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25/09/2016

Germany debates bill to set gender quota on corporate boards

Germany debates bill to set gender quota on corporate boards

Germany's bill on a quota for women on supervisory boards: starting in 2016, the number of women on executive boards should increase to at least 30%.

[Sam Churchill/Flickr]

SPECIAL REPORT / A bill to introduce a quota for women in corporate leadership positions is up for approval in the Bundestag. Politicians, employees and unions are criticising the measure, saying it is full of gaps, even calling it unconstitutional. EurActiv Germany reports.

A quota for women on supervisory boards is planned to be passed in Germany’s Bundestag in early March. But just a few days before its expected approval, the bill is more controversial than ever – within the country’s political parties and among business representatives, but also for worker’s unions and legal experts.

Last Monday (23 February), additional criticism surfaced over the bill, which was drafted by Germany’s Justice Minister Heiko Maas and Minister for Women Manuela Schwesig, after much debate over the details of the measure.

Violation of the constitution

Meanwhile, numerous experts who submitted assessments of the bill in the Bundestag’s committees a few days ago, labelled the piece of legislation as unconstitutional in many areas, and at least partially incompatible with EU law.

If approved, the law would require all listed companies in Germany, in which the employees are fully entitled to representation on the supervisory board, to fill 30% of these seats with women by 2016.

If the quota is ignored, sanctions could be imposed on the companies in violation. If no qualified woman can be found, the bill indicates that the positions must remain unfilled.

This is precisely why many critics disagree with the details of the measure. Analyst Kay Windthorst, from the University of Bayreuth, called these sanctions plainly unconstitutional.

The sanction of the “empty chair”, if too few women are available for the selection of the supervisory board, is an “unacceptable erosion of ownership authority among shareholders in filling the seats of the shareholder bank”, Windthorst explained.

Exceptions needed in certain areas

Around 100 large companies would be affected by the new quota. Moreover, about 3,500 companies that are listed or subject to employee co-determination would be required to set binding targets on how they intend to increase the number of women in leadership positions. But businesses in this category will not be subject to penalties.

Windthorst is calling for exceptions to the quota’s application. In construction and heavy industries, it is simply unlikely that enough women can be found, he said.

>>Read: Germany to legislate 30% women on company boards

Germany’s Left Party and Greens, who would have liked to set a quota for women at 40%, have expressed similar concerns. Chairman of the Bundestag’s Legal Affairs Committee and MP from the Green Party, Renate Künast, said she was glad the quota for women has finally arrived.

“For four years, many women in the Bundestag have fought [for this measure]. Now we will hopefully get a foot in the door soon,” Künast commented.

But at the same time she criticised that the quota only applies to supervisory boards, not the management boards for operational business.

Unions call for separate treatment for employees and shareholders

Deputy Chairwoman of the German Confederation of Trade Unions (DGB), Elke Hannack praised the effort behind the bill but indicated that improvements are needed.

“The bank of employees on the one side and the bank of shareholders on the other” must be “observed separately”, Hannack said at the end of January in a statement for the Neue Osnabrücker Zeitung.

She said the unions are concerned that the shareholder’s representatives will shirk the responsibility to uphold the women’s quota because most women on supervisory boards subject to co-determination are employee representatives.

Significant additional cost for companies

Meanwhile, employers have concerns of a different nature. They warn that the economy will be burdened by numerous additional administrative complications if the quota is implemented.

Ingo Kramer, President of the German Employers Association, called for improvements and criticised the additional reporting requirements and complicated commitments as well as extensive selection procedures in the event that the quota is not met.

The Federation of German Industries (BDI) is also certain that the burdens will increase, calling for exceptions for small boards of up to three persons.

“It is absurd to force medium-sized companies with one- or two-person managing boards to implement the quota,” said Holger Lösch, a member of the BDI’s executive board.

Industry and employer groups also pointed out Minister Maas’s cost calculations for the private economy as another weakness the bill presents.

Many critics are convinced that Maas’ estimates of the annual costs for the private economy (€257,000) are much too low. The calculations are “absurd”, said Stephan Harbarth, chairman of the centre-right alliance in the Legal Affairs Committee.

Harbarth said he is certain that many companies will have to invest tens-of-thousands of euros.

Businesses seeking to escape the quota

Heidelberg-based legal analyst Marc-Philippe Weller pointed out some of the possible effects of the additional financial and organisational burden on companies, in a position paper for the Bundestag.

He warned that companies may approach the “escape from the quota” by transforming into an entity with foreign legal status. This happened in Norway, for example, when such a quota was introduced, Weller said.

In Germany as well, Weller explained, the phenomenon is widely known as “escape from co-determination”, such as through transformation into a Public Limited Company (PLC), which is not regulated under German but under British corporate law.

Background

Across the EU, women are underrepresented in decision-making positions, particularly in politics and business, even if the situation varies between EU countries. In November 2014, women accounted for 28% of members of the single or lower houses of parliaments in the EU countries.

In business leadership the situation is particularly disappointing: in October 2014, women accounted for just 20.2% of board members of the largest publicly listed companies registered in the EU countries.