Documents considered by the Committee on 18 March 2015 - European Scrutiny Contents

4 Gender balance on corporate boards

Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information requested; drawn to the attention of the Business, Innovation and Skills Committee
Document detailsDraft Directive on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures
Legal baseArticle 157(3) TFEU; co-decision; QMV

Document numbers

Business, Innovation and Skills

(34423), 16433/12 + ADDs 1-3, COM(12) 614.

Summary and Committee's conclusions

4.1 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.

4.2 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 have also questioned the necessity for action at EU level and recommended issuing a Reasoned Opinion which the House endorsed in January 2013.

4.3 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.

4.4 The Minister for Employment Relations and Consumer Affairs (Jo Swinson) has provided regular progress reports on negotiations within the Council. In her latest letter, she provides a brief update on developments in advance of the Dissolution of Parliament.

4.5 As we noted in our earlier Report, further progress on the draft Directive within the Council, as well as the UK's ability to sustain a blocking minority, remain uncertain but there appears to be a renewed impetus for agreement. We reiterate our request for early warning and, if possible, sight, of any compromise proposal on which the Presidency may seek to secure a general approach, accompanied by a detailed assessment of its content and policy implications for the UK.

4.6 Whilst we welcome progress made by FTSE 100 companies in achieving greater gender balance on their boards, we note that the draft Directive would set a more ambitious target and apply to a much larger number of listed companies. A clear understanding of the scope of the derogations contained in any text agreed by the Council will therefore be essential to assess the impact of the draft Directive for the UK. We ask the Minister to ensure that her assessment of any compromise text put forward by the Presidency fully addresses its implications for non-FTSE 100 listed companies. Given the possibility of a general approach in June, 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.


4.7 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;[5]

·  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 16 March 2015

4.8 The Minister (Jo Swinson) says that the Government's position on the draft Directive has not changed:

    "We, along with some other Member States, believe that EU level action is not required. We have made good progress in the UK and believe we should be able to continue our own domestic policy, in a way that suits the UK."

4.9 She notes that the European Parliament debated the proposal on 13 January 2015 and expressed disappointment at the lack of progress made within the Council. The Latvian Presidency has pledged to advance discussions and scheduled a Council working group meeting for 23 March 2015, followed by further consideration at the Employment, Social Policy, Health and Consumer Affairs (EPSCO) Council in June. The Minister explains that "this could just be an update" or the Presidency may seek agreement to a "general approach", depending on the progress made within the Council working group.

4.10 Turning to the progress made in the UK in achieving greater gender balance on company boards, the Minister observes:

    "Domestically, we have seen an improvement in FTSE 100 figures in the last few months, with the figure now at 23.5%. This is positive and shows improvement from what we were seeing late last year/early this year. We are not certain of what caused this slowing in the figures, but this could be a seasonal phenomenon and we can look into this. We are confident that business will be able to achieve the 25% target that Lord Davies set before the end of the year."

Previous Committee Reports

Thirty-first Report HC 219-xxx (2014-15), chapter 2 (28 January 2015); 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).

5   BoardWatch tracks the appointment of women to FTSE 100 and FTSE 250 company boards. Back

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