By: Lisa Coxon and Cleo Tse.
The European Commission wants 40 percent of company boards to be female by 2020, especially at a time when they can boost economic growth
Stepping into an office at the European Commission is indicative of how overwhelming bringing about change can be. This is where all EU legislation begins. Mina Andreeva shuffles through piles of papers as a giant, intimidating stack balances on the arm of a couch near the window. Andreeva is the spokeswoman for EU Justice Commissioner Viviane Reding, the woman who spearheaded the recent proposal last November to get more women onto EU company boards, which men currently dominate.
Diverse boards more profitable
Women make up 60% of university graduates today, making them an untapped pool of economic potential for companies. However, they are underrepresented at executive company levels. Several studies indicate that diverse company boards are more sustainable and profitable. An analysis conducted by consulting firm McKinsey&Company in April 2012 shows that companies with the highest number of women in top management had the best performance.
In March 2011, Reding created a pledge for companies to sign within one year, making a voluntary commitment to have 30% women on boards by 2015 and 40% by 2020. Only 24 companies signed. Reding initially proposed a quota but the Commission favoured a procedural flexi quota, which means the law only applies only to recruitment procedures, not the actual 40% target.
“It’s a smart quota because we are saying how to get there by making use of the talent that exists,” says Andreeva.
The directive – or proposed legislation – now sits before the European Parliament (EP). It opts for 40% of the underrepresented sex to fill non-executive board positions by 2020 within publicly listed companies, excluding small and medium enterprises. It allows flexible objectives to be set by companies themselves for executive positions. If an equally qualified male and female candidate applies for a board position, priority should be given to the underrepresented sex. Once sustainable progress has been made in gender composition of boards, the directive expires.
Companies will not face sanctions if they fail to meet 40% by 2020, but will be sanctioned by their respective member states if they lack transparent and gender-neutral hiring processes. The directive must be adopted by EP and the Council of Ministers for it to become law.
It is up to member states to implement sanctions against companies who do not strive to meet the 40%, but the Commission can execute infringement cases against member states if they are not complying and fail to explain why. It can also revoke money provided to boards and conduct “naming and shaming” – making it highly visible to the public which member states are not making progress.
The Commission will not impose provisions on schemes that are working already. The Commission will assess them and if sufficient, companies will be able to carry on as is.
According to Sylvia Walby, professor of sociology at Lancaster University in the UK, economic growth strategies are gendered. The old, idealized model of the EU emphasized economic growth via full employment of women and minorities, and practices that reconciled family and work life. The recent budget adopted by the EU in February presents a new model, justifying economic growth through the use of austerity measures – cuts in public expenditure, that at a national level seem small, but at a local level have a much more significant impact.
These cuts have disproportionate impacts on those least protected by statutory law – women being among them. Walby says this current model will wreck the possibilities of economic growth.
“Economic growth requires full employment,” she says.
Only 11 out of 27 member states have made any progress with promoting gender equality on boards, while two-thirds have done nothing at all.
According to Andreeva, since the Commission threatened member states with regulatory action, the figures have improved. Last year, it saw the biggest year-on-year increase of women on boards among member states – 2%. Prior to this, it was only 0.6%.
Among the frontrunners are France and Finland, while Malta and Hungary have the least women on boards. Despite the lack of progress in most member states, Walby says the EU is still the best polity in terms of gender equality.
Under the Danish corporate governance code, companies should strive for a diverse board. This is not just gender-specific, but focuses on all forms of diversity including nationality.
Novo Nordisk, a Danish pharmaceutical company, was one of several participants at the Business Leaders Summit on Women in March 2011, a summit held in Brussels where Reding met with CEOs and chairs of publicly listed companies to discuss how to get more women into top jobs and whether self-regulation is the way to do this. Novo strives for 100% of its management teams to be diverse by 2014 – at least one female and one non-Dane. Scott Dille, communications manager, says that at Novo, talent trumps gender.
“Talent is recognized and talent is then promoted into accelerated training programs,” he says.
Novo has two training programs for women in management and women on the path to management. Out of 19 board members at Novo, 3 are women.
The Norway example
Norway introduced a 40% quota in 2003 and remains the country with the highest proportion of women on boards. Norway’s quota law is often seen as a benchmark, but Norwegian companies have also implemented voluntary methods in accordance with the quota, such as full daycare coverage and 14 weeks of paternal leave. Currently, there are 41% women on supervisory company boards in Norway.
The Q-Word: for or against
There is no middle ground in the discussion about quotas; some believe voluntary measures are the best method and that quotas infringe on subsidiarity, while others believe quotas are the only way to achieve gender equality. Quotas worked for Norway, but Sweden, which ranks third in terms of highest proportion of women on boards, does not use quotas.
“Quotas are a necessary evil,” says MEP Elisabeth Morin-Chartier, Vice-Chair of the Committee on Women’s Rights and Gender Equality.
Walby says there is no existing historical example of a country meeting 40% women on boards without quotas, so will an objective be enough to reach the target?
“The change from voluntary methods is usually very slow, so if quotas are rejected but voluntary methods are embraced more enthusiastically, we should expect to see very, very slow change,” says Walby.
Within the Commission however, quotas and EU involvement were sticky subjects. Connie Hedegaard, Danish commissioner on climate action, is not in favour of this target being achieved through quotas.
“The right approach is to remove the obstacles… if you have an obligatory target then you must also be able to enforce it. There is too much of Europe setting targets without being able to enforce it,” she says. Hedegaard believes we need to leave this up to the member states, but doing so, according to Walby, is a common initial response.
“The people that make this argument… would really like to see more women on boards; they claim it. They claim that voluntary methods will get us there. So let’s take it at face value that voluntary mechanisms will be tried and if they fail, which I expect they will, then the quotas kick in. Almost all of the forms of quota legislation that we’ve seen in Europe have had this pre-aversion period,” she says.
There is an even greater gender imbalance among executive board positions. Executive directors are those involved in the daily management of a company, whereas non-executive directors perform a supervisory function.
Member of EP (MEP) Evelyn Regner, Vice-Chair of the Legal Affairs Committee says this directive is a “cautious but realistic approach.” The Commission, she says, doesn’t want to “ask for everything and receive nothing,” especially when there is already resistance among member states in these early stages of negotiation. Germany, for example, came out against gender quotas on March 6 before negotiations had even started.
The Greens/European Free Alliance (EFA), a political group in EP, would like to see the 40% objective extended to executive boards.
Legal action is helpful, but the underlying problem is an ideological one and it is far easier to change laws than it is to change mindsets. The crisis is both a cause and consequence of gender inequality.
“You need to be able to change the culture of a company,” says Regner.