The legislative proposal follows a three-month consultation and a report launched in March in which the Commission showed limited progress towards increasing the number of women on companies’ non-executive director boards.
According to the draft proposal, seen by the Financial Times, companies will face fines and other sanctions if they don’t make sure to have at least 40% of women on their boards.
The European Commission aims at redressing a severe gender imbalance as the report, published in March, showed that 13.7% of board members at Europe's top firms are women, up from 11.8% in 2010.
“Progress in the share of women on company boards is very slow, with an average annual increase of just 0.6 percentage points over the past years,” the draft directive says. “The rate of improvement in individual member states has been unequal and has generated highly divergent results.”
Even though some European countries - including Belgium, France, Italy, the Netherlands and Spain - have started to address the situation by adopting legislation that introduces gender quotas for company boards, other EU countries, like Britain and Sweden have shown strong resistance. Denmark, Finland, Greece, Austria and Slovenia have adopted rules on gender balance for the boards of state-owned companies.
The EU estimates that it would still take more than 40 years to reach a significant gender balance (at least 40% of both sexes) at this rate.
“Personally, I am not a great fan of quotas. However, I like the results they bring,” Reding said recently.
According to the draft, companies larger than 250 employees or with more than €50 million in revenue would be required to report annually on the gender composition of their boards. Those that miss the mandatory quota would be subject to administrative fines or be barred from state aid and contracts.
The European Commission has said that 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 those of men. 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.