Reding’s dilemma: To quota or not to quota?
Commissioner Viviane Reding is keeping everyone wondering about whether she will propose quotas on Monday (5 March) to fulfil the pledge she made a year ago to redress gender imbalance in listed companies’ boards.
Last March, the EU Justice chief told companies they had one year to increase the number of women on their boards, if not she would push for legislation. To date her ‘Women on the Board Pledge for Europe’ was signed by only 24 companies.
Although Commission officials maintain an absolute secrecy on what she will propose next week, Brussels’ insiders question whether Reding will have the courage to present enforceable, binding rules.
Meeting social partners yesterday (1 March), Viviane Reding said she had a first constructive discussion. “While some business leaders consider regulatory intervention – as seen in Norway, France and Spain – as indispensable, others pointed to promising self-regulatory initiatives. Discussions between my services and representatives of the social partners showed similar positions," she added.
A directive or just a recommendation?
The Commission's 2012 work programme states that it plans to follow up on the gender equality strategy and issue a recommendation which “would aim to improve gender balance in company boards."
“As well as being a fundamental right, gender equality is crucial for the EU’s growth and competitiveness,” reads the work programme. A recommendation is not legally binding.
Women's organisations deemed that progress was slim and that Commissioner Reding must come up with decisive action.
“Radical change throughout Europe requires binding measures also at EU level. The European Commission must seize this unique opportunity to ensure efficient and diverse economic decision-making and propose an EU Directive on parity in boardrooms,” said Cécile Gréboval, secretary-general of the European Women’s Lobby.
So far only five EU member states - Belgium, France, Italy, the Netherlands and Spain, along with Norway and Iceland - have adopted legislation to increase the representation of women on corporate boards. Several others have set targets for state-owned companies or taken steps to enhance self-regulation.
Although women represent 60% of university graduates in Europe, they are seriously underrepresented in corporate governing bodies. In 2010, women accounted for just 12% of board members and less than 3% of company chairs. This means that the typical European corporate board of 10 members has on average only one female member. Some 34% of large companies in the EU do not have a single woman on their board.
The number of women in European corporate boardrooms is currently increasing by half a percentage point per year. Brussels estimates that at this slow rate it will take another 50 years before European corporate boardrooms contain at least 40% of each gender.
More women on boards: Good for business
“Quotas can change the composition of boardrooms fast,” said Petter Sørlien, counsellor for equality and non-discrimination at the Mission of Norway to the EU. He argued that the business world has to change from within as women leaders of today can co-create new rules, which will benefit both men and women.
But quotas would need to be binding legislation and Reding might move in that direction, as she has now the backing of EU ministers.
EU ministers meeting in Brussels gave Commissioner Reding the green light to “do something” to boost gender balance.
“That is good for business,” said European ministers for employment and social affairs.
A McKinsey study found that gender-balanced companies have a 56% higher operating profit compared to male-only companies. Another research by Ernst & Young looked at the 290 largest publicly listed companies. They found that the earnings at companies with at least one woman on the board were significantly higher than for those that had no female board member.
Responding to political pressure, 31 of Europe’s biggest companies this week published their targets for increasing the number of women in senior corporate roles and launched a database of female board candidates.
STMicroelectronics’ president and chief executive Carlo Bozotti, who heads of the European Round Table of Industrialists (ERT) working group handling the initiative, said the businesses would have pressed ahead with the plans irrespective of Reding's progress assessment.
Under the umbrella of the ERT - including big corporations like BASF, Philips, Telefónica - some of these companies will work with three executive search firms – Egon Zehnder, Russell Reynolds and Spencer Stuart – to create a pool of potential female board members.
The last-minute initiative would suggest that the Commission is indeed mulling something more than just a recommendation.
On average 12% of board members of the largest publicly listed companies in Europe are women, and just 3% are leaders of corporate boards.
In 2011, the EU commissioner for Justice and fundamental rights, Viviane Reding, launched a Women on the Board Pledge for Europe, calling on large companies to increase the women present at the board level to 30% by 2015 and to 40% by 2020. Should this self-regulatory initiative not bring any results until March 2012, the Commissioner promised to consider legislative provisions.
There is both an economic and a business case for better gender balance in company boardrooms and management. More women now graduate than men in Europe (59% vs. 41%), yet their professional careers lag behind men's. This underused pool of qualified workers represents an untapped potential for the economy. Studies also show a number of strong links between gender balance and performance in creativity, innovation, financial reporting, auditing and internal controls.
Promoting more equality in decision-making is one of the goals in the Women's Charter launched by the Commission in March 2010. The Commission then followed these commitments by adopting a Gender Equality Strategy in September 2010 for the next five years, which includes exploring targeted initiatives to get more women into top jobs in economic decision-making.
"Last summer, the European Parliament called on Vice President Reding to propose EU legislation, including quotas in 2012 if the steps taken by companies and member states are found to be inadequate. The time has come to take stock on progress," said MEP Marije Cornelissen, one of the Shadow Rapporteurs for the European Parliament’s Women in Business Leadership report.
"I expect her to stand behind her word and to take the European Parliament’s position into account. Self-regulation has had its chance. If it proves to be insufficient, binding measures are needed. We cannot wait for another 50 years until women are equally represented in business leadership," she said.
"It is regrettable that in Europe, where gender equality should be a reality, we still witness women's representation on the board of Europe's largest companies below 3%. European institutions should be setting an example rather than confirming a stereotype. The Commission should propose ways to ensure a fairer gender balance, as promised by Commissioner Reding a year ago," said Swedish liberal MEP Olle Schimdt, referring to the European Central Bank leadership.
Claire Godding, diversity manager of BNP Paribas Fortis, said: "Quotas can change the composition of boardrooms fast. However, the business world has to change from within, to ensure that, in addition to achieving a better gender mix at all levels, the next generation of directors will have a good work-life balance and a better mix of male and female competencies. Women can contribute to this change. The women leaders of tomorrow do not have to live the lives of the business managers of today. They can co-create new rules, which will benefit both men and women."
Sabine de Bethune, president of the Belgian Senate, said: "Women should not be embarrassed, nor do men have to feel offended by quota legislation. Quotas are a legitimate means to realise a balanced representation of women and men in society."
- 5 March: European Commission to release progress report on women in economic decision-making positions.