1 Gender balance on corporate boards
||Legally and politically important|
|Committee's decision||Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Innovation and Skills Committee and the Women and Equalities Committee
|Document details||Proposal 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
|Department||Business, Innovation and Skills
|Document Numbers||(34423), 16433/12 + ADDs 1-3, COM(12) 614
Summary and Committee's conclusions
1.1 The proposed 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 executive and 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 all directors (executive and non-executive)
or 40% of non-executive directors by 2020.
1.2 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 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.
1.3 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.
1.4 The Government has provided regular progress
reports on negotiations within the Council. Until recently, the
blocking minority (of which the UK forms part) has remained secure.
In her latest update, the Minister for Intellectual Property (Baroness
Neville-Rolfe) explains that the Luxembourg Presidency intends
to seek a General Approach at the Employment, Social Policy, Health
and Consumer Affairs (EPSCO) Council on 7 December, provides further
details of the compromise text on which it would be based, and
indicates that the blocking minority "is not as strong as
it once was and positions could easily shift in the coming weeks".
1.5 We note that the Government intends to continue
its voluntary and business-led approach to increasing the representation
of women on company boards, with a particular focus on FTSE 350
companies, and opposes any regulatory intervention at EU level.
As the Minister does not request a scrutiny waiver ahead of the
EPSCO Council on 7 December, we infer that she intends to oppose
the proposed General Approach. We ask her to report back to us
on the outcome of the Council explaining how the UK voted and
providing a copy of the text of any General Approach agreed.
1.6 We note that the legislative Resolution adopted
by the European Parliament in November 2013 broadly supports the
thrust of the Commission's original proposal.
We ask the Minister to provide regular progress reports on trilogue
negotiations, once underway, and would welcome an early assessment
of the areas in which she considers that a compromise may be possible,
as well as the implications for publicly listed companies in the
1.7 We draw this chapter to the attention of the
Business, Innovation and Skills Select Committee and the Women
and Equalities Committee. Meanwhile, the proposal remains under
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.
1.8 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:
trajectory of change within the UK, and across the EU, in securing
more balanced gender representation on company boards;
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;
scope of possible derogations from the proposed Directive and
their application to publicly listed UK companies; and
views on the proposal.
1.9 When we considered the proposed Directive in
September, we noted that it was only likely to progress further
if the UK and other like-minded Member States were unable to sustain
a blocking minority. We asked the Minister how confident she was
that the blocking minority could be sustained and how substantial
the risk that it might unravel.
1.10 We made clear that we expected to receive
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, as well its impact on all UK publicly
listed companies, not just the FTSE-100 companies. We also sought
further information on 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
The Minister's letter of 13 October 2015
1.11 In her first letter, the Minister confirms that
little progress has been made during the current Luxembourg Presidency.
Although the proposal was placed on the agenda for the EPSCO Council
on 5 October, it was withdrawn to allow further discussion. She
also confirms that the blocking minority is "still standing",
without disclosing the identity of the Member States backing the
Government's position, but adds that "some movement, in both
directions, may occur in the coming months" as a number of
Member States reconsider their positions.
1.12 The Minister explains that the inclusion of
a "flexibility clause" would not, as currently drafted,
be of benefit to the UK as it covers a wider range of companies
likely to be between 450 and 550 large listed companies
than the FTSE 100 and FTSE 250 companies targeted by the
Government. The percentage of women represented on the boards
of these companies continues to increase. A further report from
Lord Davies will be published on 29 October and set out recommendations
to improve gender balance which will inform the Government's future
The Minister's letter of 26 November 2015
1.13 The Minister expects the Luxembourg Presidency
to press for a General Approach to be agreed at the EPSCO Council
on 7 December. She provides a copy of the latest compromise text,
noting that it bears a limité marking and cannot
therefore be published or reported on in any detail which would
bring its contents into the public domain.
1.14 The Minister confirms that the Government continues
to oppose any regulatory intervention at EU level. She suggests
that it would undermine the progress made so far in the UK and
that there could be a negative impact on business practice, "not
only by moving away from business-led arrangements for increasing
representation of women on boards, but by introducing EU rules
for selecting candidates for appointment which might be a burden
on companies". The Minister notes that Lord Davies published
a summary report on 29 October reviewing the progress made during
the last five years in implementing the recommendations contained
in his Women on Boards report and highlights the following achievements:
"More women on FTSE 350 boards than ever
before, with representation of women more than doubling since
2011 now 26.1% on FTSE 100 boards and 19.6% on FTSE 250
boards. 550 new women appointments.
"Dramatic reduction in the number of all-male
boards 152 across FTSE 350 in 2011, now no all-male boards
in the FTSE 100 and only 15 in the FTSE 250."
1.15 His latest report sets "a new voluntary,
business-led target, for women's representation on Boards of FTSE
350 companies, of 33% to be achieved in the next five years".
1.16 The Minister provides further details on the
proposed flexibility clause and the impact of the Directive on
UK listed companies:
"The proposed Directive sets out a mechanism
in Article 4a for selecting candidates for appointment. It is
designed to achieve the objectives of the Directive (in brief
40% of non-executive positions in listed companies being held
by members of the under-represented sex or 33% of both executive
and non-executive directors in those companies being held by members
of the under-represented sex).
"The Directive does not apply to small or
medium sized companies, even if they are listed. The 'flexibility
clause' in Article 4b allows a Member State to introduce alternative
measures which either achieve the Directive's objectives or come
close to doing so. In addition, if the Member State has met one
of the two Directive objectives, with or without taking measures
to do so, it is not required to implement Article 4a. This flexibility
clause is time limited; it cannot be relied on beyond the end
of 2022 unless one of the objectives has been met or the Member
State has in place legislation which fulfils certain criteria.
The amendments in the latest draft of the proposed Directive affect
aspects of the 'flexibility clause' but do not change the potential
impact of the proposed Directive on the UK. The proposed Directive
contains a requirement to set individual objectives in some circumstances
and there are reporting requirements. Member States are also required
to designate a body which will promote gender balance on the boards
of listed companies. The revisions also extend the implementation
date and the date on which the Directive will cease to have effect."
1.17 The Minister explains that if the Directive
is agreed on the basis of the latest Presidency compromise text,
the voluntary targets set by Lord Davies for the next five years
would not be sufficient to come within the scope of the flexibility
clause, unless the UK can demonstrate that the boards of UK listed
companies comprise 40% of non-executive directors or 33% of non-executive
and executive directors of the under-represented sex. This is
unlikely because the scope of the proposed Directive encompassing
around 450-550 UK listed companies is broader than the
Lord Davies-led Women on Boards initiative which focuses on FTSE
350 company boards. The Minister continues:
"The Government agrees that the progress
made so far by the Women on Boards initiative must be sustained
and that we need a renewed focus on the Executive Pipeline where
progress is slow. We have accepted Lord Davies' recommendation
to establish a new review on women on boards, with a new reviewer.
We believe that this work must remain business led if it is to
have full impact and we therefore expect that the remaining recommendations
published in October will be for the new steering group to consider."
1.18 The Minister makes clear that the Government
is continuing to engage with the UK's blocking minority partners,
at official and Ministerial level, but adds:
"I am aware that the blocking minority is
not as strong as it once was and positions could easily shift
in the coming weeks."
Previous Committee Reports
Third Report HC 342-iii (2015-16), chapter 9 (9 September
2015); 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).
1 See the European Parliament's legislative Resolution
of 20 November 2013. Back
BoardWatch tracks the appointment of women to FTSE 100 and FTSE
250 company boards. Back
See the Council press release of 19 June 2015. Back
See Lord Davies' Five Year Summary Report, Improving the Gender
Balance on British Boards. Back