Last year the Vice-President of the European Commission and Commissioner for Justice, Viviane Reding, told EU companies they had one year to voluntarily increase the number of women on their boards otherwise they would have to face mandatory measures. Then, in March 2012, the European Commission launched a public consultation aiming at identifying measures the EU should take to deal with the lack of gender balance in boardrooms of listed companies in Europe. In the meantime,
the European Parliament adopted a non-legislative resolution calling on the European Commission to put forward legislative proposals to introduce quotas in order to increase the representation of women on corporate boards by 30% by 2015 and 40% by 2020. The European Commission is set to follow the European Parliament’s recommendations as next month it will propose legally biding rules including quotas to increase the representation of women on corporate boards as well as sanctions applied to companies that do not meet the proposed objectives.
It has been reported that, in October, the European Commission will present a draft directive that would require, if adopted, publicly listed companies to ensure that 40% of their non-executive board members are women by 2020, whilst state-owned companies would have to meet this requirement by 2018. Member States would be required to impose fines against those companies that miss the mandatory quota as well as other sanctions such as exclusion from public tenders or state aid.
Any proposals presented by the Commission obliging listed companies to increase the number of women on their boards would have the support of the European Parliament but they are likely to face opposition from some member states, particularly from the UK, Sweden and Germany. Whereas several EU member states have adopted their own national quotas, Britain and Sweden, have no limits. Last March, Norman Lamb said, “We think getting more women on corporate boards is important. But for now, we do not support quotas, nor do we think it’s appropriate for Europe to seek to impose them.” According to The Financial Times a business department official has recently said, “Our position will still stand – we are opposed to legislation for quotas.”
It is important to note that such proposal would be subject to QMV, hence the UK would not be able to veto it and, consequently, would be force to accept such measures even being against them.
In the meantime, according to The Financial Times, Britain has launched a campaign against the Commission’s proposal, which includes a letter sent to other EU member states for them to sign so it can be then sent to José Manuel Barroso and Viviane Reding. The draft letter seen by The Financial Times, points out that several EU member states are already addressing the issue through voluntary measures or their own mandatory quotas, consequently the EU should not interfere in member states’ efforts. The letter concluded, therefore, “For these reasons, we do not support the adoption of legally binding provisions for women on company boards at the European level,”.
According to Marina Yannakoudakis MEP, ECR spokesman for Women’s Rights and Gender equality in the European Parliament, such move would be "bad for business and bad for genuine equality". She is absolutely right when she said, “ … a healthy proportion of women on a board will generally provide a commercial advantage because of the mix of expertise and experience – but imposing strict quotas, which are both arbitrary and artificial, cuts across the freedom of businesses to make their own decisions and the freedom of women to succeed on merit."
In fact, last November, Ms Reding put forward a new proposal, which sets 40% as an objective and it does not provide for specific sanctions for companies that did not comply with the draft directive.
The Business Secretary, Vince Cable said, “The UK welcomes the Commission’s decision not to impose mandatory quotas for women on boards. We remain fully committed to increasing women’s representation in UK boardrooms, but along with like-minded Member States, we have consistently argued that measures are best considered at national level. So we are pleased the Commission has listened to the concerns raised.” However, it is important to note that, on 7 January 2013, the House of Commons decided to send to the Presidents of the Council, the European Parliament and the Commission a Reasoned Opinion stating that this proposal does not comply with the principle of subsidiarity.
The draft directive sets 40% as an objective applicable to publicly listed companies by 2020 and by 2018 for listed public undertakings. The new proposal does not provide for mandatory quotas however, as the European Scrutiny Committee pointed out “the action proposed by the Commission comes very close to the introduction of a binding quota for the proportion of women represented on corporate boards, even though it is expressed in terms of a quantitative objective.”
Moreover the proposal, if adopted, would entail administrative burdens to companies. Companies would be required to report annually on the progress made to reach this target. They also would have to set transparent mechanisms for selecting new board members. Under the draft proposal companies would be required to make appointments to their boards “by applying clear, gender-neutral and unambiguous criteria”. Ms Reding has stressed, “The Commission’s proposal will make sure that in the selection procedure for non-executive board members priority is given to female candidates – provided they are under-represented and equally qualified as their male counterparts.”
According to The Financial Times, lawyers believe such proposal “had several shortcomings as it failed to set clear rules on mechanisms for selecting board members” which “could expose companies to litigation by female candidates questioning their hiring criteria.”
The draft proposal does not provide for specific sanctions, but Member States would be required to impose “appropriate and dissuasive sanctions” for companies in breach of the Directive. Ms Reding said “Sanctions are going to be applied to companies that have less than 40 per cent quotas and who are not putting in place an open system for the selection of the candidate to replace an outgoing board member and who do not chose the woman in order to fill the gap if the woman is qualified”. She has made clear “Would a member state . . . not fulfil their duties on the basis of the directive then the European Commission can start infringement procedures”.
The UK Government was able to gather support from several member states against the Commission’s proposal to impose legally biding rules including quotas to increase the representation of women on corporate boards. A letter draft by the UK, and signed by another eight member states, including Bulgaria, the Czech Republic, Latvia, Estonia, Lithuania, Hungary, Malta and the Netherlands, was sent to the European Commission’s President, Jose Manuel Barroso and Vice President Viviane Reding, stating, “we reiterate that any targeted measures in this area should be devised and implemented at national level. Therefore, we do not support the adoption of legally binding provisions for women on company boards at the European level.” Hence, there were enough Member States to form a blocking minority against the proposal.
Nevertheless, Viviane Reding decided to go ahead with her proposal and present last Tuesday a draft directive that would require, if adopted, publicly listed companies to ensure that 40% of their non-executive board members are women by 2020. However, Viviane Reding’s proposal is facing opposition not only from member states but also from members of the European Commission. She has not even been able to convince her colleagues.
As Marina Yannakoudakis MEP said, “I hope commissioner Reding will take the hint. Member states don’t want quotas, the commission doesn’t want quotas and I know that many members of the European parliament don’t want quotas. Let’s put a stop to this quota nonsense once and for all and talk about the real issue of supporting diversity in business.”
It is important to mention that the Commission take its decisions on the basis of proposals from one or more of its Members, but a vote only takes place “if any Member so requests.” In fact, they don’t vote at all! The Barroso’s Commission College has been approving all of its proposals by consensus.
However, the Commission is totally divided over this proposal. It has been reported that just eight Commissioners were willing to back Reding’s proposal, which fell short of the majority required to approve legislation. Ms Reding is planning to put forward another proposal next month. She pointed out,
“We did not speak about majority or minority in the meeting as the commission president made it very clear that at the end of November we will take a decision by consensus or by vote, depending on the mood of the college then.”
In the meantime, it has been reported, that the UK has gathered support from several member states against the Commission’s proposal to impose legally biding rules including quotas to increase the representation of women on corporate boards as well as sanctions applied to companies that do not meet the proposed objectives.
The letter draft by the UK was signed by another eight member states, including Bulgaria, the Czech Republic, Latvia, Estonia, Lithuania, Hungary, Malta and the Netherlands. The letter was sent to the European Commission’s President, Jose Manuel Barroso and Vice President Viviane Reding, stating, “we reiterate that any targeted measures in this area should be devised and implemented at national level. Therefore, we do not support the adoption of legally binding provisions for women on company boards at the European level.”
The Government is therefore leding opposition to the proposal, and it would be able to work with the above-mentioned Member States to form a blocking minority against the proposal.