Will the EU insist on 40% board gender diversity?

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    Women on boards has been one of the most contentious topics of the last few years. In the UK, we had the Davies Report in February 2011 which set out a series of recommendations with the aim of increasing female representation to 25% on the boards of FTSE 100 companies by 2015. Although this was non-binding, the report has been used as a basis for the UK government and the FRC to adopt various measures to try and encourage the recruitment of female directors.

    It’s not just in the UK, but across the world that people have been looking at how to encourage female representation on boards. The Scandinavian countries of Norway, Sweden and Finland have all adopted mandatory quotas for female representation and now the EU as a whole is looking at it.

    First the disclaimer. This is based on a (well) leaked report from the EU which is resisted by certain countries, notably the UK. Before it could become law, it would have to pass through numerous legislative steps which would likely change it dramatically. Nevertheless, it is still very instructive in showing how the powers that be are approaching this issue.

    The draft proposal that has been leaked would look to mandate that at least 40% of the non-executive directors of large listed companies in the EU were female by 2020. A company would be considered ‘large’ if it had more than 250 employees or €50 million in annual revenues. The penalties for non-compliance could be extreme with fines and, arguably more importantly, they would be barred from state aid or bidding for government contracts.

    Now, this draft proposal has often been reported in terms thatexaggeratethe detail. The proposed quota is only relevant to non-executive directors and therefore there is no proposed restriction on the gender diversity of executive directors. The draft proposal also states that the quota should not force a company to reach 50% or more female non-executive directors. So, if a company has four non-executive directors, the proposed quota would only require the company to have one woman amongst these four. The reason being that if the company was forced to have two women, they would have 50% female directors.

    Nonetheless, mandatory quotas across one of the largest economic blocs in the world would be a huge step and could well lead to other countries adopting similar measures. To answer the question posed in this blog, will the EU insist on such a quota? Personally, I don’t think it will come to pass, at least not in its current form. However, I do think some form of gender diversity legislation will be passed by the EU in the next few years and it will be telling to see what the nations of the EU finally agree on.

    This article was written by Nick Lindsay of Elemental Cosec, UK providers of company incorporations and company secretarial services. This article is for informational purposes only and should not be relied upon as specific advice or acted upon without seeking legal advice.