6 Gender balance on corporate boards |
||Legally and politically important |
|Committee's decision||Not cleared from scrutiny; further information requested
|Document details||Draft Directive on improving gender balance among non-executive directors of companies listed on the stock exchange and related measures (34423), 16433/12 + ADDs 1-3, COM(12)614
|Legal base||Article 157(3) TFEU; co-decision; QMV
|Department||Business, Innovation and Skills
Summary and Committee's conclusions
6.1 The draft Directive seeks to redress the gender
imbalance on the boards of many publicly listed companies by introducing
new procedural requirements for the recruitment and selection
of non-executive directors. Although drafted in gender-neutral
terms, the objective of the Directive is to increase the presence
of women on company boards so that they comprise at least one
third of a company's directors or 40% of its non-executive directors
by 2020, or sooner (by 2018) in the case of public undertakings.
6.2 Whilst endorsing the objective of greater gender
balance on company boards, the Government has consistently opposed
EU legislation on the grounds that establishing an EU-wide 40%
quantitative objective would be tokenistic, counter-productive
and tantamount to introducing quotas. It has advocated, instead,
national measures which can be better tailored to the business
culture and company law requirements of each Member State. We
share the Government's reservations about the necessity for action
at EU level and recommended issuing a Reasoned Opinion which the
House endorsed in January 2013.
6.3 Progress since then has been slow, not least
because the range and diversity of company systems have hampered
efforts to agree measures that would work in all 28 Member States.
The European Parliament broadly supports the Commission proposal
but a number of Member States share the Government's concerns.
Whilst continuing to oppose the draft Directive, the Government
has supported some changes which clarify the scope of the proposal.
These include what the Minister for Employment Relations and Consumer
Affairs (Jo Swinson) has described as "a welcome change"
in the provisions enabling Member States to derogate from the
procedural rules on the selection and appointment of non-executive
directors if they have already put in place effective measures
to achieve the 40% quantitative objective.
6.4 We asked the Minister to clarify the scope of
the derogation and to indicate whether it was likely to be of
benefit to the UK, in light of the progress made domestically
in implementing the measures advocated by Lord Davies of Abersoch
in his 2011 review, Women on boards. We also sought further
information on the number of publicly listed companies in the
UK that would be affected by the draft Directive, as well as the
number of women represented on their boards and the trajectory
of change anticipated between now and 2020. In this, our fifth
Report on the draft Directive, we set out the Minister's response.
6.5 We thank the Minister for her letter and note
the considerable uncertainty as to the number of publicly listed
companies in the UK to whom the draft Directive will apply. We
ask her to provide a clear assessment of the numbers likely to
be affected at the earliest opportunity.
6.6 The Minister reminds us that stakeholders
responding to the review undertaken by Lord Davies in 2011 (before
the draft Directive was published) overwhelmingly rejected the
introduction of "quotas" for women on company boards.
The Minister has also told us that the provisions contained in
the draft Directive "do not amount to quotas" and that
their objective is to ensure that companies put in place a transparent
selection process for board appointments with a view to achieving
greater representation of women by 2020.
Given these differences, we would welcome a clearer indication
of stakeholder opinion on the draft Directive. We also reiterate
our request for a summary of the main changes proposed by the
European Parliament and the Government's position on them.
6.7 We welcome the Minister's undertaking to provide
further progress reports as negotiations recommence in September
and look forward to receiving details of any compromise proposals
put forward by the Presidency. Meanwhile, the draft Directive
remains under scrutiny.
Full details of the documents:
Draft Directive on improving gender balance among non-executive
directors of companies listed on the stock exchange and related
measures: (34423), 16433/12 + ADDs 1-3, COM(12) 614.
6.8 Our earlier Reports (listed at the end of this
chapter) provide a detailed overview of the draft Directive, the
Government's position, and the grounds on which we recommended
that the House issue a Reasoned Opinion.
6.9 In our last Report, agreed on 9 July 2014, we
asked the Minister to:
· clarify the "welcome change"
made to the provision enabling Member States to derogate from
the draft Directive and to indicate whether she considers that
the UK would be able to make use of this derogation;
· explain whether the trajectory of change
which she described in her letter of 2 July 2014 was likely to
be sufficient to enable the UK to meet the 40% quantitative objective
by 2020 (or by 2018 in the case of public undertakings);
· indicate how many of the 950-odd listed
companies in the UK which are expected to be within the scope
of the draft Directive would be exempted from its provisions on
the grounds that they are SMEs; and
· summarise the outcome of the Government's
consultation of stakeholders, as well as the main changes proposed
to the Commission proposal by the European Parliament and the
Government's position on them.
The Minister's letter of 8 August 2014
6.10 The Minister (Jo Swinson) first addresses the
content of the derogation clause included in the draft Directive
and its possible application to the UK:
"The draft Directive, as it currently stands,
offers Member States the opportunity to continue promoting equality
through national measures if they can show that they will reach
the relevant targets by 1 January 2020 (at least 40% of Non-Executive
Directors, or 33% of all Directors of the under-represented sex).
"Government has not yet taken a decision
on this. We could invoke this exemption, however, we would need
to gather data on all UK listed companies (excluding SMEs) in
order to see if this would be viable. National measures to date
have focused on FTSE 100 and FTSE 250 companies, therefore we
would need to extend or adapt these to all listed companies in
order to try and reach the target by 2020.
"It is important to note that we would still
need to transcribe the Directive into UK law, in case the threshold
was not met. The law would remain suspended until it was clear
if the threshold had been reached."
6.11 The Minister indicates that the 40% target for
non-executive directors "reflects the continental structure
of supervisory boards" and adds:
"In order to build a sustainable system
in the UK, where women continue to rise through the ranks of British
business, we feel it is essential to focus not only on current
board composition but the executive pipeline, as well as senior
and middle management within the organisation. We feel that women
should aspire to both Executive and Non-Executive roles and thus
be able to fulfil their career potential and contribute to the
modernising of British business and overall UK economy. Therefore,
we feel it is important to focus on the board as a whole, rather
than have a target or quota just for Non-Executives. As the draft
Directive currently stands, the target for the whole board is
33% of the under-represented gender.
"Based on the current rate of progress,
we feel that with continued action from British business and Government
focus we would expect to meet the 33 per cent target for FTSE
100 boards by 2020, but not more widely. Under the current drafting,
the directive would apply to all UK listed companies (excluding
SMEs). We do not currently have board data for all listed companies
that would be in the scope of the directive and my officials are
currently working on gathering this data."
6.12 Turning to the number of UK companies that would
affected by the draft Directive, the Minister explains:
"As currently drafted, the Directive would
apply to all listed companies. A listed company is defined as
those which have a registered office in a Member State, and whose
shares are admitted to trading on a regulated market. However,
SMEs would be excluded from the Directive. SME is defined as a
company which employs less than 250 persons and has an annual
turnover not exceeding EUR 50 million or an annual balance sheet
total not exceeding EUR 43 million."
6.13 Although the number of publicly listed companies
fluctuates, the Minister estimates (on the basis of London Stock
Exchange data) that there are currently 1,310 listed on the Main
Market in the UK, with 892 incorporated in Great Britain, but
"We are not currently sure how many of these
are SMEs. Previous figures had indicated that around 550 companies
would be affected by this Directive but further analysis needs
to be undertaken and my officials are working on updating these
figures at the moment."
6.14 In terms of stakeholder consultation, the Minister
refers to the review undertaken by Lord Davies in 2011 which elicited
2,654 responses to an online call for evidence. She continues:
"Only 11% recommended the introduction of
quotas and companies overwhelmingly preferred a voluntary, rather
than mandatory approach. Government continues to engage with a
wide range of stakeholders including FTSE 350 companies, industry
bodies and executive search firms to ascertain the issues affecting
the different sectors as well as encourage them to improve gender
diversity in their organisations. The CBI, for example, share
our position on the Directive."
6.15 The Minister adds:
"We still believe that mandatory processes
at the EU level are not the right mechanism. It remains our view
that action taken in each country should be different, according
to that country's starting point, legal system and unique business
environment. We therefore continue to oppose this Directive on
grounds of subsidiarity and proportionality."
6.16 The Minister undertakes to report back to us
once she has obtained the revised figures for the number of companies
expected to be within the scope of the draft Directive. She notes
that Council working group discussions on the draft Directive
will recommence in September on the basis of possible drafting
changes put forward by the Italian Presidency.
Previous Committee Reports
Sixth Report HC 219-vi (2014-15), chapter 1 (9 July
2014); Twenty-eighth Report HC 83-xxv (2013-14), chapter 3 (18
December 2013); Thirty-third Report HC 86-xxxiii (2012-12), chapter
8 (27 February 2013); Twenty-third Report HC 86-xxiii (2012-13),
chapter 1 (12 December 2012).
26 See letter of 9 November 2013 from the Minister
to the Chair of the European Scrutiny Committee. Back