Draft Directive on the quota for women on supervisory boards: A great success?
15% is the proportion of women among non-executive directors and members of supervisory boards of companies listed on the stock exchange in the EU-27 countries. The proportion of women on management boards is even lower, at 8.9% throughout Europe. It does not take a mathematical genius to see that this is not a lot.
The Member States have faced up to the problem in different ways. While some have introduced compulsory measures, others prefer to rely on self-regulation. To date, however, notable success has only been achieved through using compulsory measures.
Within the European Commission, Vice-President Viviane Reding, responsible for Justice, Fundamental Rights and Citizenship, has assumed overall leadership in this matter and last Spring she initiated a consultation regarding the imbalance in the gender ratio in the highest decision-making committees of companies in the EU (cf. europeinfos No. 149). The Commission had already announced that it would be examining “political options for targeted measures”, and so the draft Directive on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures, published on 14 November 2012, came as no surprise. It is believed that the route of the draft on the way to publication was fraught with difficulties. Originally it was to have passed through the Commissioners’ college in October but – according to press reports – the discussions were so controversial that voting was postponed until November, with amendments made to the draft in the meantime. Among other things, there were major concerns regarding subsidiarity.
40% women on supervisory boards by 2020 at the latest
The declared objective is a substantial increase in the proportion of women on management boards of companies listed on stock exchanges, with a 40% presence of the under-represented sex among the non-executive directors members of supervisory boards of companies listed on stock exchanges. This objective should be attained by 2020, and 2018 for public bodies. The Commission justified its concentration on companies listed on stock exchanges by quoting their economic importance and high visibility. Small and medium-sized enterprises, on the other hand, are excluded from the sphere of application of the Directive. The quota has a “saving clause”, whereby priority shall be given to a candidate of the under-represented sex, “if that candidate is equally qualified as a candidate of the other sex in terms of suitability, competence and professional performance, unless an objective assessment taking account of all criteria specific to the individual candidates tilts the balance in favour of the candidate of the other sex“ (cf. Draft, Article 4 (3)). If an unsuccessful candidate challenges the selection procedure, the company should be obliged to disclose the qualification criteria with the burden of proof.
Obligation with regard to board members
What is surprising, however, is the justification for limiting the quantitative objectives to non-executive directors/supervisory board members. Apparently this enables a balanced representation of women and men on the management boards to be achieved while taking account of the need to minimise interference with the day-to-day management of a company (cf. Draft, Recital 20). Even if the companies listed on stock exchanges are only subject to a self-imposed obligation with regard to their managing directors or board members, an attempt is made to impose a certain pressure by means of the obligation to report to the competent national authorities on the measures taken. This should be published on the company’s website, distinguishing between supervisory board and board of directors, in an appropriate and accessible manner. The Directive should moreover require the Member States to impose sanctions (e.g. fines or cancellation of the appointment or election of the non-executive directors/supervisory board members) for failure to comply with the requirements.
Why all this?
Apart from the fact that the equality of women and men is one of the fundamental values and core objectives set out in Article 2 and Article 3 (3) TEU, the Commission refers first of all to the usual economic grounds in the Recitals to the planned Directive. Insufficient use of the skills of highly-qualified women causes potential for economic growth to be lost. All available human resources must be utilised if the EU wants to deal with its demographic problems, participate successfully and competitively in a globalised economy and secure a comparative advantage over other States. An imbalance of the ratios in the management boards of companies listed on stock exchanges could also lead to their losing out on opportunities relating to corporate governance and company performance. There is a broad consensus that women on management boards exert a positive influence on corporate governance, as team performance and decision-making quality are improved due to different ways of thinking and attitudes to colleagues, which open up new perspectives and lead to more balanced decisions, according to the Commission. A number of studies show that a balanced distribution of both sexes in top management has a positive effect on the business results and economic success of a company. They also refer to the fact that a stronger representation of women on management boards is not only advantageous for the women in question, but also makes the company attractive to other skilled women, and so, over time, the presence of women at all management levels and among the staff generally is increased overall. The Commission also hopes to have a positive effect on the reduction of gender-specific salary differentiation. This approach, well-known under the slogan “equal pay for equal work” has still not been achieved in 2012!
Looking forward to the next steps
The draft Directive got off to a shaky start, and it remains in doubt whether all the obstacles have been cleared. A clear path through the legislative procedures cannot be expected. While the European Parliament has repeatedly called on the Commission to propose legislation, including quotas, to increase female representation in corporate management bodies to 40%, inter alia in its Resolution of 6 July 2011 on women and business leadership, the indications for the draft in the Council look less favourable. It has also been brought before the national parliaments. The TEU provides that the drafts of legislative acts should also be submitted to the national parliaments (cf. Article 12 TEU). According to the provisions of the Subsidiarity Protocol (Protocol no. 2) they can submit a reasoned opinion to the Presidents of the European Parliament, the Council and the Commission on why the draft does not comply with the subsidiarity principle, within eight weeks of the draft legislative act being made available. If the number of such opinions represents at least one-third of the total votes in the national parliaments, the draft must be reviewed. The Commission can decide to retain its draft unchanged, modify it, or even withdraw it. Such a decision must, however, be substantiated. The national parliaments in some Member States have begun their subsidiarity check. The period for submitting any subsidiarity objections ends in mid-January 2013. It remains to be seen how many national parliaments will raise any such objections.
It is a matter for the individual to decide whether the proposed law is a success. It has divided opinion both in Brussels and in the individual Member State capitals. But whatever happens, it has put this important topic high on the political agenda. And another thing is certain: Vice-President Reding and her proposed Directive still have a number of obstacles to overcome in the legislative process. But that is merely an accurate reflection of the controversial nature of the debate!
Translated from the original text in German