House of Lords - Women on Boards - European Union Committee

Women on Boards - European Union Committee Contents

CHAPTER 3: quotas

44. Having established the clear case for action, we must consider what form that action should take. We start with the issue that has attracted the most attention in this sphere: legislative quotas for gender diversity on boards.

45. Quotas are legal mechanisms that require companies to ensure that a specified proportion of boards are made up of the gender least represented, and are often accompanied by sanctions to punish non-compliance. Legislative quotas of that kind have been established already in a number of European states (both EU Member States and not), as laid out in Table 1.[79] They are also one of the options that have been considered by the Commission as part of its consultation process.

46. The Government's position was clear. They supported a voluntary, business-led approach, but reserved the option of quotas as a backstop:

"What we have said is that, for all sorts of reasons, we do not think that quotas are the right way forward. We have also said that clearly, if the voluntary business-led approach does not work, we will need to look at all options, and that includes quotas. But the Government's clear view is it believes that the voluntary approach will work."[80]

47. The Government's stance was particularly firm with respect to proposals at an EU level. Fundamentally, they disputed the Commission's power to legislate, as discussed above (see paragraph 24). On a pragmatic level, they also considered Member State governance structures too varied for a single approach. Caroline Normand, Deputy Director for Corporate Governance at the Department for Business, Innovation and Skills, noted that "crude one-size-fits-all measures are not really likely to work as effectively as each country deciding what works for them from where they are starting, given the kind of system that they have, and then taking that forward."[81] Furthermore, the Government did not support fundamental change at a point when a business-led approach was being championed.[82] These points were echoed by Lord Davies of Abersoch.[83] The French government, despite having national quotas in France, agreed that EU action should begin with non-legislative measures.[84]

TABLE 1

Legislative quotas adopted in European countries

Country	Quota	Companies affected	Sanctions	Passage date	Compliance date
France	40 per cent women board directors (if fewer than 8 directors, the difference between genders cannot be greater than 2).	Publicly traded or non-listed companies that have >500 employees or revenue >€50m	Fees will not be paid to directors in companies not in compliance	January 2011	January 2017 (an interim quota of 20 per cent must be reached by January 2014)
Italy	33 per cent of the gender least represented	Publicly traded	4 month period to rectify, before fines are levied (starting at €20,000); then an additional 3 months to comply before elected members lose their office	June 2011	Not specified
Austria	30 per cent women board directors	State-owned enterprises	N/A	March 2011	2018 (an interim quota of 25 per cent must be reached by 2013)
Belgium	33 per cent women board directors	Publicly traded companies and state owned enterprises	If the board comprises fewer of the gender least represented than the quota requires, any newly appointed or re-appointed director of the majority gender is void. If the situation remains after a year, all benefits and compensations for board members are suspended until compliance is achieved.	September 2011	Varies, based on company type and fiscal year start. State owned enterprises: 2011-12; publicly traded companies: 2017-18; small publicly traded companies: 2019-20.[85]
Norway	40 per cent women board directors	Publicly traded companies and state-owned enterprises	Possible refusal of registration, fine or dissolution	December 2003	2006 (state-owned enterprises); 2008 (publicly traded companies)

48. Many of our contributors shared this opposition to quotas. Some opposed them on principle.[86] The National Association of Pension Funds (NAPF), an umbrella group for institutional pension fund investors, called quotas "blunt, unsophisticated instruments, which address the symptoms of an issue as opposed to solving the root cause".[87] It felt that quotas ignored the "underlying problem of women coming through the senior management pipeline".[88] The 30% Club pointed to the low number of women in executive positions in Norway as evidence of their lack of effectiveness: despite 44 per cent of board members being female, the same is true of only 8 per cent of Norway's Chief Executive Officers.[89] The Confederation for Norwegian Enterprise (NHO), a Norwegian business organisation, noted simply that stronger evidence within the EU was required to take forward legislative action at this stage.[90]

49. To some, quotas were patronising or tokenistic, and risked undermining the perception of women in senior positions.[91] For Lesley Brook, co-founder of Brook Graham, a diversity and inclusion consultancy, quotas "would just create a round of questioning, doubt and noise, which, frankly, we do not need".[92] Lord Davies of Abersoch highlighted the fact that 89 per cent of the 2,600 women who responded to the consultation on his review opposed quotas.[93] Michael Reyner, a partner at the executive search firm MWM Consulting, feared that quotas could lead to "appointments being made for the wrong reasons and lead to less effective boards."[94]

50. There were also concerns that quotas would lead to practical problems, with attention drawn again to the experience of quotas in Norway. Some cited research indicating that the quotas there had led to a reduction in shareholder value[95] and a shorter supply of women for executive positions.[96] Survey data presented by the NHO and by the European Commission also demonstrated a mixed view of the impact of quotas in Norway.[97] Moreover, contributors suggested that there were other problems, such as companies delisting and individual female board members sitting on a large number of boards.[98] These claims were queried. The aforementioned survey data identified that fewer than 10 per cent of board members felt delisting was an issue;[99] and Elin Hurvenes, founder of the Professional Boards Forum, an organisation that seeks to highlight and promote qualified women for board positions, suggested that the proportion of both sexes sitting on a large number of boards was broadly the same.[100] However, different sets of statistics for these questions were presented by both sides, making true assessment of the situation difficult.

51. Dr Barnali Choudhury, Lecturer in Corporate Law at Queen Mary, University of London, stressed that these disputes in Norway arose despite a strong culture of quotas and a relatively limited legislative scope.[101] Many felt that applying a "one size fits all" solution across Europe, where such cultural factors varied, would simply exacerbate the possible disadvantages.[102] For MWM Consulting, this rendered the case for quotas, "intellectually flawed at a fairly fundamental level".[103]

52. The 30% Club insisted that a business-led approach was "ultimately superior", a view that was shared widely.[104] It said that an EU quota would be "unnecessary, potentially harmful and most importantly, would not achieve sustainable business change".[105] For these witnesses, the efforts made following the Davies report had begun to embed a longer-term change in corporate culture.

53. Many pointed to recent statistics to support this case. The one-year follow-up to the Davies report showed an increase from 12.5 per cent female board members in 2011 to 15.6 per cent in 2012—the largest-ever reported increase at the FTSE 100 level.[106] On that basis, the Cranfield Female FTSE Report projected that female representation could be at 27 per cent by 2015, and at 37 per cent by 2020.[107] Progress has accelerated since: from March through to September 2012, the latest period for which figures are available, 44 per cent of new board appointments were female.[108]

54. Those opposed to quotas felt that this progress would be jeopardised by the premature introduction of legislation.[109] NAPF said that it was therefore "sensible" for voluntary-led change to be given a chance to succeed.[110] Lord Davies of Abersoch agreed, though he wanted to maintain the backstop of quotas in case progress was insufficient.[111] The 30% Club thought that a "quantum-leap stage" had already been reached.[112]

55. Other witnesses disagreed that there had been sustained voluntary change. Mary Honeyball MEP, Labour spokesperson on the European Parliament's Women's Rights and Gender Equality Committee, called United Kingdom and Europe-wide progress "insignificant" compared to that in Norway,[113] where the Fawcett Society noted that female board membership rose from 6 per cent to 44 per cent in six years.[114] This demonstrated the significant rate of change that could be achieved by quotas, which was also acknowledged by critics of possible quotas.[115]

56. For some, quotas represented the only way to achieve significant progress on female board representation.[116] This was the key argument for the European Commission in arguing the need to bring forward proposals.[117] It was also the basis for the adoption of quotas in both France—where the "disappointing" results of voluntary action prompted quotas[118]—and Norway.[119] Joëlle Simon, Director of Legal Affairs at the French business organisation MEDEF, called them a "necessary evil".[120] Indeed, the European Commission drew attention to the fact that almost half of the overall EU increase in female board representation resulted from progress in France since its introduction of quotas.[121] For Professor Sylvia Walby, therefore, "what works is simply an empirical question. It has been quotas which have worked."[122] The EWL drew particular attention to the power of EU legislation to change behaviour in recalcitrant Member States.[123]

57. Some contributors also argued that, rather than being patronising as many opponents claimed, quotas provided the means to overcome structural inequalities in the labour market.[124] Professor Sylvia Walby argued that claims about negative female views on quotas were often anecdotal.[125] Kate Grussing, Managing Director of Sapphire Partners, an executive search firm, agreed.[126] NAWO said it was not " … in the least patronising to take effective steps to address the current bias in favour of men".[127] Elin Hurvenes noted that a "board seat is a valuable company asset", and that "no chairman or shareholder, in Norway or elsewhere, would deliberately appoint someone without merit and waste a board seat".[128]

58. Furthermore, it was argued that quotas set in train longer-term change—the "trigger" for action, as the EWL put it[129]—by identifying the positive contribution that women could make to boards and opening the door to further involvement.[130] The TUC drew comparisons with the cultural shift in the trade union movement following the use of quotas, citing change there as evidence of the capacity of quotas to shift cultural mores.[131] Professor Sylvia Walby also saw them as a driver for changes in recruitment practice: "quotas push people, recruiters, to actively seek people where they could easily have previously filled a position out of people they already know. Quotas address the question of the issue of the network problem".[132]

59. The arguments for and against quotas were made forcefully and eloquently during our inquiry. Having considered the case carefully, the Committee considers that, in principle, quotas should be avoided. The speed of the change that they can achieve is counterbalanced by the negative perceptions that they generate in the business world and amongst many women in senior positions, as well as their limited impact on the underlying issues that affect gender diversity. That is not to say that they prevent sustainable progress; but change is delivered more effectively when business is engaged with the agenda and takes action at all levels to address it. As the Minister said, "when you get companies recognising that this will have benefits for them...that is going to be a more powerful driver, so it is a better way of solving the problem".[133]

60. However, simply to oppose any proposals for a quota, in any circumstances, would be too simplistic. As was the case in Norway, quotas are ultimately a tool to be employed where less stringent forms of action are thought to have failed. As a result, we consider quotas to be a legitimate tool of last resort, including at EU level, subject to the legal constraints of the Treaties and ECJ case law on positive action (see Box 2).[134] To use them at this stage, however, would imply that other approaches had failed. We do not consider this to be the case at present.

61. This is particularly evident in the United Kingdom, where we have been impressed by the engagement of both the Government and the business community, and by the results of that work. There have also been concerted efforts elsewhere. We have seen voluntary targets and charters in the Netherlands, underpinned by the threat of a sanction-based approach, and the number of women on boards has risen by a quarter to reach 19 per cent.[135] In Luxembourg, female board membership rose by 50 per cent to reach 6 per cent by January 2012, albeit from a very low base, after changes to its corporate governance regime.[136] This trend of encouraging greater disclosure from companies as to their diversity efforts has been mirrored elsewhere (see Chapter 5).

62. There have also been clearer efforts by companies to address issues of gender diversity. In Germany, for example, where by 2012 there were nearly a fifth more female board members than in 2010, DAX 30 listed companies have begun to set targets for female board representation.[137] Umbrella bodies such as Business Europe and the Association of Executive Search Consultants have also sought to foster best practice.[138] All of this work is being reflected at a European level: female board membership levels increased by 1.5 percentage points between October 2010 and January 2012, a noticeable rise compared to the long-term annual average of 0.6 per cent.[139]

63. Despite these efforts, we do not consider the number of women on boards acceptable, either in the United Kingdom or the EU as a whole. It is vital that change continues and is sustained beyond the hard work of reformers such as Vice-President Reding and Lord Davies of Abersoch—especially in terms of reversing negative trajectories in some countries. The European Commission has stressed that "sufficient time has already been given to the industry to make credible commitments to change the current situation".[140] We acknowledge that challenges remain, but the idea that time has run out, whether in the EU as a whole or particularly in the United Kingdom, is not convincing.

64. This does not mean we are complacent; we urge the Government and the Commission to maintain the pressure to hasten the pace of change. Yet at this stage, when many in the business community who are supportive of the overall aim of increasing the proportion of women on boards are vociferously opposed to quotas, the imposition of EU quotas would risk setting back voluntary efforts without achieving broader gains.[141] This is particularly so when the effects of quotas in France and Italy, where legislation is less than two years old, have not been studied in detail. Action would therefore lead to a widespread loss of goodwill—the Minister highlighted "significant numbers of countries that are not in favour of this particular approach...".[142] This would undermine the excellent leadership role played so far by Vice-President Reding.

65. Furthermore, given the short timeframe in which to evaluate the adequacy of this wave of responses from Member States, we would need to consider carefully whether a proposal to introduce EU-wide quotas respected the principle of subsidiarity, even if ameliorating clauses to embed flexibility were included. We urge the Commission to refrain from proposing legislation that would seek to introduce a quota mechanism.

66. A better approach would be for the Commission to make use of a Recommendation, a non-binding statement of recommended policy action. This should stress the importance of setting a voluntary national target of at least a 30 per cent level of women on boards. This would allow the Commission to demonstrate leadership, whilst reserving its right to take action subsequently should the response from Member States be inadequate.

67. The Commission could then review progress after three and five years, with the possibility of legislation, even at the earlier stage, if there is a clear and continuing failure to engage. To avoid that outcome, the United Kingdom must be well beyond the 30 per cent level amongst the FTSE 100 companies targeted thus far, and the FTSE 250 companies below them, at the latest by the end of that five-year monitoring point. There also has to be positive and accelerated rates of change in other Member States to show that sufficient progress is being made. We note in support that some opponents of quotas acknowledged the need to review the case for stronger action should progress stall.[143]

68. This reflects our view that quotas should remain a serious option of last resort. We have heard of the impact that the threat of quotas has had on Member States thus far.[144] It is important that such a threat is not rendered hollow. Whilst we wish to see sustainable, business-led change, goodwill should have a limit. The Commission should stand ready to take forward positive action, adhering to the limits of established EU law, if the rate of progress does not improve.

69. By taking this course, further action from the Commission would be on a much better evidential footing and its negotiating position would be strengthened significantly. A review period would also offer the opportunity for those in opposition to quotas to demonstrate the effectiveness of voluntary approaches. And pragmatically, if progress was to continue, the impact of any quota would be minimal for those countries and companies who had engaged seriously with the issue in the years before, which we hope would include the United Kingdom.

70. We oppose the use of quotas to increase the representation of women on boards, except as an option of last resort. Though able to achieve statistical change, quotas do not address the underlying cause of gender inequality: the lack of progression of a consistent stream of women into senior positions. A quota would also be unpopular with many of the women it would seek to help, and would risk fostering the perception—though entirely incorrect—that women on boards were not there by merit. A voluntary, business-led approach is the better vehicle for long-lasting change. However, if the business community is not able to put its own house in order and deliver sustainable change, quotas are a legitimate final option to redress the present gender imbalance on boards, including at European level as far as EU law allows.

71. In the past there has been an endemic failure to address gender inequality on boards. Since 2010, though, following the work of Vice-President Reding in Europe and Lord Davies of Abersoch in the United Kingdom, the issue of gender diversity has been placed high on the political agenda, and businesses have taken significant steps to improve the situation. We commend these developments. We acknowledge that progress has been variable across Europe, with some Member States moving backwards. However, there has been a clear and encouraging improvement in the number of female board members in the EU as a whole and particularly in the United Kingdom. We are therefore not convinced that self-regulatory efforts have been shown to be beyond repair. This is particularly so when too little time has elapsed to assess fully the impact of quotas in Member States, such as France and Italy, which have been instituted in the intervening period.

72. So, whilst Member States are free to pursue quotas nationally, the case has not been made for an EU-wide measure and we urge the Commission to refrain from introducing any proposal that would seek to institute quotas. To take legislation forward would jeopardise self-regulatory efforts in countries, like the United Kingdom, where business communities are strongly opposed to quotas, and would undermine the goodwill accrued as a result of EU leadership on the issue so far. We would also have to consider carefully the adherence of any legislation to the principle of subsidiarity, in the light of the extensive efforts made domestically, and would urge the Government to oppose any such measure strongly.

73. Instead of a Directive, the Commission should issue a non-binding Recommendation to Member States that urges strong action to address gender diversity on boards. The Recommendation should outline a range of recommended policy developments and a voluntary target of 30 per cent of EU board posts being held by women five years after it is issued. The Commission should review progress against this Recommendation after three and then five years. Goodwill towards self-regulation is not, and should not be, unlimited. Should there be a clear failure to address gender inequalities on corporate boards, the Commission should reserve the right to legislate on the issue at either stage. This would put the Commission in a stronger position in future negotiations and would allow Member States to demonstrate the effectiveness of other options.

79 The Committee has not taken evidence of the compliance of the quota systems of other States with the limitation laid down by the Court of Justice. Back

80 Q2 (Jonathan Rees, GEO) Back

81 Q23 Back

82 Q13 (Jonathan Rees, GEO) Back

83 Q57 Back

84 Q242 (France Henry-Labordère) Back

85 Small publicly traded is defined as a company with fewer than 50 per cent of shares available for trading or meeting at least two of the following criteria: fewer than 250 employees; less than or equal to €43 million in assets; or less than or equal to €50 million in annual net turnover) Back

86 Supporters of Heather Jackson (Natalie Sadler, Karen Husband, Karen Haslam, Alison Brookes, Jo Griffiths, Lorraine Warwick, Jo Humphries), Aviva, NHO Back

87 NAPF Back

88 ibid. Back

89 There were disagreements over this figure. The 30% Club insisted that only 2 per cent of CEOs were female. This was contradicted by Arni Hole, who stressed that the figure was 7.8 per cent. The higher figure has been chosen as it is able to present the same argument without entering into a debate on the available statistics. Back

90 NHO Back