Reding pushes 40% female quota on corporate boards

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Three weeks after her initial plan to impose gender quotas on company boards met with strong opposition, EU Justice Commissioner Viviane Reding unveiled a new proposal. But this time it was criticised for being too weak.

The aim of Reding's proposed directive, released yesterday (14 November), is to increase the gender diversity of corporate boards throughout the EU by setting a minimum objective of 40% female board members by 2020.

"This is a historical day for gender balance and equality," Reding said at a joint press conference with Olli Rehn, the commissioner responsible for economic and monetary affairs.

If adopted by the European Parliament and Council, the directive will apply to private companies listed on the stock exchange which have a percentage of women lower than 40% among non-executive directors.

This should be on the basis of a comparative analysis of the qualifications of each candidate, by applying "transparent and unambiguous criteria", in order to meet the 40% objective, the Commission said. 

The proposal is expected to apply to around 5,000 publicly listed companies in the EU. It does not apply to businesses with fewer than 250 employees and an annual worldwide turnover of less than €50 million.

The 40% target is binding, but not reaching it does not mean that there will be sanctions against a company.

"If there is a binding objective, the question whether or not there will be sanctions depends on whether or not it's justified not to have reached that objective," an EU official said.

"If member states and companies show us that they have made all the necessary arrangements that we think should be sufficient to reach the 40%, and that despite all the efforts they have made in reaching out to qualified women through having a transparent election procedure and in giving preference to equally qualified women, then that would mean there would be no sanctions," the source added.

Breaking the glass ceiling

Reding said that after decades of empty promises and failed attempts at self-regulation, it was time for the European Commission to take action.

Today, men comprise 91% of executive board members, 85% on non-executive board members and 96.8% of the boardroom chairs. Women account for 60% of new university graduates.

"Today we are proposing a legislation to smash the glass ceiling that keeps talented women out of top jobs," Reding said.

Rehn said it was time to move from words to deeds on gender equality, explaining that he felt personally engaged.

"I wanted to be associated to this proposal first of all because of its goal of achieving a higher number of women in business leadership and economic business making. The other reason is the direct association to my portfolio of economic and monetary affairs ... There is a clear economic and business case to have more women in business leadership," Rehn said.

The Finnish commissioner referred to recent studies that have shown that gender-diverse companies perform better. They are also respected by stakeholders for showing commitment to equality and good corporate governance, Rehn added.

Controversial legislation

Eleven EU member states as well as the European Economic Area member state Norway have already introduced legal instruments to promote gender equality on company boards. In eight of these countries, the instruments cover public undertakings.

Meanwhile, in two-thirds of the member states, no legal measures were introduced and no significant progress has been made in recent years.

An EU source said that it still is up to a member state to decide whether or not they have the right system in place and if they want to keep it.

Reding's earlier proposal had met with strong opposition from other commissioners, Catherine Ashton, in charge of foreign policy, Connie Hedegaard, the climate commissioner, and Cecilia Malmström, responsible for home affairs.

The loudest critic of the earlier proposal was Neelie Kroes, the commissioner in charge of the digital agenda. But she changed her mind after Reding submitted her second proposal, saying in a statement yesterday that she she supported the goal of greater gender equality.

Positions: 

European Commission President José Manuel Barroso said: "Today, with this proposal, the European Commission is answering the strong call of the European Parliament for EU action to bring about Gender equality in corporate boardrooms. Today, we are asking large listed companies across Europe to show that they are serious when it comes to gender equality in economic decision-making. At my initiative, the Commission has significantly strengthened the presence of female Commissioners among its members, with one third of Commissioners being women."

"Women in the EU account for 60% of new university graduates, but too many women are still missing in top jobs", said Antonyia Parvanova MEP from the Alliance of Liberals and Democrats (ALDE) and coordinator on the Women's Rights and Gender Equality committee. "There is a clear business case for stronger female presence in corporate boards. Better gender balance contributes to better business performance, improved competitiveness and economic gains."

Sophie in't Veld (ALDE), the Parliament's rapporteur on the annual report on the state of gender equality adopted in March 2012, commented: "I commend Commissioner Reding for her courage to keep this issue firmly on the agenda. Although liberals have a natural dislike of quotas, doing nothing and leaving it to chance is not an option. We have tried that approach the last four decades, with pathetic results."

John Davies, head of Technical at ACCA, the Association of Chartered Certified Accountants, said:

”While boards must be open to fresh thinking and must be prepared to consider candidates from a range of different backgrounds who are likely to bring constructive new ideas, they must have the freedom to assemble a group of people who, collectively, have the skills, experience and vision to achieve the company’s aims. We believe that strict quotas could potentially interfere with this emphasis on the collective to the detriment of the company and its members.”

Party of European Socialists (PES) Women President, Zita Gurmai, expressed her disappointment at the Commission proposal:

“I regret the very weak text that Commissioner Reding has finally presented to the College of Commissioners. This text falls short of any concrete and key measures, falls short as a strong political signal and most importantly, falls short of European women’s expectations. We must now rely on  the European Parliament to give this proposal real substance.”

Silvana Koch-Mehrin MEP, member of the liberal ALDE group in Parliament, was pleased with the introduction of clear quotas in the legislation.

"Congratulations to Commissioner Reding! The EU needs radical change to stop wasting female talent, to boost participation of women in decision-making. Self-regulation proved to be neither sufficient nor effective to achieve gender balance. We may not like quotas as an instrument, but the results are convincing: Progress is only visible in countries where quotas were introduced. Regardless of gender, Europe's economy needs the best heads and hands."

A UK Government spokesperson said:

"The UK welcomes the Commission’s decision not to impose mandatory quotas for women on boards. We remain fully committed to increasing women’s representation in UK boardrooms, but along with like-minded member states, we have consistently argued that measures are best considered at national level. So we are pleased the Commission has listened to the concerns raised."

Conservative MEP Marina Yannakoudakis added:

“We need to look very carefully at the new EU plans. I am pleased that the compulsory nature of the quotas has been watered down, but this is a legally binding directive and I am not happy with any interference by Brussels in UK employment law.

“I shall continue to fight any burdensome regulation which will increase red tape and increase the danger of capital flight from the EU."

Leanda E. Barrington-Leach, spokesperson at European Women's Lobby, said:

“We understand that a number of fellow Commissioners are blocking Reding’s proposal. In doing so they are undermining the credibility of the European Commission as guardian of the Treaties. The EU clearly has competence in this field. We recall that it is indeed the duty of the EU to promote equality between women and men. Already, the previous draft texts were excessively weak, applying only to non-executive positions on boards of the largest publicly-quoted companies, and leaving the question of sanctions up to the discretion of the member states. How much weaker can it possibly get?”

Timeline: 
  • The Commission's proposal will pass to the European Parliament and Council for consideration under the normal legislative procedure.
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