Wednesday, October 16, 2013

E.U. Parliamentary Panel Approves Legislation on Gender Equality of Non-Executive Directors

Acting on a proposal from the European Commission, the European Parliament Committees on Women’s Rights and Gender Equality and Legal Affairs voted 40-9 to approve legislation providing that large listed companies should aim to ensure that by 2020 at least 40 percent of their non-executive directors are women. For companies operating under a two-tier board system, such as Germany and the Netherlands, that would mean 40 percent of the supervisory board should be women, while for companies operating under a one-tier board, such as the U.K., it would essentially mean that 40 percent of their independent directors would be women. The committee’s approval means that the Parliament can begin negotiations with the E.U. Council to produce a final piece of legislation.

The legislation is on a type of modified comply or explain since it would require companies to aide with the new regulations or explain to national authorities why they failed to abide by them and describe the measures that they have taken and plans to comply in the future. Penalties, such as fines, could be imposed for a company’s failure to follow transparent appointment procedures, rather than for failing to achieve the 40 percent target. The draft also added an exclusion from public calls for tenders as a mandatory penalty. The Commission proposal would not have made such penalty mandatory. In 2012, only 15% of non-executive board members at the EU's largest companies were women.

According to the draft legislation, the rules approved by the Committee would not apply to small and medium-sized enterprises. However MEPs encouraged member states to support SMEs and give them incentives to improve gender balance on their boards also. MEPs also called for a transparent, open and meritocratic recruitment procedure in which gender balance is borne in mind throughout. Where candidates are equally well qualified, priority should go to the candidate of under-represented sex. MEPs also stressed that qualifications and merit must remain the key criteria.

MEP Rodi Kratsa-Tsagaropoulou (CD Greece), and co-rapporteur, said that the EU legislation to step up women's membership of and participation in boards of listed companies. What is currently a reality in some EU member states will soon be extended to the single market as a whole It is important that the directive should be broad in scope and that many listed companies are required to use the open and transparent procedure when selecting their non-executive directors, emphasized co-rapporteur, and Vice Chair of the Legal Affairs Committee, Evelyn Regner (S&D, Austria), who added that the draft does not have provide an exemption for family enterprises or specific sectors. The draft did strengthen the penalties that member states should apply when companies do not fulfill the directive's requirements, said MEP Regner. This is not a quota for women in the classical sense, noted the Vice Chair. The core of the proposed Directive is to mandate an objective and transparent selection process, she emphasized, which should generally improve the work of supervisory boards.

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