Women on boards quota to threaten Europe multinationals?

Author: Gemma Varriale | Published: 6 Sep 2012
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A new European Commission (EC) proposal would force public companies to appoint women to 40% of their non-executive board seats by 2020.

Companies that fail to do so face administrative fines and other penalties.

But not everyone agrees with the draft proposals, with some saying they could make the EU a less attractive destination for multinationals to set up business.

“Businesses would look at the quotas and think it’s another hurdle we have to comply with, it’s too difficult so we’re going to stay out of the EU,” said Clodagh Hayes, a partner with Linklaters in London.

The rules, championed by the EU’s justice commissioner Viviane Reding, would target companies with more than either 250 employees or €50 million in revenues.

The rationale is that gender diversity on corporate boards leads to better decision-making. According to recent statistics from the EC, women account for just 13.7% of board members in large listed companies – some way off the EC’s latest target of 40%.

But according to Hayes, who is against the concept of mandatory quotas, there needs to be a social, rather than a legislative, change. Hayes said she was fundamentally opposed to quotas because they lead to the suspicion that a woman has been appointed only because the company is legally obliged to meet targets.

Fraser Younson, partner with Berwin Leighton Paisner in London also said that this could be a bit of an own-goal. “Women want to do it on their own merit, not because of their gender,” he said.

Under UK rules, it is illegal for companies to discriminate positively between genders. The Equality Act carves out a limited exception when there is a male and female candidate that are both of the same calibre. As a tie-breaker, the company can positively discriminate in favour of the candidate that belongs to the sex that is underrepresented in the business.

In contrast, Younson said the quota system would require compulsory positive discrimination.

But, asked about whether such quotas lead to tokenism, Amsterdam-based Baker & McKenzie partner Mirjam de Blécourt said this was a non-argument. “Anyone who is chosen would have to prove themselves: if they don’t do a good job they will be gone within a month,” she said.

An unrealistic target?

In an article this week, the Financial Times said that it had obtained a copy of the legislation.

‘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 reportedly states. “The rate of improvement in individual member states has been unequal and has generated highly divergent results.’

There is great uncertainty about how the 40% threshold will be reached in just eight years.

According to Younson, 40% is such a challenging target that it will probably get watered down to 30% as the proposal makes its way through the EU legislative process.

Hayes also said that 40% is high in terms of where the pool of talent will come from, and may lead to firms having the same women on multiple boards rather than increasing the pool of candidates.

“Traditionally, there is opposition to having lawyers on boards, but actually a lot of the executive women tend to be in the legal world,” said Hayes. “Companies may need to look beyond the traditional areas of accountancy, banking and business people.”

Some also believe the focus is on the wrong thing, saying that if the EC really wants diversity in the company rather than the board, it must focus on the executive rather than non-executive level.

Of the 163 women who are directors of Britain’s top 100 companies, 20 are executive directors and 143 are non-executive directors.

To date, the UK approach has been voluntary, with the prevailing view being that there should be an organic pipeline of talented executive women to make it up to board level. “This is best achieved by championing active sponsoring and mentoring of female candidates that are more likely to get into executive positions as opposed to being an appointee in a non-executive position,” Younson told IFLR.

According to Younson, if the directive requires directorship with no distinction between executive and non-executive directors, companies could simply load the number of non-executive positions to meet the quota and avoid a fine.

Related links

http://www.iflr.com/Article/3006770/Gender-balance-within-listed-companies-in-Italy.html

http://www.iflr.com/Article/3074612/Whats-new-in-Brazilian-corporate-law.html

http://www.iflr.com/Article/3073414/What-to-watch-under-Indias-new-companies-law.html

http://www.iflr.com/Article/3061958/Europe-Women-in-Business-Law-Awards-2012.html

http://www.iflr.com/Article/3061972/Americas-Women-in-Business-Law-Awards-2012.html