EU may require companies to favour appointment of women over men to boards

European Union may require companies to appoint women over equally qualified men as directors, to meet 40 per cent quota

PUBLISHED : Friday, 16 November, 2012, 12:00am
UPDATED : Friday, 16 November, 2012, 4:35am

Companies may be required to favour women over equally qualified men for supervisory board seats, as they strive to meet a 40 per cent quota for female directors the European Union set out in draft rules published on Wednesday.

The European Commission adopted a proposal aiming to make boards two-fifths female by 2020, Mina Andreeva, a spokeswoman for EU Justice Commissioner Viviane Reding, said.

Regulators amended earlier versions so companies would only face sanctions if they fail to favour women, even if they don't meet the quota.

"We are proposing legislation to smash the glass ceiling that keeps women out of top jobs," Reding said. "Our proposal has teeth."

Some 13.7 percent of corporate board seats in the EU are held by women, following a 1.9 per cent increase between October 2010 and January 2012, the commission said in a report in March.

The lack of female candidates for a seat on the European Central Bank's Executive Board saw European Parliament lawmakers oppose the appointment of Luxembourg's Yves Mersch.

The measures would apply to about 5,000 listed companies in the EU by 2020 and state-owned companies by 2018, the commission said. They exclude companies with less than 250 employees or global sales below €50 million euros (HK$493 million).

The modified proposal does not really set a quota, said Clodagh Hayes, a partner at Linklaters in London.

Companies that do not meet the target "just need to ensure their recruitment processes are transparent and give preference to equally qualified female candidates," she said.

Many UK companies will find they comply in any case, Hayes added. "The 40 per cent target can be satisfied by having one female non- executive director out of four or two out of six."

The draft rules need the backing of most of the EU's member states and the bloc's parliament.

The UK prefers a "business-led, self-regulatory model" to encourage female representation in boardrooms over EU targets and would work with other European states to shape the final version of the rules, the government said.

"We have consistently argued that measures are best considered at national level," it added.

The amended proposals can, if governments wish, exempt listed companies from meeting the quota if women make up less than 10 percent of their employees or if women hold at least one-third of all director positions.

Companies would also have to disclose to unsuccessful candidates their reasons for selecting board members.

The rules would not stop companies from choosing a man if an objective assessment made him preferable to an equally qualified woman.

Reding's initial plan was altered after it did not win the support of EU commissioners.