Documents considered by the Committee on 9 September 2015 - European Scrutiny Contents

9 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 Select Committee
Document detailsProposal for a Directive on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures
Legal base Article 157(3) TFEU; co-decision; QMV
DepartmentBusiness, Innovation and Skills
Document Numbers(34423), 16433/12 + ADDs 1-3, COM(12) 614

Summary and Committee's conclusions

9.1 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.

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

9.3 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 proposed Directive, the Government has been willing to explore possible compromise proposals to protect against the eventuality that the blocking minority may not be sustainable.

9.4 The Government has provided regular progress reports on negotiations within the Council. In its latest update, the Minister for Intellectual Property (Baroness Neville-Rolfe) explains that little progress has been made in recent months and that the blocking minority (of which the UK forms part) remains secure.

9.5 We assume that further progress is only likely to be achieved if the UK and other like-minded Member States are unable to sustain a blocking minority. We would welcome some further explanation from the Minister of the grounds for the Commission's optimism in anticipating that it may be possible to secure a general approach at the forthcoming Employment, Social Policy, Health and Consumer Affairs (EPSCO) Council in October. Which Member States, other than the UK, are the key players in maintaining the current blocking minority and how substantial is the risk that it may unravel?

9.6 As we have made clear in our earlier Reports, we expect to receive 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, as well its impact on all UK publicly listed companies, not just the FTSE-100 companies. We also ask the Minister to provide details of the so-called "flexibility clause" and how it would apply in the UK. A press release issued after the EPSCO Council in June highlighted some "fine-tuning" of this clause to "allow Member States to choose their gender balance methods".[ 80]

9.7 We draw this chapter to the attention of the Business, Innovation and Skills Select Committee. Meanwhile, the proposal remains under scrutiny. We look forward to receiving the information we have requested, as well as regular progress reports.

Full details of the documents: Proposal for a 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.


9.8 Our earlier Reports (listed at the end of this chapter) provide a detailed overview of the proposed Directive, the Government's position, and the grounds on which our predecessors 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;[ 81]

·  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.

9.9 When our predecessors last considered the proposed Directive in March, shortly before the Dissolution of Parliament ahead of the May general election, they noted that there appeared to be a renewed impetus for agreement and some uncertainty whether the UK would be able to sustain a blocking minority of Member States opposed to EU legislative action. The Committee reiterated previous requests for early warning and, if possible, sight, of any compromise proposal on which the Presidency might seek to secure a general approach, accompanied by a detailed assessment of its content and policy implications for the UK.

9.10 The previous Committee welcomed the progress made by FTSE 100 companies in achieving greater gender balance on their boards, but noted that the proposed Directive would set a more ambitious target and apply to a much larger number of listed companies. It indicated that a clear understanding of the scope of the derogations contained in any text agreed by the Council would therefore be essential to assess the impact of the draft Directive for the UK, and asked the Government to ensure that its assessment of any compromise text put forward by the Presidency fully addressed its implications for non-FTSE 100 listed companies.

9.11 The Employment, Social Policy, Health and Consumer Affairs (EPSCO) Council on 18-19 June took note of a progress report on the proposed Directive. It concluded that "further work and political reflection" would be required before a compromise agreement could be reached and noted that a "flexibility clause" had been "fine-tuned to allow Member States to choose their gender balance methods".[ 82]

The Minister's letter of 20 August 2015

9.12 The Minister reports that the proposed Directive was considered at the EPSCO Council on 18 June. Whilst the Commission expressed optimism about the prospects of reaching agreement during the Luxembourg Presidency, with the possibility of a general approach at the October EPSCO Council, the Minister notes that no Council working group meetings have yet been arranged or compromise proposals circulated. The Minister undertakes to update us if a compromise text is put forward by the Presidency, adding that she will include:

    "an assessment of the content and potential policy implications for the UK and look at the implications for non-FTSE 100 listed companies".

9.13 The Minister makes clear that the Government's position on the proposed Directive remains unchanged. She continues:

    "We, along with some other Member States, continue to believe that EU level action is not required and continue to form part of the blocking minority against this draft Directive.

    "The Government believes that we have made excellent progress in the UK with a business led voluntary approach and FTSE 100 companies have now exceeded the 25% target set by Lord Davies in 2011. Representation of women is currently 25.8% across the FTSE 100. Since [the] beginning of the year there has been a steady rise in the overall number of women on FTSE 100; there has also been a steady reduction in the overall number of board positions in the FTSE 100 as boards have decided to reduce in size. We have had targeted engagement with FTSE 100 companies over the year and the policy has generated good media awareness, one of the reasons why we believe we have seen excellent progress.

    "Lord Davies and his Steering Group will be publishing their final report in October 2015 with recommendations for next steps. We will consider where to go next with this policy following his recommendations. I am keen for businesses to focus on improving the pipeline of executive talent so that the success of the voluntary approach to board representation continues."

Previous Committee Reports

Thirty-seventh Report HC 219-xxxvi (2014-15), chapter 4 (18 March 2015); 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).

80   See the Council press release of 19 June 2015. Back

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

82   See the Council press release of 19 June 2015. Back

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Prepared 23 September 2015