As the focus of corporate governance expands beyond its traditional profitability lens to a wider range of non-financial topics, improving gender equality within publicly listed companies has been one of the main goals for investors, boards, and regulators. Emerging best practices around the world show a trend towards the introduction of legal or market requirements to ensure the representation of all genders on corporate boards. Like most countries, to date Germany has adopted stricter measures for non-executive directors than for C-suite positions – however the country is preparing to go further with new binding diversity targets for companies whose management board consists of more than three members.

On November 20, 2020, a working group of the German coalition government agreed on Einigung auf verbindliche Vorgaben für mehr Frauen in Vorständen,  binding guidelines that, if implemented, would require the management boards of listed companies with more than three members to include at least one woman. This decision has been called “historic” by Germany’s Federal Minister for Family Affairs, Franziska Giffey.

The binding guidelines represent a significant development from the current “comply-or-explain” requirement under the German Stock Corporations Act, whereby supervisory boards must determine targets for gender diversity within the management board. That approach left companies with a large degree of flexibility on how to set the targets, including maintaining the status quo (or even going below current diversity levels, on boards where women already account for at least 30% of the members); a large amount of time, up to five years, to meet those targets; and little accountability for failure. As a result, companies set unambitious targets, and failed to follow up. Companies with an all-male management team could even comply with the law simply by setting a target of 0% without any further explanation.


Five years after these targets were implemented, the impact has been limited, even among DAX30 companies. The data shows that the increase in female representation at the top of German listed companies has been painfully slow and Germany continues to lag behind most other developed capital markets in this regard. Three blue chip companies currently have a nil target in place, while nine companies set the target at their status quo level.


Moreover, in fiscal year 2020, female executive representation in the DAX30 index had increased by 5 percentage points with respect to 2015, the year when the Act was implemented. Amongst MDAX and SDAX-listed companies, a study conducted by EY highlights a current 7% and 5% of female executives, respectively.


Another study, conducted by AllBright Foundation, suggests that a 30% gender quota for the management board would be the turning point for a change in the management dynamics. Supplementing target-setting with hard quotas has been successful on the non-executive side of the table. Since 2016, companies with 2,000 or more employees have been required to not only set targets, but also ensure that at least 30% of the supervisory board seats must be held by directors of each gender. This approach has prompted many companies to take action, and helped push overall representation on German supervisory boards above the 30% threshold (from 29% in 2018 to 33% in 2020).

Gender diversity targets have spread globally, either in the form of binding quotas or as codified best practice recommendations. However, in most markets, from Portugal to Malaysia, gender diversity requirements indiscriminately cover all members of a board of directors, reflecting the typical “one-tier” governance structure that combines executives and non-executives onto a single board. In markets with a “two-tier” structure, where companies are governed by two separate boards, executive directors can effectively be insulated from measures aimed at regulating the composition of the board.

This different governance framework may at least partially account for Germany’s relatively slow progress increasing female representation at the top executive level. By contrast, the aforementioned AllBright study shows that a range of countries, including the Unites States, Great Britain, Sweden, France and Poland, have a more balanced ratio of men and women, including within the executive ranks. The study further highlights how, in those countries, management boards with at least two women have long been the norm: 97% of large American and 87% of large French companies have several women as executives, while in Germany there are currently only 5 DAX companies with more than one woman on the management board.

However, it appears German market practice may be shifting ahead of regulatory requirements, at least amongst multinationals. In September, pharma giant Merck KGaA announced that vice chair and deputy CEO Belén Garijo would take over as CEO in May 2021. Garijo will be the first woman in the singular leading executive role of a DAX30 company (Jennifer Morgan served as co-CEO of SAP for a six month period). Also at the forefront is Deutsche Telekom, whose management board comprised 33% women as of November 2020. Moreover, while the gulf in management board representation remains, the pay equity gap appears to be closing: the study conducted by EY suggests that in 2019, female management board members earned an average of €30,000 more than their male colleagues in the DAX30 segment, and were paid significantly higher than the male executives in all the other DAX segments for the first time (excluding CEO salaries). ­­

While not every market is taking a binding approach, executive diversity is gaining more attention around the globe. Countries like Switzerland and the Netherlands have recently approved advisory diversity requirements explicitly aimed at executive boards. In the Netherlands, comply-or-explain targets are expected to come into effect in 2021; pursuant to the proposed bill, public-listed companies with more than 250 employees will be required to set “appropriate and ambitious targets” for the number of female executives and senior managers. Large companies are required to draw up a plan to achieve these goals and to inform annually the Social and Economic Council (“SER”) on their progress. And in Switzerland, the Swiss Federal Council approved a new requirement of 30% gender diversity for the boards of directors and 20% for the executive committee, which will enter into force on January 1, 2021.

However, the new Swiss rule may bring to mind the regime that is about to be replaced in Germany: it applies on a comply-or-explain basis, and gives supervisory boards up to five years to comply (up to ten years for the executive committee), with no sanctions for non-compliance save disclosing a justification and the steps taken to improve the status quo. Stakeholders will have to wait and see if the Swiss rule has a more significant impact than the voluntary requirements that Germany is now replacing.

Looking to integrate board diversity into your proxy voting and governance? Glass Lewis can help, including through our thematic voting policies.

For example, Glass Lewis’ ESG-focused thematic voting policy evaluates a company’s policies and actions with respect to board refreshment and diversity. As a part of this evaluation, we will review the diversity of board members. In addition, the ESG Policy supports proposals aimed at increasing the diversity of boards or management as well as those requesting additional information concerning workforce diversity and the adoption of more inclusive nondiscrimination policies.

You can also take advantage of Glass Lewis’ powerful Custom Policy tool to tailor a policy to your company’s unique perspective on board diversity and various ESG issues. You can find more information on our voting policy options here, or click below.

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