2 Gender balance on corporate boards
| Committee's assessment
| Legally and politically important |
| Committee's decision | Not cleared from scrutiny; further information requested; tagged as relevant to the opt-in debate on the draft Regulation establishing a European Union agency for law enforcement training (Cepol) recommended on 3 September 2014; drawn to the attention of the Business, Innovation and Skills Select Committee
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| Document details | Draft Directive on improving the gender balance among non-executive directors of companies listed on the stock exchange and related measures
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| Legal base | Article 157(3) TFEU; co-decision; QMV
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| Department
Document numbers
| Business, Innovation and Skills
(34423), 16433/12 + ADDs 1-3, COM(12) 614.
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Summary and Committee's conclusions
2.1 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 executive or 40% of its non-executive directors
by 2020, or sooner (by 2018) in the case of public undertakings.
2.2 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.
2.3 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 — sufficient to constitute
a blocking minority within the Council — share the Government's
concerns. Whilst continuing to oppose the draft Directive, the
Government has been willing to explore possible compromise proposals
to protect against the eventuality that the blocking minority
may not be sustainable.
2.4 We last considered the draft Directive at our
meeting on 3 September 2014. We noted that considerable uncertainty
remained as to the number of publicly listed companies in the
UK to whom the draft Directive would apply and invited the Minister
for Employment Relations and Consumer Affairs (Jo Swinson) to
provide a clear assessment of the numbers likely to be affected
at the earliest opportunity.
2.5 The Government has made clear that stakeholders
responding to the review on women on boards undertaken by Lord
Davies in 2011 (before the draft Directive was published) overwhelmingly
rejected the introduction of "quotas" for women on company
boards. The Government has also told us that the provisions contained
in the draft Directive "do not amount to quotas"; rather,
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.[12]
Given these differences of emphasis, we asked the Minister to
provide us with a clearer indication of stakeholder opinion on
the draft Directive itself, rather than in the context of the
Lord Davies review. We also reiterated our request for a summary
of the main changes proposed by the European Parliament and the
Government's position on them, and sought further progress reports
on negotiations within the Council.
2.6 We note that further progress on the draft
Directive, as well as the UK's ability to sustain a blocking minority,
remain uncertain. We ask the Government to ensure that we have
early warning and, if possible, sight, of any compromise proposal
on which the Presidency may seek to secure a general approach
and to provide a detailed assessment of its content and policy
implications for the UK. As negotiations within the Council on
the draft Directive appear to be entering an important phase,
we draw our chapter to the attention of the Business, Innovation
and Skills Select Committee. Meanwhile, the proposal remains
under scrutiny and we ask the Government to provide regular progress
reports.
Full details of the documents:
Draft Directive on improving the 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.
Background
2.7 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. Whilst rejecting the
case made by the Commission for EU legislative action on subsidiarity
grounds, we have also sought to explore:
· the trajectory of change within the UK,
and across the EU, in securing more balanced gender representation
on company boards;[13]
· the number of publicly listed companies
in the UK likely to be affected by the draft Directive —
although the Government has indicated that there are approximately
950 such companies in the UK, those qualifying as small or medium-sized
enterprises ("SMEs") would be excluded from its application;
· the scope of possible derogations from
the draft Directive and their application to publicly listed UK
companies; and
· stakeholder views on the draft Directive.
The Minister's letter of 5 December 2014
2.8 The Minister provides a brief update on progress
in negotiations under the Italian Presidency, observing:
"Although there is currently no agreement
on the Commission's proposal in the Council and the Directive
remains blocked, the Italian Presidency has sought to advance
the discussion on this file, which it views as an important priority."
2.9 She notes that the Presidency would be seeking
agreement on a general approach at the Employment, Social Policy,
Health and Consumer Affairs (EPSCO) Council on 11 December, but
adds:
"Our position on the Directive has not changed.
However, the Presidency and the Commission have been working to
explore ways to address Member States' concerns through drafting
changes, in particular to the opt-out clauses. As a result of
this, as well as domestic political and policy changes, it is
possible that some Member States could move towards supporting
a revised text."
The Secretary of State's letter of 20 January
2015
2.10 The Secretary of State for Business, Innovation
and Skills (Vince Cable) confirms that there was only a brief
discussion of the draft Directive at the EPSCO Council on 11 December
and that the Presidency did not press for agreement to a general
approach. He continues:
"The blocking minority of countries opposed
to the Directive, which includes the UK, was maintained. As mentioned
in previous letters, the Presidency and the Commission have been
working to explore ways to address Member States' concerns through
drafting changes, in particular to the opt-out clauses. Some Member
States are also changing domestic measures, although it is not
yet clear how this will impact on their position in respect of
mandatory European provisions. We will continue to keep a close
eye on Member State positions."
2.11 Whilst agreeing with the aim of the draft Directive,
the Government continues to oppose it on subsidiarity grounds:
"We continue to believe that mandatory processes
at the EU level are not the right mechanism and that action taken
in each country should be different and take account of that country's
starting point, legal system and unique business environment."
2.12 Although there is no agreement within the Council
on the need for a Directive, or its detailed provisions, the Government
will continue to monitor developments and consider their potential
impact for the UK. In this context, the Secretary of State describes
the main elements of the text currently under consideration within
the Council:
· the proposal would apply to listed companies
with a registered office in a Member State, but exclude those
qualifying as SMEs; companies with fewer than 10% of employees
of one sex would also be excluded from parts of the Directive;
· each company should set a target for at
least 40% of non-executive or 33% of all director positions to
be filled by the under-represented sex by 1 January 2020;
· Member States would be required to put
in place "effective, proportionate and dissuasive" enforcement
measures; and
· a derogation would enable Member States
to suspend the application of part of the Directive relating to
specific targets, provided they have implemented "equally
effective measures with the aim of attaining more balanced representation
of men and women among the directors of listed companies".
2.13 Turning to the application of the proposed derogation,
the Secretary of State explains that a Member State would have
to demonstrate that it meets one of the following conditions:
· national legislation is in place requiring
the under-represented sex to fill at least 30% of non-executive
director or 25% of all director positions by 1 January 2020;
· it has achieved 30% representation of
the under-represented sex in non-executive director positions
or 25% in all director positions; or
· it has achieved 25% representation of
the under-represented sex in non-executive director positions
or 20% in all director positions and these figures represent at
least a 7.5% increase over five years.
2.14 The Government has not yet decided whether it
would be possible for the UK to benefit from this derogation,
but notes that the conditions listed are non-exhaustive and that
there remains scope to explore "alternative approaches which
would qualify for an exemption". However, as currently drafted,
the Government accepts that it would:
"almost certainly need to extend or adapt
our domestic policy in order to try and reach the above targets
and thus qualify for the exemption. This is because the scope
of the Directive as currently drafted, covers a wider group of
companies than FTSE 100/250, on which UK domestic policy has focused."
2.15 The Secretary of State notes that the draft
Directive would apply to all UK listed companies, excluding SMEs.[14]
Whilst the total number of listed companies is subject to fluctuation,
he anticipates that between 550 and 650 would be affected.[15]
2.16 The European Parliament agreed its First Reading
position on the draft Directive in November 2013.[16]
The Secretary of State summarises the main elements:
· as in the Commission's original proposal,
the draft Directive would apply to listed companies (public as
well as private), excluding SMEs, but would also include provision
for a review to consider extending its application to non-listed
public undertakings and to other non-listed large undertakings;
· in order to meet the objectives of the
draft Directive, each listed company (other than SMEs) would have
to ensure that at least 40% of its non-executive directors
were from the under-represented sex by 1 January 2020;
· a requirement to ensure that, at every
stage of the recruitment, selection and appointment process, priority
is given to candidates of the under-represented sex if they are
equally qualified;
· the inclusion of stronger reporting requirements
for listed companies on the measures they are taking to secure
greater gender balance on their boards in compliance with the
draft Directive; and
· an extension of the range of sanctions
which Member States are required to introduce for non-compliance,
including exclusion from public calls for tenders and partial
exclusion from EU Structural Funds.
2.17 The Secretary of State says that the Government
continues to engage with stakeholders, adding that a majority
supports the Government's voluntary approach. He continues:
"The CBI, for example believe quotas and
other legalistic approaches can drive a compliance culture, making
diversity a box-ticking exercise. However, TUC are supportive
of quotas."
2.18 The Secretary of State describes the "great
progress" made in the UK in increasing the representation
of women on executive boards since 2010:
"Analysis published this month by Catalyst
shows that we are in the top ten for European countries and well
ahead of the rest of the world. This achievement has been
in direct response to the review I commissioned in 2011, led by
Lord Davies, and the promotion of the voluntary framework that
emerged from it. Representation of women on FTSE 100 boards
has jumped to 23% — almost double the number in 2010 —
and we now no longer have any all-male boards in the FTSE 100,
something I am extremely proud of.
"We have achieved all of this without the
need for legislative quotas. We are leading the way on this
initiative internationally and all eyes are upon us to see when
we deliver this ambitious target. The threat of EU mandatory
targets remains a reality unless we can show that we can achieve
true diversity through other voluntary means.
"Whilst good and steady progress has already
been made towards our 25% target by 2015, this has progressively
slowed in the last few months and there is now a real risk that
we will not meet the target this year. British businesses cannot
afford to be complacent and alarm bells should be ringing in the
ears of those who are not yet doing their bit to help us reach
our target.
"To meet it we must re-double our efforts
to create a balanced corporate environment and to prevent the
EU from imposing tokenistic legislative quotas that British business
neither wants nor needs."
Previous Committee Reports
Ninth Report HC 219-ix (2014-15), chapter 6 (3 September
2014); 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 (2012-13), chapter 8 (27
February 2013); Twenty-third Report HC 86-xxiii (2012-13), chapter
1 (12 December 2012).
12 See letter of 9 November 2013 from Jo Swinson to
the Chair of the European Scrutiny Committee. Back
13
BoardWatch tracks the appointment of women to FTSE 100 and FTSE
250 company boards. Back
14
These are defined as listed companies with fewer than 250 employees
and an annual turnover not exceeding EUR 50 million or an annual
balance sheet total not exceeding EUR 43 million. Back
15
A more precise number is difficult to ascertain because of uncertainties
in financial performance data relating to the definition of SMEs. Back
16
First Reading in November 2013. Back
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