Members of European Parliament are pushing a proposal to force listed companies to improve gender balance in their boardrooms through mandatory quotas backed by sanctions.

A directive to improve gender balance among non-executive directors of companies listed on stock exchanges is being studied in two committees, the Committee on Legal Affairs and the Committee on Women's Rights and Gender Equality. The co-rapporteurs released a report this week highlighting the need for a common strategy to boost the ranks of women in non-executive board positions to 40 percent by 2018 or 2020. The earlier deadline applies to companies that are in part or in whole public undertakings. That goal would be backed by the possibility of sanctions for companies failing to meet the expectations, including the specter of losing out on government contracts. Listed companies also would be tasked with setting their own targets for boosting gender balance among executive directors.

Listed companies below the 40 percent threshold would be required to establish clear, unambiguous selection criteria in order to achieve that goal by 2020. Selection preference would be given to females in situations of equally qualified candidates. Listed companies would be required to disclose the gender composition of their boards, as well as an explanation and description of their efforts if they fail to meet the benchmark.

In 2012, just 13.7 percent of directors in corporate boards across the European Union were female. The figure for women among non-executive directors was not much higher, at 15 percent. Progress in breaking the glass ceiling has been slow, with the ranks of women on boards increasing at a rate of 0.6 percent in recent years.

Norway paved the way for gender quotas in the boardroom with its 2003 law setting a 40 percent threshold for women on the boards of public companies. Since then, Belgium, Iceland, Italy, the Netherlands, Spain, and France have followed with similar legislation, although with varying degrees of enforcement. Germany established "voluntary" quotas in 2001, but researchers have said little has changed since then for gender balance on boards there.

Citing persisting inequalities in the boardroom, co-rapporteurs Evelyn Regner and Rodi Kratsa-Tsagaropoulou said it seems clear that the only way to rectify the situation is “via binding and enforceable measures.” Member states would be given the job of implementing sanctions, but the rapporteurs are recommending those sanctions at least include a provision excluding failing companies from public tender procedures.

They added that it makes sense to have a uniform goal set at the EU level to eliminate any disparate gender balance requirements between member states, especially for companies operating in more than one state.

Regner and Kratsa-Tsagaropoulou are pushing to broaden the original proposal by getting rid of exemptions for small and mid-sized corporations and certain male-dominated sectors. As initially drafted, the proposed directive called for exempting small and medium-sized enterprises with less than 250 employees or annual turnover below €50 million.

“The co-rapporteurs recognize the importance of small and medium-sized enterprises as the innovative backbone of the industry in Europe,” they wrote. “Therefore, they should be in a vanguard position in the effort for gender equality and should thus be included in the directive.”

In its original form, the proposal also called to exempt sectors in which women represent less than 10 percent of the workforce. The co-rapporteurs rejected this idea, arguing that there is enough flexibility in the directive to account for industry differences. They added that non-executive directors are usually working on supervisory or general management tasks that are often not directly linked to a given sector.

“Exempting branches just because they are dominated by one gender would consolidate such one-sided gender domination,” they noted in their report.

First introduced last fall as an offshoot from a 2011 resolution adopted by European Parliament, the proposed directive is tentatively slated to be discussed this November in a plenary session. The Economic and Social Committee also will weigh in on the proposal.

Topics