EU proposes 40 per cent quota for women directors

Anna Sonny, 10 September 2012

By Anna Sonny

According to a new proposal to be put forward by the EU next month, companies will face sanctions unless their boardrooms are represented by at least 40 per cent women. EU Justice Commissioner Viviane Reding drafted the legislation to speed up what she called the ‘very slow’ progress towards gender equality in boardrooms across Europe.

In March 2011, as part of the European Commission’s Strategy for Equality between Men and Women (2010-2015), Reding launched a pledge calling on all publicly listed companies in Europe to increase the presence of female directors to 30 per cent by 2015 and 40 per cent by 2020. After a year, only 24 firms had responded.  Some member states, however, including France, Italy and the Netherlands have since introduced national quotas and have seen a rise in female representation in boardrooms. France saw figures jump from 10 per cent to 22 per cent in the space of a year. But after failing to gain a voluntary commitment from businesses EU-wide, the Justice Commissioner opted for imposing legislation instead.

The draft legislation specifies that employers with at least 250 members of staff or a turnover of £40 million will be legally required to appoint at least 40 per cent non-executive female board members by 2020. While many agree with the proposal’s intentions, the UK in particular is said to be spearheading the opposition to the legislation. A spokesman for the Department for Business said: ‘Our position will stand – we are opposed to legislation for quotas.’ Britain’s 30% Club, a group of FTSE 100 chairmen backing voluntary increases in female board representation, rejected the proposals as ‘box-ticking’. Some companies have expressed concern over introducing changes at top management levels during a financial crisis. However, while the UK will certainly be resisting the legislation, the EU’s qualified majority voting rules mean that without allies, the UK could be outvoted.

Early last year, a British government inquiry into gender imbalance in boardrooms recommended that companies aim for 25 per cent female representation in boardrooms by 2015. The government, however, did not impose mandatory quotas in the belief that companies should be able to set their own targets. Earlier this year, research showed that the presence of women in the boardroom in the UK was increasing. Between March 2011 and 2012, the percentage of women in UK boardrooms rose from 12.5 per cent to a record 15.6 per cent. Reding, however, affirms that the current rate of progress across the EU is so slow that it would take 40 years to achieve 40 per cent in the EU.

The EU proposes that introducing more women will help the economy by creating more competition. With a large number of female graduates in the EU and a significant under-representation of women in the boardroom, and practically negligible proportions of women at executive levels, it is clear that the issue of gender does need to be addressed. Slow and steady improvement yielded through self-regulation, however, is not a good enough result for the Justice Commissioner. The Commissioner’s one-size-fits-all policy raises further questions about the transfer of legislative powers from nation states to the EU, and whether countries should have the freedom and flexibility to determine their own legislation.