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EU quotas loom for gender diversity on boards

Author: ICAEW Insights

Published: 08 Jul 2022

Although the pending legislation is welcome, a mixed picture on female board representation across the EU means the new ruling will have its work cut out.

EU quotas for gender diversity on the boards of listed companies are a step closer, following a recent agreement between EU ministers and the European Parliament. The provisional deal paves the way for the passage of long-awaited measures to boost gender balance at the heart of corporate decision-making.

Under the pending legislation, listed companies must ensure that 40% of their non-executive directorships are held by women by 2026. However, if businesses choose to apply the rules to both non-executive and executive posts, they must meet a target of 33% of all their directorships by that year.

If member states fail to reach those targets, the lagging companies on their territory will have to implement transparent procedures for selecting and appointing board members – such as comparative assessments under neutrally phrased criteria.

But do the measures go far enough?

Mixed picture

“Since they were first tabled, these quotas have taken 10 years to get through the system,” says ICAEW Head of European Policy Susanna Di Feliciantonio.

“One of the factors behind that delay was German and British opposition,” she explains. “While still an EU member, the UK preferred a voluntary approach. Germany had similar issues, but changed its approach domestically in late 2020 – thereby helping to unblock the path.”

Even so, the legislation will have its work cut out, Di Feliciantonio warns. Across member states, the current picture of board gender diversity varies enormously. According to recent European Commission data, France remains the only EU country to have achieved a national, female board presence of more than 40% – although Germany and Italy have made significant progress, too.

However, in Central and Eastern Europe, particularly in some of the Mediterranean states, the figures start to look much worse, Di Feliciantonio says: “For example, Cyprus – where ICAEW has a high concentration of members – is only 8.5%. Greece, where we also have a notable membership, is on 19.6%. That sounds low in the context of the EU legislation – but Greece actually has its own quotas for board gender diversity.”

In light of those figures, the legislation faces a steep challenge with bringing all member states into parity, says Di Feliciantonio.

Board gender diversity is a key priority for Commission President Ursula von der Leyen. Nonetheless, the diversity environment into which the measures will emerge “has changed, compared to when they were first proposed”, she notes.

Knock-on effects

Mac Alonge, CEO of Birmingham-based diversity and inclusion consultancy The Equal Group, is confident this new legislation should mark a step forward in the conversation around gender among the more influential organisations in Europe – particularly among those yet to meaningfully address diversity within their organisations.

In Alonge’s view, the focus on board representation is significant and ought to yield positive knock-on effects for more junior staff and wider stakeholder relationships.

However, the measures don’t go far enough, he warns. “They tackle diversity of representation alone – whereas we are seeing a lot of companies struggle to retain diverse individuals as a result of poor practices on equality, inclusion and belonging.”

“The legislation only addresses gender, with no clear drive to ensure that consideration is given to intersectionality,” Alonge adds. “Further consideration must also be given to non-binary gender identities. However, we understand the nuances of that dynamic when factoring in the different starting points for different member states.”

Social value

For Alonge, the UK government is well placed to observe the benefits that are likely to flow from EU companies investing time and resources into improving their board gender balance.

However, he warns: “Organisations that drag their feet will find themselves losing their best talent, who will be drawn to workplaces that offer more inclusive environments – and board-level opportunities.”

Among member states, he says: “We’ll hopefully see a wave of progressive regimes attempting to outdo each other as they practically demonstrate the positive results of investing time and energy in this work.”

Turning to the broader governance impacts that could stem from the legislation, Alonge predicts that compliant organisations will focus on increasing their social value.

“As consumers, we are moving past ‘equal opportunities’ statements published on company websites. We now want to see empirical evidence,” he says. “The gift – or curse – of social media has shifted control of narratives away from businesses and into the hands of stakeholders. The impact of those relatively recent changes will only deepen over time.” 

Can workplace gender diversity mitigate climate change risk? Find out more in this article on ICAEW Insights.

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