European Union: Europe divided over gender quotas

28 Nov 2013

Businesswomen across the European Union are edging closer to equal representation in the boardroom – but at what cost?

This November, EU MPs voted in droves for a draft law mandating a 40% female quota for non-executive board posts, pushing the proposal through with a crushing majority of 230.

In the German Bundestag at least, the smell of burning rubber is in the air. Last April, the German legislature rejected one in a long line of recent quota proposals, and Germany joined other heavyweight EU member states in voting against the European Commission’s proposal for boardroom quotas. Now in Germany, the two parties slated to form the next German government have settled on a figure of 30% women for the supervisory boards of companies listed on the German stock exchange – a new attempt at a national law known simply as ‘frauenquote’.

“Disappointing, unhelpful... unnecessary”

But business leaders across Europe are already pushing back on both proposals. In Germany, the CEOs of the four largest car manufacturers, representing nearly €400 billion in annual revenue, have said that they would consider moving production outside Germany if forced to bring in the quota.

In the UK – one of the few opponents of the original proposal – the top echelons of business have been vocal too. Helena Morrissey, the CEO of Newton Investment Management – a global thematic investment boutique and subsidiary of BNY Mellon – called the EU’s decision “disappointing, unhelpful and unnecessary”. British politicians will be paying particular attention to Ms Morrissey’s opinion, given her prominent role as an advocate for women in business.

The draft law in question has five main elements:

  • Publicly listed companies with less than 40% women among its non-executive board members will be required to set up a selection procedure that gives priority to qualified female candidates
  • No-one will get a job on the basis of their being a woman – but no woman will be denied a job because of her gender
  • Small and medium-sized companies are exempt from the law, due to their lesser economic importance and low visibility
  • EU member states must have sanctions for companies in breach of the Directive
  • The law is a temporary measure and will automatically expire in 2028

Companies who fail to meet the targets by 2020 could face sanctions including restriction of their access to EU funding.

Now, nearly a year after the go-ahead to draft the law was given, the proposals await EU member state ratification and adoption by the European Parliament and Council jointly. It is highly likely that the majority of states will vote for the proposal to become law, given that only the UK and Sweden took issue with the substantive proposals put forward in November 2012. France, Spain, Holland, many of the Scandinavian nations and now Germany already support quotas.

A quick fix that won’t work?

Those against the quota proposal point out that Norway’s introduction of similar laws in 2003 worked only at the level implemented – the boards of listed companies – but note that the attitude did not trickle down to even the executive level. Not one of the 25 companies on the Oslo bourse has a female CEO and the gender pay gap is still estimated at around 15%.

The concern for some is that quotas that single out large businesses constitute a matter of “optics” and is a symbolic solution only, tackling the symptom rather than the cause. Ms Morrissey has long argued that legislative quotas and sanctions are a waste of time compared to taking incremental steps to change companies below board and executive levels, and improving access to opportunity for women more broadly.