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EWL review: Measures to reach gender balance on boards in 2011

[Brussels, 03 January 2012] Will 2012 go down in history as the year of EU legislation for gender balance in the corporate boardrooms? Two months before the European Commission is due to announce what measures it will take to increase women’s representation on the boards of European companies, the European Women’s Lobby (EWL) takes stock of the measures adopted in EU Member States in 2011.

The EWL has strongly supported European Commission Vice-President Viviane Reding’s initiative to increase women’s representation on boards from the current 12% to 30% by 2015 and 40% by 2020 - in case self-regulation does not work, through legislation. The EWL sees her forthcoming announcement (March 2012) of the measures to be taken as a once-in-a-life-time opportunity to introduce effective, binding measures at EU-level.

Legislation with sanctions…

In 2011 five EU Member States – France, Belgium, Italy, the Netherlands and Austria – adopted legislative measures to increase the representation of women in boardrooms, following the successful example set by Norway in 2005. The laws adopted differ in terms of the companies included, the targets and deadlines set and the sanctions proposed for breaching the law.

The French legislation adopted in January 2011 calls for 40% women in the management bodies of large listed companies to be reached by 2017 (20% by 2013). The Belgian law adopted in June 2011 and that entered into force in 2012 sets a quota of 30% for the least represented gender on boards of state enterprises and publicly quoted companies. It gives a transition period of one year for state companies and 7 years for publicly listed companies. According to the quota legislation approved in Italy, state-owned and publicly listed companies need to have 33 per cent women on boards by 2015 and 20% by 2012.

In case of non-compliance, the law in France foresees declaring board nominations not valid and withholding the financial benefits that follow from board membership. In Belgium, the financial and non-financial benefits related to the position of the board of directors will be reduced. The sanction clauses of the Italian legislation are the strongest, ranging from warning followed by a fine to an eventual dissolution of the board of directors.

… and non-binding targets

The Netherlands included in 2011 in the Company Law a target of 30% for public and large private companies, to be reached by 2016. There are now sanctions, but large companies are required to explain in their annual reports if the number of women remains below the target.

Austria adopted in March 2011 a non-binding target of 35% to be reached by state-owned and partly state-owned companies by 2018 (25% by 2013). Again, no sanctions are foreseen, but the government has agreed that if, by 2018, the companies have not reached the target, legislative measures are to be implemented. Although the target only applies to state owned companies, the government hopes that private companies will follow its example.

Progress through legislation

It is too early to assess the success of the laws adopted, but there are signs that at least the laws that set sanctions for companies which do not comply are likely to produce results, at least if properly monitored.

Already the public debate preceding the introduction of legislative measures has created incentives for companies. Based on the European Commission figures from 2010, the representation of women has been increasing in France (+5 percentage points since 2005) and in Belgium (+4 percentage points since 2005). A recent report by Corporate Women Directors International on women on the boards of the 200 largest companies in the world ranks France first in terms of progress, as it moved from 7.2% board directorships held by women in 2004 to 20.1% in 2011.

Although non-binding measures are not necessarily as effective, the targets set in the Netherlands and Austria may push companies to act and encourage other countries to take legislative action, too.

Germany and Finland – next to propose quotas?

In 2011 also other Member States have showed interest in legislated quotas.

In Germany, a draft bill for a relatively weak ‘flexi-quota’ is already circulating in the Family Ministry. At the same time, a campaign initiated by female MPs from all political parties and the leading women’s organisations and supported by Labour Minister Ursula von der Leyen is calling for binding quota legislation.

In Finland, the Minister for Gender Equality Paavo Arhinmäki has called for legal quotas to increase women’s representation on boards, declaring that if gender balance in corporate boards will not be a reality by 2013, the government will adopt a quota law with a 40% target.

Small progress with self-regulation

In the course of 2011, some countries have enhanced self-regulation by requiring companies to set targets for gender balance on boards and disclose the progress made in annual reports. In others, companies have taken action.

In the UK, the so-called ‘Lord Davies Review’ released in February 2011 set a target of 25% for big publicly listed companies to be reached by 2015 and established regular monitoring mechanisms. In October 2011, following the recommendation of the Review, the UK corporate governance code was amended with the requirement that annual reports of companies should include a “description of the board’s policy on diversity, including gender, any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives.”

The strong, government-led approach to self-regulation has already provided results. According to the recent monitoring report, the number of female board members in the 100 biggest companies in the UK has gone up from 12.5% in 2010 to 14.2% in 2011, and 22.5% of all board appointments since the target was set have been female.

In Denmark, the corporate governance recommendations have been strengthened. The recommendations now calls on the governing bodies of companies to annually discuss the company’s activities to ensure gender balance, set measurable objectives and to give in the annual report an account of the objectives and the progress made.

In Germany, the leading companies have announced individual voluntary gender targets and committed to monitoring progress. With the proposals to increase the number of women up to 35% by 2020, the companies are seeking to avoid quota legislation.

However, it seems that companies are unlikely to react without concrete pressure from governments.

For example, the EU-level initiative to encourage self-regulation has not worked as efficiently as expected. In March 2011, Vice-President Reding gace ’self-regulation the last chance’ and launched ‘Women on the Board Pledge for Europe’, intended to be signed by European companies committing to increasing the representation of women on their boards. By August 2011, the pledge had been signed only by eight companies.

Toward EU-level regulation

Figures on women’s representation in 2011 to be released in the coming weeks will allow us to estimate whether sufficient the progress made since 2010. Until now progress has been slow and mostly made thanks to strong government interference.

The EWL thus believes that ensuring real outcomes across Europe require strong EU-level measures and encourages Vice-President Reding to propose EU-level legislation. Also the European Parliament has called on the Commission to introduce quotas if voluntary measures do not work.

The EWL recommends that listed and non-listed public companies with more than 50 employees and all state-owned companies should be required to have 40% of women on their boards of directors by 2015 and 50% by 2020.

Read more about the EWL recommendations from the EWL statement on women on boards from June 2011.

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