. Unsurprisingly, the European companies in our review tended to have the highest levels of board representation, with France and Sweden both having more than 20% female board representation, while less than 7% of Brazilian and Japanese directors were women.
Europe’s relatively higher levels of female board representation is likely due to long-standing and consistent efforts by politicians and advocacy groups that have encouraged companies to respond to board-level gender inequity. In response, some member states have already enacted strict legal quotas, while others have instituted less stringent diversity targets or have opted to take a laissez-faire approach.
Currently, Belgian, French, Italian, Spanish and Norwegian companies must be comprised of a specific, minimum percentage of female directors. However, other countries have adopted voluntary targets to increase the proportion of women seated as directors. For example, in 2011, Lord Davies issued a report recommending that FTSE 100 companies aim for a minimum of 25% female representation and that FTSE 350 adopt their own diversity targets.
Believing self-regulation has been largely unsuccessful, the EU’s justice commissioner Vivian Reding has stated that she intends to implement a mandatory gender diversity quota, which will likely be introduced sometime next month. Opponents of legally-mandated quotas typically cite concerns that include a disregard for shareholders’ rights, difficulties in finding qualified candidates as well as problems associated with enforcing binding quotas. Under the current iteration of the EU legislation, non-compliance with the diversity quotas would result in administrative fines or the barring of companies from receiving state aid or contracts. Member states will likely be able to choose the applicable penalties.
Whether or not the proposed quota will enter into law is still unclear. Many hurdles may still prevent the passage of this legislation, which requires the approval of the EU’s 27 governments and the European Parliament. We expect the dialogue surrounding this issue to increase in the weeks and months ahead.