Ninth Report - European Scrutiny Committee Contents

6 Gender balance on corporate boards

Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information requested

Document detailsDraft 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 baseArticle 157(3) TFEU; co-decision; QMV
DepartmentBusiness, 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.[26] 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 adds:

    "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

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