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COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT ON COSTS AND BENEFITS OF IMPROVING THE GENDER BALANCE IN THE BOARDS OF COMPANIES LISTED ON STOCK EXCHANGES Accompanying the document Proposal for a Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures

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52012SC0348

COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT ON COSTS AND BENEFITS OF IMPROVING THE GENDER BALANCE IN THE BOARDS OF COMPANIES LISTED ON STOCK EXCHANGES Accompanying the document Proposal for a Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures /* SWD/2012/0348 final */


TABLE OF CONTENTS

1........... ANNEX 1: List of consulted studies................................................................................ 2

2........... ANNEX 2: Results of the stakeholder consultation........................................................ 10

2.1........ Introduction.................................................................................................................. 10

2.2........ Number of contributions and profile of respondents....................................................... 11

2.3........ Summary of replies to the questions............................................................................... 13

3........... ANNEX 3: Business case literature review.................................................................... 19

4........... ANNEX 4: Background to the problem definition.......................................................... 33

5........... ANNEX 5: Background on the board structure and the appointment of board members in practice      36

5.1........ General Board Structure............................................................................................... 36

5.2........ Board Systems............................................................................................................. 37

5.3........ Board Member Selection Procedures............................................................................ 39

6........... ANNEX 6: Background to the baseline scenario........................................................... 43

6.1........ Methodology to calculate change in female presence in boards by 2020......................... 43

6.2........ Overview of natural trend in each Member State by 2020.............................................. 44

6.3........ Binding quota legislation for listed companies in Member States..................................... 49

6.4........ Other legislative measures............................................................................................. 53

6.5........ Regulation of gender balance on boards of state-owned companies by legislative means. 54

6.6........ Female presence in the board throughout all Member States.......................................... 56

7........... ANNEX 7: Fundamental Rights.................................................................................... 59

7.1........ Fundamental rights' check............................................................................................. 59

7.2........ Article 23 on equality between women and men and Article 21(1) on non-discrimination on the grounds of sex 60

7.3........ Article 16 on the freedom to conduct a business............................................................ 63

7.4........ Article 15(1) on the freedom to choose an occupation and right to engage in work......... 66

7.5........ Article 17(1) on the right to property............................................................................. 67

7.6........ Article 47 on the right to an effective remedy................................................................. 69

8........... ANNEX 8: Background on methodology of calculation of the impacts........................... 73

8.1........ Assessing the Effectiveness........................................................................................... 73

8.1.1..... Calculating the impacts of policy option 2 on female presence in company boards.......... 73

8.1.2..... Calculating the impacts of the other policy options......................................................... 75

8.1.3..... Assessing the impacts on company performance: corporate governance......................... 76

8.1.4..... Assessing the impacts on company financial performance............................................... 87

8.1.5..... Assessing the impacts on investment costs..................................................................... 89

8.2........ Economic impact.......................................................................................................... 98

8.2.1..... Calculating the impact on the Gender Pay Gap (GPG)................................................... 98

8.2.2..... Calculating the impact on the Gender Employment Gap (GEG).................................... 104

8.2.3..... Calculating the return on education.............................................................................. 105

8.3........ Calculating the administrative burden........................................................................... 107

9........... ANNEX 9: Background on the Norwegian case......................................................... 113

COMMISSION STAFF WORKING DOCUMENT

ANNEXES TO THE IMPACT ASSESSMENT ON COSTS AND BENEFITS OF IMPROVING THE GENDER BALANCE IN THE BOARDS OF COMPANIES LISTED ON STOCK EXCHANGES

Accompanying the initiative to improve gender balance in company boards

1.           ANNEX 1: List of consulted studies

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Adams, R., Gray, S. and Nowland, J. 2011. Does Gender Matter in the Boardroom? Evidence from the Market Reaction to Mandatory New Director Announcements, Social Science Research Network

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Bauer, R., Guenster, N. and Otten, R. 2004. Empirical evidence on corporate governance in Europe: The effect on stock returns, firm value and performance. Journal of Asset Management 5(2): 91-104.

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Brammer, S., Millington, A. and Pavelin, S. 2009. Corporate reputation and women on the board. British Journal of Management, 20(1): 17-29.     

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Campbell, K. and Mínguez-Vera, A. 2008. Gender Diversity in the Board and Firm Financial Performance. Journal of Business Ethics, Journal of Business Ethics, 83(3): 435-451.

Campbell, K., and Mínguez-Vera, A. 2009. Female board appointments and firm valuation: short and long-term effects. Journal of Management & Governance, 14: 37-59.

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            The data on companies cover the largest (by market capitalisation) nationally registered (according to ISIN code) constituents of the main blue-chip index of the national stock exchange in each country. In countries with unitary (one-tier) systems, the board of directors is counted (including non-executive and executive members). In countries with two-tier systems, only the supervisory board is counted.

EU Strategy for Equality between Women and Men (2010-2015)

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Fondas, and Sassalos. A Different Voice in the Boardroom: How the Presence of Women Directors affects Board Influence over Management. Global Focus, 12(2):13-22.

Freshfields Bruckhaus Deringer. 2011. A guide for directors of subsidiary companies in France. Available at: http://www.freshfields.com/publications/pdfs/2011/aug11/30829.pdf

Gompers, A., Ishii, J. and Metric, A. 2003. Corporate Governance and Equity Prices. Quarterly Journal of Economics, 118: 107-55.

Government Commission on the German Corporate Governance Code. 2010. Corporate Governance Codes and Principles – Germany. Available at: http://www.ecgi.org/codes/documents/cg_code_germany_may2010_en.pdf

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Haygroup 2011, Non-executive directors in Europe.

Hewlett, Sylvia Ann, Executive women and the myth of having it all, April 2002, pages 66-73.

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Hillman, A.J., Cannella, A.A. and Harris, I.C. 2002. Women and racial minorities in the boardroom: how do directors differ? Journal of Management, 28: 747-63. Singh, V., Vinnicombe, S., and Terjesen, S. 2007. Women Advancing onto the Corporate Board. Handbook on Women in Business and Management (pp. 304-329). Cheltenham, U.K. and Northampton, Mass.: Elgar.

Holst, Nach wie vor kaum Frauen in den Top -Gremien großer Unternehmen, DIW 18/2009, page 11.

Holst, DIW, Discussion paper 557, Women in managerial positions in Europe,

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2.           ANNEX 2: Results of the stakeholder consultation

2.1.        Introduction

On the basis of the Progress Report "Women in economic decision-making in the EU" presented on 5 March 2012, the Commission launched a public consultation of stakeholders on the gender imbalance on corporate boards in the EU and possible EU measures to be taken in that context.

The consultation was announced on the Commission website[1], and was widely publicised through a Commission press release[2], articles in European newspapers, social media (Facebook, Twitter), and interventions of Commission representatives in meetings with other institutions and stakeholders.

The target group of this consultation was composed of Member States, business, industry and employer organisations, individual companies, civil society organisations with an interest in gender and/or social issues, trade unions, equality bodies, and other organisations or individuals.

Stakeholders wishing to contribute to the consultation were invited to answer the following questions:

· How effective is self-regulation by businesses to address the issue of gender imbalance in corporate boards in the EU?

· What additional action (self-regulatory/regulatory) should be taken to address the issue of gender imbalance in corporate boards in the EU?

· In your view, would an increased presence of women on company boards bring economic benefits, and which ones?

· Which objectives (e.g. 20%, 30%, 40%, 60%) should be defined for the share of the underrepresented sex on company boards and for which timeframe? Should these objectives be binding or a recommendation? Why?

· Which companies (e.g. publicly listed / from a certain size) should be covered by such an initiative?

· Which boards/board members (executive / non-executive) should be covered by such an initiative?

· Should there be any sanctions applied to companies which do not meet the objectives? Should there be any exception for not reaching the objectives?

The deadline for sending contributions was 28 May 2012.

2.2.        Number of contributions and profile of respondents

The amount of feedback was significant, showing the considerable amount of interest in the topic among European stakeholders. In total, the Commission received 485 contributions to the public consultation, of which 161 were sent by individuals and 324 by organisations (public authorities, business or industry associations, companies, NGOs and women organisations, trade union and professional organisations and other bodies).

Replies were received from 23 EU Member States (all but Bulgaria, Lithuania, Slovenia and Slovakia), by far most of them from Germany (163) and the United Kingdom (79), followed by the Netherlands (43), France (26), the Czech Republic (25), Italy (17), Spain (15), Denmark (15) and Austria (15). 22 EU-level organisations responded, as well as citizens and organisations from third countries and international bodies.

Graph 1: Replies to the public consultation per Member State

Among the replies from individual citizens, which include those received from researchers, most of them were also sent from Germany (71), followed by the Netherlands (35), the Czech Republic (14) and the UK (12). Almost half (159) of the organisations contributing to the consultation are based in Germany and the UK, showing the extensive debate in those two Member States on the issue of women in corporate management.

Graph 2: Replies of organisations to the public consultation per Member State

The following graph shows the type of organisations that have contributed to the consultation.

Graph 3: Replies by type of organisations

Central governments in 13 Member States have responded (AT, CZ, DE, DK, FI, FR, HU, IE, LV, NL, PL, SE, UK). Replies were also sent by regional governments (Nordrhein-Westfalen, Berlin, Emilia-Romagna) and cities / municipalities (Barcelona, München, Frankfurt, Nürnberg, Würselen, Ozzano Emilia), as well as by the Czech National Bank.

Many individual companies of all sizes and from different sectors of industry (in total 79) have sent contributions, including some of the major listed companies in Europe (e.g. Allianz, Aviva, BASF, BMW, BNP Paribas, BP, Deutsche Telekom, GlaxoSmithKline, Novo Nordisk, Siemens, Sodexo, SONAE, ThyssenKrupp). Several SMEs as well as a few micro-businesses run by female entrepreneurs have also participated.

In total 56 business, industry and employer associations at both EU and national level (19 from Germany) have responded to the consultation, including both European umbrella organisations (e.g. BUSINESSEUROPE, ERT, EUROCHAMBRES, UEAPME, EuroCommerce, CEEMET) and many major national business organisations (e.g. CBI, Medef, BDA/BDI, Confindustria, VNO-NCW, SN, WKÖ, CIP, DI, IBEC, UEL) and chambers of commerce. Some associations of listed companies have also responded.

The contributors include 53 NGOs, most of them women's organisations (and one men's organisation). The European Women's Lobby (EWL) and many of their national members, as well as associations of businesswomen (including local branches of the European PWN) or women lawyers have all responded to the call.

Several trade unions at EU (e.g. ETUC, CESI) and at national level (e.g. DGB, CFDT, CFE-CGC, TUC, ÖGB, LO) as well as professional organisations, such as the European Confederation of Directors’ Associations (ecoDa), national institutes of directors (e.g. in IE and FI) and associations of accountants, engineers and financial analysts were among the respondents.

Among the other stakeholders, notable contributions were received from the actors in financial services (e.g. London Stock Exchange and NASDAQ OMX), associations of investors or shareholders, bodies dealing with corporate governance, research institutions, and several specific initiatives to bring more women into corporate boardrooms. Some political actors, in particular parties' women organisations (e.g. EPP Women, Social Democratic Women (CZ and DE), Green Women Vienna) as well as several individual MEPs and national MPs also replied.

2.3.        Summary of replies to the questions

There is a broad agreement among stakeholders that the underrepresentation of women on company boards is a problem that needs to be tackled. Therefore, the objective of increasing the proportion of women at all company levels is widely shared. Views diverge, however, on how this should be achieved, namely through regulation or through self-regulatory or corporate initiatives.

The vast majority of stakeholders also recognise that a gender-diverse workforce and board structure creates a committed and creative atmosphere and is a driver of innovation and good governance. Many share the view that a gender-balanced board can reflect a company's customer base more accurately and that it would be short-sighted to leave untapped the economic potential of qualified women who constitute half of the talent pool. Only a few organisations deny the existence of a business case for more gender diversity in companies and on boards, stating that qualification is the only relevant factor.

In their detailed comments, most of the respondents followed the structure of the questionnaire proposed by the Commission. Their replies are summarised below[3].

· How effective is self-regulation by businesses to address the issue of gender imbalance in corporate boards in the EU?

Stakeholders' views vary widely about how successful self-regulation had been or could be in addressing the issue of gender imbalance on company boards.

The business community in particular , i.e. companies and industry associations, sees self-regulation as the most appropriate approach, as it allows taking into account the starting point of different companies and sectors and provides for tailor-made solutions. In their view, the self-regulatory method ensures ownership and a substantial change in corporate culture, through a bottom-up approach and realistic targets, without undue interferences into the freedom of business.

Examples of a successful self-regulatory approach sometimes referred to are Sweden and Finland, but also Latvia. Many stakeholders from the UK point to how the debate on the issue has picked up since the publication of Lord Davies' report on women on boards and to the increase in the number of women directors being appointed to boards in the last one or two years. They think the voluntary method suggested in the UK should be given a chance. Similarly, the change in speed since Commission Vice-President Reding's call for self-regulation in March 2011 if often noted positively.

Other stakeholders consider that self-regulation may be a first step, but has not (yet) delivered. The disappointment about the failure of the approach to produce satisfactory results is strongest among women NGOs and trade unions. They consider that only the recent threat of legislation to impose a higher share of women business leaders has triggered some change, but this change is not fast enough, as it would still take decades at the current pace to achieve a sufficient level of gender balance on company boards.

These stakeholders often point to disappointing experiences with self-regulation in their own Member States, e.g. in Germany, where a 2001 self-commitment of the business community was – in their view – not followed up by any concrete action, but also in other Member States (e.g. IE, PT, NL). Others recall the Norwegian experience, where after years of unsuccessful self-regulation, only a regulatory approach brought about a change in numbers.

· What additional action (self-regulatory/regulatory) should be taken to address the issue of gender imbalance in corporate boards in the EU?

Depending on their views on the merits of self-regulation, stakeholders have different opinions on additional action that should be taken to strengthen women's positions in the management and supervision of companies. Actions proposed include both measures to directly tackle the gender imbalance on boards and flanking measures to create a business environment conducive to a better promotion of women's careers in business management.

The actors favouring self-regulation advocate a voluntary approach, notably through corporate governance codes and industry or individual corporate initiatives. They argue that change will be led by the market, as the business case argument will convince more and more companies that diversity pays off. Some also argue that developing a talent pool of sufficiently qualified women for board positions is a matter of time, and the composition of company boards will change naturally.

Other stakeholders, including in the business community, acknowledge that public authorities, including at EU level, have a role to play in triggering a change of mentality and can support that change through soft measures, such as recommendations and awareness-raising. Many also think that the role of the State is to create the necessary environment in which women can take on decision-making positions, notably through measures ensuring a better reconciliation of work and family life (e.g. childcare institutions).

Other proposals include specific actions to help women progress in their careers, e.g. mentoring and training programmes, professional networks for women, databases of CVs of women with board potential. Companies could contribute through a better human resources diversity management and clear job descriptions, profile criteria and transparent selections procedures for board positions.

Finally, a substantive share of contributors consider that the current gender imbalance on boards can at least partly be explained by prejudice and stereotypes in a male-dominated business culture, where many appointment decisions are taken in backroom deals, so that even the highest qualified women never get a chance. In their view, only clear targets or quotas for women on company boards will break the glass ceiling that many women in middle-management of companies currently face.

· In your view, would an increased presence of women on company boards bring economic benefits, and which ones?

The replies to this question show the greatest degree of consensus among stakeholders, as there is broad agreement that diverse boards, including in terms of gender, take better decisions and produce better economic outcomes for companies. This is explained by the fact that gender diversity leads to a better understanding of the market, openness to new ideas and visions and boosts creativity and innovation. They also argue that companies with a higher share of women in management attract even more highly educated women.

Many contributions refer to existing research and studies (notably by some consultancy firms such as McKinsey and Ernst&Young) showing a positive correlation between the presence of women on company boards and overall corporate performance and financial results, including turnover, profit and shareholder value.

Some stakeholders underline, however, that the causality of these findings has not been proven yet and contest that the sex of a person can have any direct influence. While they highlight the exclusive importance of competence, qualifications and experience, they also acknowledge the importance of having heterogeneous profiles of directors.

Finally, several stakeholders also point to the macro-economic benefits that a higher share of women directors can bring in terms of attracting more women into the labour market and to management positions, with positive effects on the gender pay gap. They underline the importance of female role models for providing incentives for women to start businesses.

· Which objectives (e.g. 20%, 30%, 40%, 60%) should be defined for the share of the underrepresented sex on company boards and for which timeframe? Should these objectives be binding or a recommendation? Why?

This question, again, draws very different answers, depending on the approach that stakeholders favour– regulatory or self-regulatory – to address the issue of gender imbalance on company boards.

Advocates of a self-regulatory approach consider that, while public or corporate governance initiatives can make suggestions, each company should be free to set its own targets in relation to the promotion of women in management and company boards. They consider that one-size-fits-all quotas would not do justice to existing initiatives and not take account of different starting positions of certain companies and industries. Therefore, any objectives set by public authorities should not be binding. However, some business representatives would accept soft law initiatives with a suggested target (e.g. 30% of women by 2018), if it is acknowledged that this may not be achievable for all, while others may be able to advance faster.

Proponents of a more ambitious approach support binding objectives for company boards at levels generally ranging from 30% to 50%. Many favour a gradual scheme, with objectives rising with time, or depending on company type or size. The proposed timeframe varies in most cases from 3 to 8 years, most stakeholders acknowledging that a sufficient time span is required to achieve substantial progress, without putting companies in difficulty, in particular since board elections in some Member States take place only every 3 or 4 years. Some of them argue that binding gender objectives should be limited in time.

Interestingly, a considerable number of stakeholders support the targets and timeframes proposed in March 2011 by Commission Vice-President Reding as a benchmark for self-regulation and supported by the European Parliament, i.e. a share of 30% of women by 2015 and 40% by 2020.

· Which companies (e.g. publicly listed / from a certain size) should be covered by such an initiative?

When asked about the companies that should be covered by an initiative to increase the number of women on boards, the respondents often replied differently, according to their preference as regards the nature of such initiative.

Those favouring more far-reaching – in particular binding – measures argued that the target group should be restricted, both for reasons of feasibility and the possibility to control compliance. Many contributors thought that such an initiative should focus on companies listed on stock exchanges, where the public interest rationale for external intervention is greatest, due to these companies' visibility in the public domain. Others preferred targeting the companies with the highest market capitalisation, as they did not consider the criterion of listing as relevant. The size in terms of employees was often cited as a relevant criterion, with different thresholds suggested, such as 250 or 500 employees – which would exclude small and medium-sized enterprises (SME) from the scope. Finally some stakeholders thought that state-owned or publicly owned companies should be covered as well, some even including 'high-growth SMEs'.

Stakeholders pleading in favour of voluntary commitments and self-regulation thought that companies of all sizes and types could make their own contribution to improving the situation. It was acknowledged, however, that soft law or corporate governance initiatives in many cases also concern only publicly listed companies, but that other companies should launch their own (voluntary) initiatives.

Quite some stakeholders pleaded in favour of a gradual or differentiated approach, namely by starting an initiative with listed and/or state-owned companies and then extending it to a wider target group, or by having different requirements for different sizes of companies.

Other criteria quoted included companies participating in public procurement or companies with a compulsory works council (which is a legal category in German company law).

· Which boards/board members (executive / non-executive) should be covered by such an initiative?

There was no clear trend in the replies to this question. Many stakeholders argued that both management and supervisory boards (in the dual board system) or both executive and non-executive directors (in the unitary board system) should be covered by an EU-level initiative, while other favoured covering only one or the other group.

Many contributions underlined the need to take into account the diversity of board systems across Member States, when designing an initiative. Several German organisations (including women NGOs) argued that the initiative should focus on supervisory boards only (including both shareholder and employee representatives on those boards), and also some Finnish organisations argued that only the non-executive boards should be covered.

Some stakeholders suggested starting an initiative with non-executive board members, as it would constitute a less significant interference with the daily management of companies and could be done faster, while executive board members should follow later.

Quite a few stakeholders stressed the importance of not only focusing on company boards, but also to think of how women could be promoted in higher and middle management to ensure a 'sustainable pipeline' or 'supply chain' of qualified women for board positions. However, in most cases, it was argued that this should be achieved by way of self-regulation and corporate initiatives.

· Should there be any sanctions applied to companies which do not meet the objectives? Should there be any exception for not reaching the objectives?

The views of whether sanction should be applied to companies not ensuring a sufficient gender balance in company boards heavily depended on whether stakeholders favoured or opposed binding objectives.

Those calling for binding measures usually called for strict sanctions and made a number of suggestions including: invalidity of appointment of board members; invalidity of board decisions; suspension of board members' remuneration; exclusion from public subsidies and/or public procurement; financial sanctions (fines), many highlighting that these should be dissuasive and thus not too low; exclusion from fiscal deductions. Some pleaded for using the habitual company law sanctions in each Member State. Many highlighted how essential sanctions were for the efficiency of binding objectives, citing Norway as a good example and Spain as a counter-example.

A few stakeholders argued that legal measures should only be backed up by a 'comply-or-explain' approach, i.e. the duty to report on progress in the company's annual report and to develop a strategy if the objectives have not been reached.

Incentive mechanisms were sometimes suggested as a type of 'positive sanctions' for those companies who abide by the objectives. Such incentives included 'gender certification' of companies or advantages in public procurement.

Some contributions also suggested a gradual approach for non-complying companies, starting with mild dissuasive measures such as warnings or progressive monetary sanctions and then increasing to harsher actions such as the forfeiture of offices of appointed board members.

The importance of a monitoring system was often highlighted, as was the need to guarantee the proportionality of sanctions, taking into account the nature, size and complexity of a company, as well as the degree of infringement. It was stated that the sanctions should not prevent a company from carrying out its usual business.

As concerns the question for exceptions for not reaching the objectives should be allowed, many stakeholders expressed their reservations, as this would open a way out for companies. However, some stakeholders advocated exceptions to take account of company-related specificities, for instance in cases where women were strongly underrepresented in the employee structure of a company.

3.           ANNEX 3: Business case literature review

Women on boards: positive effects

Name(s) || Title || Year || Findings

Renée Adams Daniel Ferreira || Diversity and Incentives in teams: evidence from corporate boards || 2003 || Tobin's Q is positively related to the percentage of female directors on the board.

Renée Adams Daniel Ferreira || Women in the boardroom and their impact on governance and performance || 2009 || Diversity is found to have a positive impact on performance in firms that otherwise have weak governance, as measured by their abilities to resist takeovers (although this does not hold for firms with strong governance, see below).

Renée Adams Stephen Grey John Nowland || Does Gender Matter in the Boardroom? Evidence from the Market Reaction to Mandatory New Director Announcements || 2011 || On average, shareholders value additions of female directors more than they value additions of male directors. This suggests that appointing female directors may help resolve value-decreasing stakeholder conflicts.

Roy Adler || Women in the Executive Suite Correlate to High Profits || 2007 || An extensive 19-year study of 215 Fortune 500 firms shows a strong correlation between a strong record of promoting women into the executive suite and high profitability.

Stephen Bear Noushi Rahman Corinne Post || The impact of board diversity and gender composition on corporate social responsibility and firm reputation || 2010 || Having more female directors can enhance critical board processes including analysis and decision-making. This positive impact of women on boards can improve ratings for CSR which can, in turn, enhance corporate reputation and positively impact financial performance, institutional investment, and share price.

Stephen Brammer Andrew Millington Stephen Pavelin || Corporate Reputation and Women on the Board || 2009 || The presence of women on the board is favourably viewed in only those sectors that operate close to final consumers. It is argued that the nature of this effect reflects an imperative for equality of representation that highlights the need to reflect gender diversity among customers.

Lissa Broome John Conley Kimberly Krawiec || Dangerous categories: narratives of corporate board diversity || 2011 || Interviewing board members who face board diversity themselves, the authors find that all of the interview subjects agree with the abstract proposition that board diversity is a good thing. On the more specific question of why it is good, there is broad agreement, though not necessarily quantifiable—a master narrative of sorts – that board diversity results in functional improvements to board or corporate operations—a "qualitative “business case” for board diversity.

Kevin Campbell Antonio Minguez-Vera || Gender Diversity in the Boardroom and Firm Financial Performance || 2008 || Gender diversity has a positive effect on firm value. The study suggests that investors in Spain do not penalise firms which increase their female board membership and that greater gender diversity may generate economic gains.

David Carter Betty Simkins Gary Simpson || Corporate Governance, Board Diversity and Firm Value || 2003 || This study examines the relationship between board diversity and firm value for Fortune 1000 firms and finds that Tobin's Q is positively related to both the percentage of female directors and the percentage of minority directors.

David Carter Frank D'Souza Betty Simkins Gary Simpson || The diversity of corporate board committees and firm financial performance || 2007 || Empirical analysis supports the hypothesis that board diversity positively affect financial performance as measured by Tobin's Q. However, the board committee evidence also indicates that the process through which gender and ethnic diversity impacts financial performance is subtle and complex. Some functions of the board may benefit from diverse directors while other functions may actually suffer. Furthermore, the type of diversity appears to matter.

Alessandra Casarico Paola Profeta || Quote rosa: svolta in Italia || 2011 || Legislative instruments, such as quota, are useful in attaining equality in economic and political decision-making, especially because it addresses market failures and makes the market of competent employees more competitive (by widening the recruitment pool). Positive effects are not only felt directly at the management level, but also indirectly on the labour market as the measures encourage female participation.

Catalyst || Women in leadership; The bottom line; Women on boards … || 2002 2004 2005 2006 2007 2008 2009 || Companies with the highest representation of women board members outperform companies with the least representation of women board members in terms of return on equity (ROE), return on sales and return on invested capital.

Cerved || Donne al commando delle imprese: il fattore D || 2009 || This econometrical analysis shows that more women on company boards reduce the risk of default (factor D). When women are prevalent on company boards, the firm is 15% less likely to receive a bad rating (indicative of risk of default), than firms which have very few or no women on board. Likewise, only 13% of 'female companies' have become insolvent. In addition, 'female companies' tend to grow faster, are more prevalent among emerging companies and generate more profit.

Credit Suisse research Institute || Gender diversity and company performance || 2012 || Over six years, companies with at least one female board member outperformed those with no women on the board in terms of share price performance by 26% for companies with a market capitalisation greater than USD 10 billion, and by 17% for small-to-mid cap stocks. The sample comprised 2,360 companies constituting the MSCI AC World index.

Larelle Law Chapple Pamela Kent James Routledge || Board Gender Diversity and Going Concern Audit Opinions || 2012 || Boards with at least one female director are less likely to receive an emphasis of matter going concern opinion. The authors attribute this result to the improved monitoring that the board is able to provide as a result of the qualities brought to bear by female directors. This finding is indicative of the important role of the audit committee in relation to the integrity of financial reporting and that the existence of female members on the committee expectation enhances its operation.

Harald Dale-Olsen Pål Schøne Mette Verner || Diversity among Directors - The Impact on Performance of a Quota for Women on Company Boards || 2011 || The average impact of the reform on firm performance is negligible. However, the reform contributed to increased return on assets for a priori badly performing surviving firms. This may have followed from the recruitment of highly competent female board members following the reform.

Harald Dale-Olsen Pål Schøne Mette Verner || Women on Boards of Directors and Firm Performance: Evidence from Denmark and Norway || 2012 || The results for Denmark reveal no significant relationships between the proportion of women on boards and firm performance. As there was no quota policy in place in Denmark in this period and the proportion of women on boards has been quite constant, this is hardly surprising. The results for Norway reveal first a positive relationship between the proportion of women on boards of directors and firm performance. This relationship does hold after controlling for a wide set of firm characteristics.

Lord Davies || Women on boards || 2011 || The business case for increasing the number of women on corporate boards is clear. Women are successful at university and in their early careers, but attrition rates increase as they progress through an organisation. When women are so under-represented on corporate boards, companies are missing out, as they are unable to draw from the widest possible range of talent. Evidence suggests that companies with a strong female representation at board and top management level perform better than those without and that gender-diverse boards have a positive impact on performance.

Niclas Erhardt James Werbel Charles Shrader || Board of Director Diversity and Firm Financial Performance || 2003 || Our findings are that diverse boards are found in conjunction with increased firm financial performance. Correlation and regression analyses indicate board diversity is positively associated with these financial indicators of firm performance. And regardless of whether it is the cause or result of performance, it does appear that firms should seriously consider the potential for the enhanced representation and perspective diversity might create.

Ernst&Young || Mixed leadership || 2012 || The study comparing European top companies from 2005 -2010 came to the result that companies with higher female presence have better financial performance indicators (turnover, shareholder value, revenue)

EVA (Finnish Business and Policy Forum) || Female leadership and Firm profitability || 2007 || Female leadership is good for business from three standpoints: social, corporate social responsibility and profitability. EVA finds that a firm with a gender-balanced board is on average about 10% more profitable than a similar firm with an all-male board. Same results hold for firms with a female CEO. Though clearly stating this is a correlation and no causality, and not necessarily supporting female quotas, EVA concludes that they could be called for in a transitional period to 'normalise' the presence and role of women in business.

Finland Chamber of Commerce || Men lead business operations of listed companies - Women end up in support functions || 2011 || Generally supportive of board gender diversity as a means of securing the availability of the best possible employees and top management for businesses (without necessarily being in favour of quota, see below): "Companies lose potential if top management is selected only among the most knowledgeable and suitable men, not among the best persons".

Ruth Mateos Ricardo Gimeno Lorenzo Escot || Disentangling Discrimination On Spanish Boards Of Directors || 2010 || Manifestation of Becker’s model according to which most competitive companies that have survived are those with more diverse boards. In this sense, the authors observe that those companies with fewer women directors in 2005 were more likely to become extinct in the following three years.

Ruth Mateos Ricardo Gimeno María Nieto || Gender Diversity On European Banks’ Boards Of Directors: Traces Of Discrimination || 2011 || There is empirical evidence that highlights the benefits of diversity for corporate governance in terms of both efficiency and better monitoring. As women directors add to the diversity of the boards their inclusion can improve their corporate governance.

Morten Huse || The “Golden Skirts”: Changes in board composition following gender quotas on corporate boards || 2011 || Women are generally getting the independent director positions, and the traditional old boys network on corporate boards are replaced by “Golden Skirts” and “Gold Sacks”. Competence and not independence has been the main criteria for selecting them. Many women have become very visible as good board members. There is no shortage of highly qualified women for board positions. Highly qualified women are numerous. They are now getting more experiences and are becoming more visible. Imitating or mimicking processes take place. It has become a reputation-building initiative to have women on the board.

Jasmin Joecks Kerstin Pull Karin Vetter || Women on Boards and Firm Performance: What Exactly Constitutes a 'Critical Mass'? || 2012 || Based on critical mass theory and with the help of a hand-collected panel data set of 151 listed German firms for the years 2000-2005, the authors explore whether the link between gender diversity and firm performance follow a U-shape. Controlling for reversed causality, they find gender diversity in fact to at first negatively affect firm performance and – only after a 'critical mass' of about 30 percent women has been reached – to be associated with higher firm performance than completely male boards.

Mijntje Lückerath-Rovers || Women On Boards And Firm Performance || 2010 || This article adds to the international debate and applies useful methods to 99 listed companies in the Dutch Female Board Index. Firms with women perform better than those without women. The differences are statistically significant for return on equity. Regression analyses confirm these findings. Both results are indications that on average the presence of women on the board could be a distinctive feature of companies that perform better. This study does not suggest that there is causality.

McKinsey and Company || Women Matter (series) || 2007 2008 2009 2010 2012 || McKinsey consistently argues that the companies where women are most strongly represented at board or top-management level are also the companies that perform best. Insights include the importance of a critical mass of at least three women, criteria of organisational excellence and leadership styles (2008), a call for more women leaders as a competitive edge in and after the economic crisis (2009), CEO commitment and women's individual development programmes (2010), gender diversity programmes and low women's representation on executive committees in particular (2012). However, position on quota remains ambivalent and cautious.

Pam Watson Korbel and Donna Evans || Women on boards = Peak performance || 2012 || Women significantly impact on organizations' performance, particularly when three or more women serve on the same board. Organizations benefit from women serving in the boardroom including: 1. Improved financial performance; 2. Improved governance; 3. Higher level of board independence from management; 4. Stronger commitment to social responsibility; 5. Increased number of women role models in society

Toyah Miller Maria del Carmen || Demographic diversity in the boardroom: Mediators of the Board Diversity – Firm Performance Relationship || 2009 || The authors explain how board (racial) diversity is related to firm performance. Applying signalling and behavioural theory to a sample of Fortune 500 firms, it is concluded that board diversity enhances a firm's reputation and innovation – indirectly leading to better firm performance. In addition, the authors find a positive relationship between board gender diversity and innovation – although no direct relationship was found with firm performance. The lack of a direct relationship does not necessarily mean that gender equality does not help firms – it is suggested that maybe the firm's environment is not set up to allow the firm to reap the benefits of a diverse board.

Antonio Mínguez-Vera Raquel López-Martínez || Female directors and SMEs: An empirical analysis || 2010 || A mix of men and women on the board has a positive effect on firm performance. This result suggests that gender diversity not only advances social equity in Spanish boardrooms but serves to improve the firms’ economic situation.

Knut Nygaard || Forced board changes: Evidence from Norway || 2011 || Firms with low information asymmetry experience positive and significant cumulative abnormal returns (CAR) at the introduction of the quota, whereas firms with high information asymmetry show negative but insignificant CAR.

Emilia Peni || Essays on the Effects of Female Executives and Experts on Corporate Governance and Financial Reporting Practices || 2012 || The results indicate that male- and female led firms differ in several aspects. For example, the firms with female executives are associated with better corporate governance quality, more conservative financial reporting practices, and better financial performance. In general, the findings provide support for the existence of gender-based behavioural differences at the executive and expert level.

Luis Rodríguez-Domínguez, Isabel-María García-Sánchez Isabel Gallego-Álvarez || Explanatory factors of the relationship between gender diversity and corporate performance || 2010 || Mixed evidence might indicate the importance of the business context and the optimum size of the female presence in decision-making bodies. The results obtained show that when working conditions and academic backgrounds are similar, women achieve better performance in sectors traditionally dominated by men. Moreover, to take the best advantage of gender diversity it is recommended that boards of directors should be balanced or have a slightly higher female presence.

Nina Smith Valdemar Smith Mette Verner || Do women in top management affect firm performance? A panel study of 2,500 Danish Firms || 2006 || The proportion of women in top management jobs tends to have positive effects on firm performance, even after controlling for numerous characteristics of the firm and direction of causality. The results show that the positive effects of women in top management depend on the qualifications of female top managers.

Nina Smith Valdemar Smith Mette Verner || Women in Top Management and Firm Performance (DK) || 2008 || The analysis suggests that the proportion of women in top management jobs has from none to positive influence on firm performance. However, the results show that the strength of the effects of women in top management depends on how top CEOs are defined and on the method of estimation of the model.

Carol Stephenson || Leveraging diversity to maximum advantage: The business case for appointing more women to boards || 2004 || As the research proves, companies with female board members can expect significantly higher returns and better overall financial performance. More female representation also translates into improved risk management and audit control, increased ethical oversight and a broader, more accurate assessment of the company's success. Equally important, with more female leadership, companies are better able to attract more female talent. They send a powerful message to the women who already work for their organizations that their contributions are valuable - that their voices are heard.

Siri Terjesen Ruth Sealy Val Singh || Women Directors on Corporate Boards: A Review and Research Agenda || 2009 || The evidence shows that gender diversity on corporate boards contributes to more effective corporate governance through a variety of board processes, some of which do not show up as a direct influence on the firm’s bottom line, as well as through individual interactions. As well as governance outcomes, women directors contribute to important firm level outcomes as they play direct roles as leaders, mentors, and network members as well as indirect roles as symbols of opportunity for other women, and inspire them to achieve and stay with their firm.

Mariateresa Torchia Andrea Calabro` Morten Huse || Women Directors on Corporate Boards: From Tokenism to Critical Mass || 2011 || The results suggest that attaining critical mass – going from one or two women (a few tokens) to at least three women (consistent minority) – makes it possible to enhance the level of firm innovation. This study highlights that heterogeneous boards are better than homogeneous male-dominated boards in terms of contribution to firm organizational innovation.

Mohamed Triki Zied Bouaziz II || The Impact of the Board of Directors on the Financial Performance of Tunisian Companies || 2012 || Testing for the impact of gender diversity on boards in terms of ROA (return on assets), ROE (return on equity) and Tobin's Q, the authors conducted research on a sample of 26 companies listed on the Tunisian stock exchange Tunis (Tunis Stock Exchange) over a period that spans four years (2007-2010). The estimated models show satisfactory results showing the importance of the impact of board diversity on financial performance of Tunisian companies.

Sabine Verboom Marieke Ranzijn || Connecting Corporate Performance and gender diversity || 2004 || A significant correlation was found between the percentages of women on the Supervisory Board and the Total Return to Shareholders. Concluding, there is a relationship between the number of women at the top management layer and the bottom line performance of a company. When looking at the performance of the companies, divided into three groups by percentages of women in the Supervisory Board, a trend showing a positive increase in the Total Return of Shareholders can be found. There are no significant relationships found between company financial performance and the percentages of women in the Board of Directors and the Higher Management layer.

J. Verstegen || Women in corporate boards: Do they create financial value? || 2011 || By estimating an ordinary least squares regression it follows that board gender diversity has a positive effect on firm value. After controlling for endogeneity by estimating a two-stages-least squares regression this conclusion stays unchanged, it even becomes stronger. In practical terms, this means that firms which have women on their corporate board perform better.

Virtcom Consulting || Board diversification strategy: realizing competitive advantage and shareowner value || 2009 || This research suggests that companies with more diverse boards, especially gender based diversification, have higher performance and key financial metrics such as: Return on Equity, Return on Sales and Return on Invested Capital. A selected group of companies with a high representation of diverse board seats exceeded the average returns of the Dow Jones and NASDAQ Indices over a 5 year period. The Business Case for Diversity has evolved to a proven Diversity Return on Investment (DROI) model that can be implemented across industries and on a global scale.

Harvey M. Wagner || The Bottom Line: Corporate Performance and Gender Diversity in the C-Suite (2004-2008) || 2011 || This research makes the bottom-line business case for gender diversity in the C-Suite (most important senior executives, CEOs, CFOs etc), with data from 2004-2008. Finds that companies with the most women consistently outperform those with the least, in terms of return on sales (ROS, 17%), return on invested capital (ROIC, 45%) and return on equity (ROE, 25%). Figures are even higher in the case of sustained representation (= critical mass).

Women on boards: neutral effects

Name(s) || Title || Year || Findings

Douglas Branson || No seat at the table: how corporate governance and law keep women out of the boardroom || 2007 || Analysis of Fortune 500 companies based on 2001-2005 data. Greater gender diversity improves corporate decision-making by helping to ensure a variety of perspectives at the boardroom table, reducing negative stereotypes and encouraging women and minority employees. No correlation as such between board diversity and corporate performance.

Lissa Broome Kimberly Krawiec || Signalling Through Board Diversity: Is Anyone Listening? || 2008 || Although signalling is frequently mentioned by researchers as a rationale supporting board diversity, it is concluded that the distribution of costs and benefits of board diversity in “good” firms versus “bad” firms is unknown.

David Carter Frank D'Souza Betty Simkins Gary Simpson || The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial Performance || 2010 || The results of our analysis do not support the business case for inclusion of women and ethnic minorities on corporate boards. However, there is no evidence of any negative effect either. Our evidence implies that decisions concerning the appointment of women and ethnic minorities to corporate boards should be based on criteria other than future financial performance.

Harald Dale-Olsen Pål Schøne Mette Verner || Women on Boards of Directors and Firm Performance: Evidence from Denmark and Norway || 2012 || The results indicate that the short-term relationship between gender diversity and firm performance is negligible. Neither for public limited firms nor for limited firms, can firm performance during this period really be attributed to women on boards. Thus, from a gender equalisation point of view, it appears that one has achieved increased gender diversity on Norwegian boards, without affecting firm performance.

Kathleen Farrell Philip Hersch || Additions to Corporate Boards: The Effects of Gender || 2005 || No evidence that the addition of a female board member affects Return on Assets (ROA) or market returns to shareholders.

Alan Gregory Emma Jeanes Rajesh Tharyan Ian Tonks || Does the Stock Market Gender Stereotype Corporate Boards? Evidence from the Market's Reaction to Directors' Trades || 2012 || Short-run market reactions may retain a ‘gender bias’, reflecting the prevalence of negative stereotypes, where the market reacts to ‘beliefs’ rather than ‘performance’. Allowing for firm and trade effects, some evidence is found that, in the longer term, markets recognize that female executives' trades are informative about future corporate performance, although initially markets underestimate these effects. This has important implications for research that has attempted to assess the value of board diversity by examining only short-run stock market responses.

Jasmin Joecks Kerstin Pull Karin Vetter || Women on Boards and Firm Performance: What Exactly Constitutes a 'Critical Mass'? || 2012 || Based on critical mass theory and with the help of a hand-collected panel data set of 151 listed German firms for the years 2000-2005, the authors explore whether the link between gender diversity and firm performance follow a U-shape. Controlling for reversed causality, they find gender diversity in fact to at first negatively affect firm performance and – only after a 'critical mass' of about 30 percent women has been reached – to be associated with higher firm performance than completely male boards.

Joana Marinova Janneke Plantenga Chantal Remery || Gender Diversity and Firm Performance: Evidence from Dutch and Danish Boardrooms || 2010 || Our findings indicate that there is no effect of board gender diversity on firm performance. This implies that the business case for board gender diversity is not supported for this particular sample of Dutch and Danish firms.

Sabina Nielsen Morten Huse || The contribution of women on boards of directors: going beyond the surface || 2010 || Women's ability to make a contribution to the board may be attributable to their different leadership styles. The presence of women on corporate boards seems to increase board effectiveness through reducing the level of conflict and ensuring high quality of board development activities.

Joao Paulo Torre Vieito || Gender, Top Management Compensation Gap, and Company Performance: Tournament versus Behavioral Theory || 2011 || Companies managed by a female CEO perform better, and have a smaller compensation gap between the CEO and Vice-Presidents than companies managed by a male CEO. In companies managed by a female CEO, a smaller difference in the total compensation gap between CEO and Vice-Presidents leads, on average, to higher company performance, however, when the CEO is a male, a higher compensation gap is required to obtain higher company performance.

Deborah Rhode Amanda Packel || Diversity on Corporate Boards: How Much Difference Does Difference Make? || 2010 || The relationship between diversity and financial performance has not been convincingly established. The review does, however, find some theoretical and empirical basis for believing that when diversity is well managed, it can improve decision making and can enhance a corporation’s public image by conveying commitments to equal opportunity and inclusion. To achieve such benefits, however, diversity must extend beyond tokenism and corporations must be held more accountable for their progress.

Caspar Rose || Does Female Board Representation Influence Firm Performance? The Danish Evidence || 2007 || Contrary to a number of other studies, this article does not find any significant link between firm performance as measured by Tobin's Q and female board representation. It is argued that board members with an unconventional background are socialised unconsciously adopting the ideas of the majority of conventional board members, which entails that a potential performance effect does not materialise.

Amira Roula Per Stånge || The Norwegian gender quota law and its effects – a natural experiment || 2010 || The results suggest that the law has not affected firm performance, firm risk taking or the cost of equity. The authors reach the conclusion that the law has not affected companies in a significant way, when looking at their performance, firm risk taking or their cost of capital.

Miriam Schwartz-Ziv || When All Are A-board: Does the Gender of Directors Matter? || 2012 || The findings stress that gender-balanced boards work harder than non gender-balanced boards, and have a more diverse set of skills. Gender was not found to impact upon financial performance of Israeli companies.

Charles Shrader Virginia Blackburn Paul Iles || Women in Management and Firm Financial Performance: An explanatory study || 1997 || No relationship between the percentage of female directors and profit margin, Return on Assets (ROA) or Return on Equity (ROE).

Gary Simpson David Carter Frank D’Souza || What Do We Know About Women on Boards (US)? || 2010 || Evidence for the business case for women directors is mixed, but tends to support the view that the ability of women directors to influence profitability and shareholder value is contingent on the specific circumstances of each company. Nevertheless, the lack of consistent evidence in support of the business case for women on boards does not negate the equity case.

Women on boards: negative effects

Name(s) || Title || Year || Findings

Renée Adams Daniel Ferreira || Women in the boardroom and their impact on governance and performance || 2009 || Diversity is found to have a positive impact on performance in firms that otherwise have weak governance, as measured by their abilities to resist takeovers. In firms with strong governance, however, enforcing gender quotas in the boardroom could ultimately decrease shareholder value. No evidence suggests that quota would improve firm performance on average.

Kenneth Ahern Amy Dittmar || The changing of the boards: The value effect of a massive exogenous shock || 2010 || The constraint imposed by the NO law resulted in a significantly negative impact on firm value. The value loss was not caused by the sex of the new board members, but rather by their younger age and lack of high-level work experience

Kenneth Ahern Amy Dittmar || The changing of the boards: the impact on firm valuation of mandated female board representation || 2011 || The constraint imposed by the NO quota caused a significant drop in the stock price at the announcement of the law and a large decline in Tobin’s Q over the following years. The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance, consistent with less capable boards

Sabine Boerner Hannah Keding Hendrik Huttermann || Gender Diversity und Orgaisationserfolg Eine kritsiche Bestandsaufnahme (Gender diversity and organisational success – a critical review) || 2012 || They conclude that the effects of gender diversity and team performance or organisational performance can be described as contradictory; hence it seems problematic to justify the need for gender diversity by economic/business reasoning. According to some of the studies there are positive effects in specific circumstances and under specific conditions. However, this can not be generalised to all possible teams and all possible circumstances.

Frank Dobbin Jiwook Jung || Corporate board gender diversity and stock performance: the competence gap or institutional investor bias? || 2011 || Findings are consistent with the proposition that bias is affecting stock price. Female directors have negative effects on stock value but no effects on company performance as such. An adverse reaction to the introduction of women on company boards may thus denote an investor bias – rather than a competence gap.

Finland Chamber of Commerce || Men lead business operations of listed companies - Women end up in support functions || 2011 || When quotas are enforced, many new women candidates are needed at the same time. In Norway some women have held numerous parallel board positions, even well over ten directorships. Quota legislation has also failed to increase the number of women CEO's or top positions in line management in Norway. The quota led to younger and less experienced boards, causing a decline in Tobin's Q. Therefore it is concluded that "In Finland gender quotas for company boards may turn out to be a new barrier to growth and stock exchange listings".

Alexander Haslam Michelle Ryan Clara Kulich Grzegorz Trojanowski Cate Atkins || Investing with Prejudice: The Relationship Between Women’s Presence on Company Boards and Objective and Subjective Measures of Company Performance || 2010 || There is no relationship between women’s presence on boards and ‘objective’ accountancy-based measures of performance (return on assets, return on equity). However, consistent with ‘glass cliff’ research there was a negative relationship between women’s presence on boards and ‘subjective’ stock-based measures of performance. Findings indicate that perceptions and investment are not aligned with the underlying realities of company performance.

David Matsa Amalia Miller || A Female Style in Corporate Leadership? Evidence from Quotas || 2011 || Using financial data for publicly listed firms in Norway, and a matched control sample of unlisted firms in Norway and all firms elsewhere in Scandinavia, there is evidence of a relative decline in annual profits over assets associated with the quota. Decomposing the change in profits, the authors identify increased labour costs, from fewer layoffs and higher relative employment, as the primary cause. This suggests that compliance with the quota was costly for firms in the short term, but raises important questions about the long-term impacts.

Rohini Pande Deanna Ford || Gender Quotas and Female Leadership: A Review || 2011 || While female entry on boards is correlated with changing management practices, this change appears to adversely influence short-run profits. Whether this is partly driven by negative perceptions of female management choices remains an open question.

4.           ANNEX 4: Background to the problem definition

Female labour market participation

Figure 1: Share of Women and Men amongst All Workers (across the EU, Iceland, Norway, Australia, Canada and the US)

Source: Eurostat, Labour Force Survey 2011

Gender composition of publicly listed company boards across the EU

The figure below outlines the typical gender composition of boards in listed companies across the EU, distinguishing between executive (ED) and non-executive (NED) directors. On average then, 85% of board directors are male with only 15% of female board directors, with only 2% of all directors being executive females.

Figure 2: Average Gender and Role Composition of Listed Company Boards across the EU (2011)

Source: Matrix calculation

Literature review of "glass ceiling"

Adams, R.B. and Funk, P. 2009. Beyond the Glass Ceiling: Does Gender Matter? SSRN eLibrary. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1475152

Adler, R. 2001. Women in the Executive Suite Correlate to High Profits. Glass Ceiling Research Center.

Akande, A. 1994. The Glass Ceiling: Women and Mentoring in Management and Business. Journal of Workplace Learning, 6: 21-28.

Athey, S., Avery, C. and Zemsky, P. 2011. Chipping away the Glass Ceiling: Gender Spillovers in Corporate Leadership, American Economic Review: Papers and Proceedings 2011, 101:3: 635-639.

Barreto, M. Ryan, M. K. and Schmitt, M. T. (Eds.). 2009. The glass ceiling in the 21st century: Understanding barriers to gender equality. Psychology of women book series. Washington, DC US: American Psychological Association.

Becker, E. and Cotton, M.L. 2004. Assortative Mating or Glass Ceiling: under-representation of female workers among top earners. Accounting for workers well-being, Research in Labour Economics, 23: 235-267.

Dalton, D. R., and Dalton, C. M. 2008. On the Progress of Corporate Women: Less a Glass Ceiling Than a Bottleneck? Women on Corporate Boards of Directors: International Research and Practice (pp. 184-197). New Horizons in Management. Cheltenham, U.K. and Northampton, Mass.: Elgar.

Fain, J. R. 2011. Breaking the Glass Ceiling: Slow Progress Ahead. Contemporary Economic Policy, 29(1): 56-66. doi:10.1111/j.1465-7287.2010.00196.x

Fairfax, L., Clogs in the Pipeline: the mixed data on women directors and continued barriers to their advancement, 2006, 65 MD. L. REV. 579, 586, available here: http://digitalcommons.law.umaryland.edu/fac_pubs/385/

Gatrell, C., and Cooper, C. L. 2007. (No) Cracks in the Glass Ceiling: Women Managers, Stress and the Barriers to Success. Handbook on Women in Business and Management (pp. 57-77). Cheltenham, U.K. and Northampton, Mass.: Elgar.

Haslam, S. A. and Ryan, M. K. 2008. The Road to the Glass Cliff: Differences in the Perceived Suitability of Men and Women for Leadership Positions in Succeeding and Failing Organisations’, The Leadership Quarterly, 19(5): 530-546.

Li C., Wearing B. 2001. The Glass Ceiling and Directors of Large UK Quoted Companies. Available at: http://cosmic.rrz.uni-hamburg.de/webcat/hwwa/edok02/f10351g/WP01-08.pdf

Liff, S., and Ward, K. 2001. Distorted Views Through the Glass Ceiling: The Construction of Women’s Understandings of Promotion and Senior Management Positions. Gender, Work and Organization, 8(1): 19-36. doi:10.1111/1468-0432.00120

Matsa, D. A., and Miller, A. R. 2011. Chipping Away at the Glass Ceiling: Gender Spillovers in Corporate Leadership. American Economic Review, 101(3): 635-639. doi: http://www.aeaweb.org/aer/

Slick, R. F. 2002, November. Sex role stereotypes as an attitudinal component of the glass ceiling phenomenon. ProQuest Information & Learning, US.

US Federal Glass Ceiling Commission, 1995, Good for business: making full use of the nation's human capital, available at: http://www.dol.gov/oasam/programs/history/reich/reports/ceiling.pdf

Veale, C. and Gold, J. 1998. Smashing into the glass ceiling for women managers. Journal of Management Development, 17:17-26.

Wirth, L. (n.d.). Breaking through the glass ceiling: Women in management. Geneva: International Labour Office.

5.           ANNEX 5: Background on the board structure and the appointment of board members in practice

5.1.        General Board Structure

The corporate board consists of a group of elected directors that oversee the activities of a company or an organisation. Its main purpose is to act in the long-term interest of the company’s shareholders and to ensure company’s prosperity. Board responsibilities are usually formulated in the national corporate governance codes. Despite differences among national legal structures and corporate models, all corporate governance systems recognise a managerial (executive) and a supervisory (non-executive) function of the board.

· Executive/Managerial Board: The executive part of the board is in charge of day-to-day management of the corporation. It is composed of executive directors who generally work for the company and each have a specific area of responsibility.

· Non-Executive/Supervisory Board: The supervisory part of the board is primarily tasked with ensuring that financial reporting and control systems are functioning appropriately and that the corporation is in compliance with the law.[4] It is composed of non-executive directors, which are usually shareholder representatives and so-called independent members, who have no stake in the company. In some countries, the non-executive role is also assumed by employee representatives whose right to be represented on board is enshrined in national company law.[5]

In order to improve the functioning of the board, governance codes recommend establishing board committees.[6] Each committee is predominantly composed of non-executive directors. While executive directors can also be part of a committee, corporate governance codes advice that the committee chair be a non-executive in order to prevent a conflict of interests with the executive team.[7]

Each board might comprise up to four committees. While their nature may vary by industry (e.g. risk committees for companies in the financial sector, committees for corporate social responsibility in the energy sector), companies most commonly put in place audit, remuneration and nomination committees.[8] These are found in between 70% and 90% of European organisations.[9]

5.2.        Board Systems

It is generally possible to distinguish between three broad types of board systems: unitary, dual and mixed.[10] The distinction lies in the level of separation between the management and the supervision of the company, which are clearly separated only in the dual system.[11]

The unitary (or single-tier) system has a single board structure with executive and non-executive directors sitting together on a single board of directors.[12] In the case of a unitary system, national company law does not draw a distinction between statutory duties of executive and non-executive directors.[13] Hence, all members of the unitary board are equally accountable to shareholders[14], have equal legal status and have equal responsibilities[15].

The dual system has two officially separated boards – a supervisory board of non-executive directors, headed by a Chairman and a management board of executive directors, headed by a CEO.[16] This system does not allow members to sit on management and supervisory boards at the same time. The main role of the supervisory board is to appoint and dismiss the members of the management board and to supervise the latter in performing its duties. The role of the management board is to coordinate the company’s strategic approach and to inform the supervisory board on any issues related to business development

The mixed system is a system of two separate boards (non-executive board and executive board), but with only one person holding both the roles of CEO and Chairman. In addition, some executives might sit on the non-executive board. While the advantage of a mixed system is a better information flow between the two boards, its main challenge resides in the joint exercise of chairman and CEO duties.[17]

As illustrated in the table below, the unitary system is most commonly used in Anglo-Saxon countries while the dual system is predominantly found in continental Europe. Mixed systems are the form of corporate governance in Belgium[18] and Italy.

Table 1: Existing and Prevalent Board System by Country

Country || Existing Board System || Prevalent Board System*

Unitary || Dual || Mixed

Austria || || ✓ || || Dual

Belgium[19] || ✓ || || ✓ || Mixed

Bulgaria || ✓ || ✓ || || Unitary/Dual

Cyprus || ✓ || || || Unitary

Czech Republic || || ✓ || || Dual

Denmark || ✓ || ✓ || || Dual

Estonia || || ✓ || || Dual

Finland || ✓ || ✓ || || Dual

France || ✓ || ✓ || || Unitary

Germany || || ✓ || || Dual

Greece || ✓ || || || Unitary

Hungary || ✓ || ✓ || || Dual

Ireland** || ✓ || ✓ || || Dual

Italy || ✓ || ✓ || ✓ || Unitary

Latvia[20] || ✓ || ✓ || || Unitary/Dual

Lithuania || ✓ || ✓ || || Dual

Luxembourg || ✓ || ✓ || || Unitary

Malta || ✓ || || || Unitary

Netherlands** || ✓ || ✓ || || Dual

Poland || || ✓ || || Dual

Portugal* || ✓ || ✓ || ✓ || Unitary

Romania || ✓ || ✓ || || Unitary

Slovakia || || ✓ || || Dual

Slovenia** || ✓ || ✓ || || Dual

Spain || ✓ || || || Unitary

Sweden || ✓ || || || Unitary

United Kingdom || ✓ || || || Unitary

Source: Kluge et al. - European Trade Union Institute. 2010. Table: Worker board-level participation in the EU-27. *Material provided by the European Commission on 6th of October 2011

** Information collected through desk research shows countries have more board systems than indicated in European Commission’s document

Source: Kluge et al. - European Trade Union Institute. 2010. Table: Worker board-level participation in the EU-27.

*Material provided by the European Commission on 6th of October 2011

5.3.        Board Member Selection Procedures

The recruitment process of board members represents one of the most critical tasks for a company’s business. Directors are responsible for a company’s strategy and overall control of a company’s progress. It is therefore very important to choose candidates who can make a visible and lasting difference to the business. However, as evidenced by the following, the recruitment process still remains opaque and subjective with detrimental consequences for the appointment of female board members.

The selection procedures for board directors differ entirely from normal recruitment procedures. Across all board systems, they typically involve shareholders and other board members engaging in nomination and election procedures and include a pre-selection stage and a voting stage:

· Pre-Selection Stage: At this stage, a pool of relevant candidates for board positions is identified. Board nomination committees are usually involved at this stage; they might also be supported by subcontracted head-hunters. The purpose of this stage is to identify candidates with the skills, competencies and experience required to occupy the specific board position.

· Voting Stage: At this stage candidates shortlisted during the pre-selection are presented for election to the GSM[21]. This second stage can involve both board members and shareholders, depending on whether executive or non-executive directors are to be appointed and depending on the board system. Candidates can be elected by means of bundled or individual elections.[22] Whereas bundled elections restrict shareholders to elect the board as a whole, individual (i.e. unbundled) elections allow voting on directors separately. Generally, a new director is elected by an ordinary majority of shareholders’ votes. There is a growing tendency to elect board members through unbundled elections. In 2008, 49%[23] of elections in Europe were individual (unbundled) as opposed to 44% which were bundled[24]. In Finland, Greece, Italy, Portugal and Sweden all elections were bundled, while individual elections prevailed in France, Germany, Ireland and the United Kingdom.

In companies governed by a unitary board system, candidates for board positions (executives and non-executives) are pre-selected by the nomination committee and are subsequently presented to the GSM. Generally, a new director is appointed by an ordinary majority of shareholders’ votes. Chairman and CEO are selected among and appointed by the board of directors.[25]

In companies governed by a dual board system the selection procedures for non-executive and executive board members differ. Members of the supervisory board (non-executives) are in most cases pre-searched by the nomination committee and appointed by the GSM. In contrast, members of the management board (executives) are most commonly pre-selected and appointed by the supervisory board. Chairman and CEO are selected among supervisory and management board members respectively and they are appointed by members of supervisory board.

The nomination committee is usually responsible for the selection of board members. Non-executive board members that are part of the nomination committee usually rely on their formal or informal networks in order to identify candidates in the pre-selection phase of the selection procedure. This practice could favour candidates that are part of the network of existing board members and instead be detrimental to candidates without a strong network.[26] Through this practice the nomination committee runs the risk of appointing a director because of his/her personal relationship or share ownership rather than his/her professional merits.[27] This practice might ultimately undermine company’s performance. A study on 2500 Danish firms observed a negative correlation between candidates with family ties to the owners of a company and its financial performance.[28]

(a) The regulation of the recruitment and appointment procedure of board members in national law

It seems that the procedure for nominating and electing the board members is largely left for the company to regulate in its articles of association. In many Member States there is no legislation on this procedure. Even where such rules exist in the company laws, they are either default rules that come into play only where a company has not addressed these matters in its articles of association or they are dispositive and can be departed from by the statutes of the company.

Therefore, any interference or conflict with national law in this respect appears to be rather unlikely since a) the EU instrument would not comprise any specific rules on recruitment or appointment and b) any indirect implications of the EU instruments[29] would not necessitate a modification of national law but could be accommodated by companies in their own rules.

Given this general legal situation the following observations shed light on the habitual practices of companies in Member States (rather than on legal obligations) concerning two issues that are of relevance to the transferability of the CJEU case law.

(b) The identification and (pre-)selection of candidates to be presented to the assembly of shareholders

The recruitment for director's posts tends to be informal and based on agreements and coalitions between the main shareholders, which has a decisive influence on the identification of potential candidates. The notable exceptions are Member States in which special formalised procedures (competition-like) are prescribed for members of the board of state companies (AT, PL, EL, IE). In PL, in addition, candidates to posts of boards of state companies need to have a special certificate.

In some systems (UK, FR, Nordic states, SI) it is common practice (recommended rather than required) that a nomination committee of the board prepares the list of candidates, 'analysing the skills and experience of the candidates' (FI) – which is then presented to the shareholders (or first to the board and then to shareholders).

Sometimes under the articles of association a given principal shareholder or authority may have a right to nominate or even to directly appoint its own candidate(s) for board membership (DA, AT, EL), a situation which would be somewhat analogical (but not identical) to the election of workers' representatives and which would move the identification and selection of candidates to the remit of those shareholders thus tending to yet increase the informal nature of this process (except possibly again where it is a public authority that can nominate or appoint).

(c) The election of board members by the assembly of shareholders

Again, it is important to note that national law generally does not regulate the specifics of the election procedure and leaves these matters to the companies. In a number of Member States it appears to be common practice that individual candidates are appointed to individual posts but in these Member States it would generally also be admissible to vote on the basis of lists. Where candidates are individually appointed there appears to be no obligation to give the assembly a choice between several candidates and often (based on informal agreements before the vote is taken) there is only one candidate per post. The vote on a list (or lists) of candidates appears to be the option favoured in practice in a number of other Member States – in several of them (e.g. CZ, FI, DE, IE) this routinely excludes an expression of support to individual candidates due to an 'en bloc' procedure presenting only the whole list(s) to the assembly for an up or down vote.

(d) The average board size in listed  companies

The average board in EU 27 has 7.76 members (8.31 in a scenario excluding SMEs). The details per Member State can be found in the table below.

Table 2: Average board size

Average size of the board || All listed companies || Listed companies excluding SMEs

Total directors || Executive directors || Non-executive directors || Total directors || Executive directors || Non-executive directors

EU27 || 7.76 || 1.87 || 5.89 || 8.31 || 1.91 || 6.39

AT || 9.60 || 0.70 || 8.90 || 9.87 || 0.71 || 9.16

BE || 9.66 || 1.97 || 7.69 || 9.77 || 1.95 || 7.83

BG || 6.42 || 2.08 || 4.33 || 5.57 || 1.62 || 3.95

CY || 6.86 || 1.87 || 4.99 || 6.77 || 1.82 || 4.94

CZ || 10.00 || 2.95 || 7.05 || 10.44 || 3.12 || 7.32

DK || 8.57 || 1.23 || 7.34 || 8.45 || 1.31 || 7.13

EE || 5.92 || 0.54 || 5.38 || 6.00 || 0.56 || 5.44

FI || 10.00 || 1.36 || 8.64 || 10.05 || 1.49 || 8.57

FR || 8.01 || 1.85 || 6.16 || 8.23 || 1.89 || 6.34

DE || 9.13 || 2.74 || 6.39 || 9.38 || 2.81 || 6.57

EL || 8.56 || 3.15 || 5.41 || 8.73 || 3.25 || 5.48

HU || 12.97 || 2.73 || 10.23 || 13.45 || 2.97 || 10.48

IE || 8.83 || 2.58 || 6.25 || 9.35 || 2.60 || 6.75

IT || 14.32 || 2.00 || 12.31 || 14.45 || 2.34 || 12.11

LV || 6.18 || 0.48 || 5.70 || 7.00 || 0.72 || 6.28

LT || 5.53 || 1.80 || 3.73 || 5.72 || 1.82 || 3.90

LU || 9.49 || 1.59 || 7.89 || 9.91 || 1.94 || 7.97

MT || 7.30 || 1.35 || 5.96 || 6.67 || 1.33 || 5.33

NL || 6.91 || 0.93 || 5.99 || 7.23 || 1.09 || 6.15

PL || 5.76 || 0.54 || 5.21 || 5.79 || 0.57 || 5.22

PT || 10.96 || 3.06 || 7.90 || 10.78 || 3.16 || 7.62

RO || 5.51 || 1.41 || 4.11 || 5.56 || 1.65 || 3.91

SK || 9.10 || 2.40 || 6.70 || 8.29 || 0.93 || 7.36

SI || 7.67 || 0.57 || 7.10 || 9.22 || 2.33 || 6.89

ES || 10.26 || 1.90 || 8.36 || 10.30 || 1.95 || 8.35

SE || 7.59 || 0.80 || 6.79 || 7.63 || 0.81 || 6.82

UK || 6.42 || 2.30 || 4.12 || 7.10 || 2.31 || 4.78

Source: Matrix calculations based on data provided by S&P IQ Capital

6.           ANNEX 6: Background to the baseline scenario

6.1.        Methodology to calculate change in female presence in boards by 2020

The legislative quotas in place in Member States will affect the natural trend of female participation in company boards. Female participation in company boardrooms in the countries that have introduced binding quotas will rely on the level of compliance with binding legislation. More precisely, the number of women that will sit on listed company boards in 2020 will vary depending on the sanctions and monitoring systems in place in the different countries with binding legislation. Therefore, in order to draw informed assumptions on future[30] level of compliance and thereby establishing the baseline scenario, it is important to evaluate the monitoring and sanction system in place in the different countries. The degree of compliance in Member States with legislation that does not envisage any monitoring or sanction system is likely to be lower than the degree of compliance in Member States with legislation that introduces a strong and credible sanction system.

Drawing on an effectiveness scoring which takes into consideration both the sanction system in place and the recent progress made, the table below summarises the expected change in gender-diverse boards subject to binding quotas, with notable implications for the calculation of the baseline scenario in the next section.

Table 1: Likely Level of Compliance with National Binding Quotas in 2020

MS || Year of Adoption || Type of sanction || Recent progress || Effectiveness (3 very effective, 1 least effective)

FR || January 2011 || Annulment of nominations || 12pp (from 10% in 2009 to 22% in 2012) || 3

NL || May 2011 || The target is not binding; in case of non-compliance, companies need to explain in the annual report why the target was not respected || 4pp (from 15% in 2010 to 19% in 2012) || 2

BE || June 2011 || Temporary loss of benefit for board members || 1pp (from 10% in 2010 to 11% in 2012) || 1.5

IT || July 2011 || Official warning; fines; forfeiture of offices of elected board members || 1pp (from 5% in 2010 to 6% in 2012) || 1.5

ES || 2007 || No formal penalties but considered in public procurement || 7pp increase (from 4% in 2006 to 11% in 2012) || 1

Source: Matrix

6.2.        Overview of natural trend in each Member State by 2020

On the basis of past trends and taking into consideration the recent introduction of national measures, it is possible to estimate how female presence on company boards will evolve in the future. In particular, the table below presents the estimates of the level of female presence on company boards, distinguishing between executive and non-executive positions. In order to produce these estimates the following steps were undertaken:

Data on female participation in boards, for each Member State and for the period 2003-2011 was retrieved from the EC database on women and men in decision making. Estimates for each Member State, for the period 2012-2040 were made assuming that the trend observed during the period 2003-2011 will continue throughout this period. This trend was assumed to be linear.

Excluded methods: Three other extrapolation methods were evaluated before the linear model was selected:

· Annual growth rates: the year on year percentage increase (decrease) from 2003 to 2011 was applied each year until 2040.

· Excel growth calculation: The function was used to estimate the relationship between time and female participation for the period 2003 to 2011. The excel growth function assumes exponential growth. This function was then applied to predict female board participation until 2040.

· A linear function was used to estimate the relationship between time and female participation for the period 2003 to 2011. This function was then used to predict participation until 2040.

For each method, each country’s current regulation was taken into account to produce the estimations. After observing the figures generated by each method, the linear method was deemed most appropriate, as the first two methods were thought to overestimate the growth in female participation in boards. As they tended to exponentially increase the percentage of women in the board, with some countries presenting more than 100% of board members being female by 2040.

The linear model was applied to all countries, except Estonia, Cyprus and Slovenia. For these countries assuming a linear trend would mean that by 2020 the percentage of women in the board would be zero. As this was considered unrealistically low, rather than imposing a decreasing trend, it was assumed that the percentage of women would remain at the minimum value observed during 2003-2011.

Table 2: Estimated Percentage of Women on Boards by 2020 (in listed companies excluding SMEs)[31]

MS || 2004 (Estimated) || 2011 (Estimated) || 2020 (Predicted)

ED || NED || Average || ED || NED || Average || ED || NED || Average

AT || 1% || 10% || 6% || 2% || 19% || 11% || 3% || 25% || 15%

BE || 3% || 8% || 7% || 4% || 12% || 11% || 9% || 27% || 25%

BG || 62% || 0% || 18% || 52% || 0% || 15% || 40% || 0% || 12%

CY || 12% || 10% || 7% || 8% || 6% || 5% || 4% || 3% || 2%

CZ || 4% || 0% || 11% || 6% || 0% || 16% || 8% || 0% || 20%

DE || 4% || 16% || 12% || 5% || 20% || 15% || 6% || 23% || 18%

DK || 8% || 2% || 11% || 12% || 3% || 16% || 20% || 6% || 28%

EE || 28% || 38% || 15% || 13% || 17% || 7% || 11% || 15% || 6%

EL || 6% || 31% || 7% || 5% || 28% || 6% || 3% || 16% || 4%

ES || 1% || 10% || 4% || 3% || 27% || 11% || 7% || 40% || 29%

FI || 9% || 8% || 16% || 15% || 13% || 26% || 22% || 19% || 38%

FR || 1% || 5% || 6% || 4% || 19% || 22% || 7% || 36% || 40%

HU || 3% || 26% || 9% || 2% || 15% || 5% || 3% || 33% || 12%

IE || 5% || 4% || 6% || 7% || 6% || 9% || 10% || 9% || 13%

IT || 0% || 2% || 2% || 1% || 7% || 6% || 3% || 28% || 23%

LT || 9% || 5% || 11% || 11% || 7% || 14% || 15% || 9% || 18%

LU || 0% || 19% || 4% || 0% || 27% || 6% || 0% || 32% || 7%

LV || 8% || 4% || 10% || 22% || 9% || 27% || 31% || 13% || 37%

MT || 5% || 6% || 2% || 6% || 7% || 2% || 7% || 8% || 3%

NL || 3% || 0% || 5% || 9% || 1% || 18% || 16% || 3% || 31%

PL || 6% || 9% || 9% || 9% || 12% || 12% || 10% || 15% || 14%

PT || 5% || 4% || 4% || 7% || 5% || 6% || 6% || 4% || 5%

RO || 32% || 11% || 17% || 19% || 7% || 10% || 23% || 8% || 12%

SE || 3% || 23% || 21% || 4% || 27% || 25% || 5% || 35% || 32%

SI || 22% || 20% || 19% || 17% || 15% || 14% || 12% || 10% || 10%

SK || 9% || 8% || 9% || 15% || 13% || 15% || 33% || 30% || 33%

UK || 6% || 16% || 13% || 7% || 21% || 16% || 8% || 22% || 17%

EU || 9% || 11% || 9% || 6% || 17% || 14% || 8% || 25% || 21%

Average = overall presence of women in corporate boards; the average is weighted, i.e. it depends on the number of executive and non-executive directors

ED = Executive Directors

NED = Non-executive Directors

Source: 2004 and 2011 figures were estimated by Matrix based on data from EC Database for Women and Men in Decision-Making and Standard & Poor’s; 2020 data have been extrapolated by Matrix on the basis of the above.

Table 3: Overview of Regulatory and Self-Regulatory Measures Adopted across the EU[32]

MS || Regulation || Self-Regulation

Level || Coverage || Year of Adoption || Source || Type || Year of Adoption

AT || Non-binding targets: 25% (by 2013) 35% (by 2018) || -Supervisory Board of State-owned companies || 2011 || Corporate Code || Recommends representation of both genders in appointments in the supervisory board. || 2009

BE || 33% || -State-owned Companies (2012); -Public Limited Companies (2018); -Public Limited SME (2020) || 2011 || Corporate Code || Recommends board’s composition to be determined on the basis of gender diversity || 2009

BG || No Regulation/Self-regulation

CY || No Regulation/Self-regulation

CZ || No Regulation/Self-regulation

DK[33] || No Regulation || Corporate governance code; Charter || Recommends considering the need for gender diversity in the nomination process of new board candidates. || 2008

EE || No Regulation/Self-regulation

FI || 40% || State-owned companies || 2005 || Corporate Code || Recommends both genders to be represented on the board; if one gender is not represented, the company has to explain the reason (comply or explain principle) || 2008

FR || 20% (by 2014) 40% (by 2017) || -Public Limited Companies -Private Limited Companies (with more than 500 employees or over EUR50mln revenues) || 2011 || Corporate Code || Recommends gender diversity on board || 2010

DE || No Regulation || Corporate governance code; Companies Initiatives || Recommends taking women into consideration when filling management and supervisory board positions Some companies have introduced voluntary targets for women on boards || 2010

EL || No Regulation/Self-Regulation

HU || No Regulation/Self-Regulation

IT || 20% (2012) 33% (by 2015) || -Public Limited Companies -State-owned Companies || 2011 || No Self-Regulation

LV || No Regulation/Self-regulation

LI || No Regulation/Self-regulation

LT || No Regulation/Self-regulation

LU || No Regulation || Corporate Code || Recommends the board to have an appropriate representation of both genders. || 2009

MT || No Regulation/Self-regulation

NL || 30% (by 2016) || -Private Limited Companies and (with more than 250 employees) - Public Limited Companies (with more 250 employees) || 2010 || Corporate governance code covering only supervisory (not management) boards || Recommends the supervisory board should have a diverse gender composition. || 2008

PL || No Regulation || Corporate Code || Recommends public companies to ensure a balanced gender proportion in management and supervisory boards. Companies are required to report on their compliance with the code || 2010

PT[34] || No Regulation/Self-regulation

IE || No Regulation/Self-Regulation

RO || No Regulation/Self-regulation

SK || No Regulation/Self-regulation

SI || No Regulation/Self-regulation

ES || 40% (by 2015) || -Public Limited Companies -Private Limited Companies (with more than 250 employees) || 2007 || Corporate Code || Recommends the Board of Directors to have adequate gender diversity based on the comply or explain principle || 2006

SE || No Legislation || Corporate Code || Recommends an equal gender distribution on the Board of Directors, based on comply or explain principle. Compulsory annual statement containing the rationale for selection of new board members in relation to board requirements. || 2004

UK || No Legislation || Corporate Code || Recommends the search for board candidates to be conducted with due regard for the benefit of gender diversity on the board (Recommended quota: 25%) || 2010

Source: Matrix

6.3.        Binding quota legislation for listed companies in Member States

Belgium

In Belgium the relevant rules were introduced by the Act of 28 July 2011.[35] The Act amended the Company Code (concerning companies which are quoted on the stock exchange) and the laws regulating state-owned enterprises.

According to the Act at least one third of board members of publicly-listed companies and state-owned companies need to be of each sex. Belgium's listed companies in the majority have a unitary board system.

The Act is applicable to state enterprises from the financial year following the adoption of the law (i.e. applicable as of 2012). However, the amendment to the Company Code is applicable to listed companies after a longer implementation period ranging from six to eight years depending on the size of the company measured by several criteria, i.e. the number of employees, the total annual balance sheet and annual turnover. Thus the amendment will be fully applicable only in 2019.

As long as the quota is not fulfilled, a person belonging to the minority sex must be appointed to any vacant position and any appointment which does not comply with this rule is void. In relation to listed companies the amended Company Code provides a specific sanction consisting in suspension of any advantage, financial or otherwise, attached to the position of director for all the members of the board as long as the composition of a board does not comply with the quota.

France

In France (mixed system of roughly 77% of all companies; 23% of all companies have a two-tier board) the relevant rules were introduced by the Law of 27 January 2011,[36] under which companies will have to ensure that members of each sex occupy at least 20 % of boardroom seats within three years (i.e. by 2014) and 40 % within six years from the entry into force of the law (i.e. by 2017). These requirements apply to companies listed on the stock exchange and non-listed companies with at least 500 workers and with revenues of over EUR 50 million over the previous three consecutive years. It is estimated that around 2000 companies will be affected by the law. Public companies regulated by commercial law, such as state-owned companies are also covered.

Non-compliant companies face nullification of their board elections, but the decisions adopted by the board remain valid. The law envisages also the suspension of benefits of directors of infringing companies.

Additionally, the law established the same quotas for other public bodies, such as universities and administrative institutions.

Italy

In Italy all three board systems are present, but the majority (68%) of companies have a mixed board which works with the so-called traditional system. The executive board and the controlling board is elected by the general assembly.

The relevant quota rules were established by Law 120 of 12 July 2011[37] and are applicable to companies listed on the stock-exchange and to state-owned companies. The law provides for at least one-third representation of each sex among members of the mixed board system composed by the management board and the supervisory board. In the mixed system, all board members are elected by the general assembly.

The law also applies to any other board system if the board is made up of at least three members. The one-third quota (33%) must be reached until 2015 (and 20% by 2012).

For listed companies the enforcement of the rules is ensured by the National Securities and Exchange Commission (Consob) which will apply progressively the following sanctions in case of non-compliance:

(1) a warning to apply the quota system within four months; followed by

(2) a fine from EUR 100 000 to EUR 1 000 000 (from EUR 20 000 to EUR 200 000 in the case of supervisory boards) together with a second warning that the quota system be accomplished within three months; followed by

(3) forfeiture of the offices of elected members of the board which does not comply with the quota.

The Netherlands

In the Netherlands the majority of companies have a two-tier board. The relevant quota rules were adopted by means of a law amending the Civil Code.[38] The amended Civil Code now obliges public limited companies and private limited companies[39] to strive for a balanced representation of members of each sex on the company’s management board and on the supervisory board. The law defines a ‘balanced representation’ as having at least 30% representation of each sex on the board.

This norm only applies to larger private and public limited companies. These companies need to take into account a balanced representation of both sexes in as far as possible in their procedures to select new members of the management board or the supervisory board, and in the drafting of the specification of any vacancy. [40]

Small and medium-sized companies, i.e. companies that do meet at least two of the following three criteria, do not fall under this legal obligation. The three criteria are: the total value of company's assets is no more than €17.5 million, its net annual turnover is no more than €35 million and its annual average number of employees is less than 250.

If a larger company does not reach a representation of at least 30% of each sex on its board, it must explain in the annual report to the shareholders why the balanced representation has not been achieved, which measures have been taken to achieve it and what measures the company plans to introduce to achieve it in the future ('comply or explain' mechanism). There are no sanctions for not meeting the 30% norm.[41]

The measure has a temporary character and expires on 1 January 2016.

Spain

Article 75 of the Spanish Organic Law on gender equality of 2007[42] encourages large companies[43] to alter the membership of their boards gradually until each sex makes up at least 40 % by 2015. The rule has the character of a recommendation.[44] No sanction for failure to comply with that rule is envisaged. Nevertheless taking measures to reach the target of a balanced composition on the company board may be taken into account in practice in awarding the company with the “equality label”[45] and in the procedures to award a public contract with the Administration.[46] The measure can be described as a recommendation.

Table 4: Overview of Regulatory Gender Quotas in Company Boardrooms

Country || Year of Adoption || Level of the Quota || Deadline || Penalties for Non-Compliance || Preliminary Effects on Female Representation on the Board[47]

ES || 2007 || 40% || 2015 (8 years from introduction) || No formal penalties but considered in public procurement || 5pp increase (from 6% in 2007 to 11% in 2012)

FR || January 2011 || 20% (2014) 40% (2017) || 2013 2017 || Annulment of nominations || 10pp (from 12% in 2010 to 22% in 2012)

NL || May 2011 || 30% || 2016 || The target is not binding; in case of non-compliance, companies need to explain in the annual report why the target was not respected || 4pp (from 15% in 2010 to 19% in 2012)

BE || June 2011 || 33% || First fiscal year after publication 2017-20 for listed companies || Temporary loss of benefit for board members || 1pp (from 10% in 2010 to 11% in 2012)

IT || July 2011 || 20% (2012) 33% (2015) || 2012 2015 The law will be effective only for a limited period of time (three board renewals) || Official warning; fines; forfeiture of offices of elected board members || 1pp (from 5% in 2010 to 6% in 2012)

Source: Matrix

6.4.        Other legislative measures

Germany

Germany has a two-tier system. Although Germany does not have gender quota legislation for boards of companies, some existing legislative measures affect gender balance on boards. This is the case of the rules regulating workers’ representation on boards and recommending that men and women should be represented there proportionately to their representation among the workforce.[48]

Furthermore a vivid public debate is currently taking place in relation to the “flexi-quota” plan of the German Federal Ministry for Family, Senior Citizens, Women and Youth, which would contain essentially a legal obligation of self-commitment. Listed companies and certain other companies (those with complete workers’ representation, which are determined by size, sector and organizational form of company) would be obliged by law to establish a self-determined quota for women both in their executive and supervisory boards and to make it public. This obligation would be conditional and only enter into force in 2013 if by that date the companies concerned have not tripled the average percentage of women in supervisory and management boards. The quota would have to be achieved within a specified period. If the companies fail to reach their targets, corporate law sanctions, such as the possibility to contest the appointment of members of the board, would apply. The legal obligation will cease to apply to individual companies once (and as long as) they have achieved a female share of 30% on their supervisory and management boards.[49]

6.5.        Regulation of gender balance on boards of state-owned companies by legislative means

The following Member States regulate the gender composition of boards of state-owned companies, which may include companies listed on the stock exchange, either in legislation (Denmark, Finland, Greece) or by means of administrative regulations (Austria, Slovenia).

Denmark

The relevant provisions have been in force since 1990. Section 11 of the Danish Gender Equality Act[50] stipulates that boards in state-owned companies should, 'as far as possible', have an equal gender balance. According to Section 12 of that Act ministers and authorities that are empowered to suggest a member of a board are obliged to suggest a man and a woman for each post. The competent minister has a duty to report on the gender composition of the boards every third year.

In May 2012, the Danish government announced their plan (the ‘Danish model’) for getting more women into company boards. It will be done through legislative changes in company law and the annual accounts law. The reform looks similar to what has been envisaged in the ‘flexi-quota’ model of the German family minister, Kristina Schröder, but includes elements of the Dutch comply-or-explain approach. There are no details available yet, but the main points are:

The 1100 largest companies will have to set 'realistic and ambitious' targets for the underrepresented sex in the highest company board (which in Denmark typically is a supervisory board).

They will also have to introduce a policy to increase the number of members of the underrepresented sex in management in general.

They will have to report on the achievement of the targets and the implementation of the policy in their annual report. If that does not happen, there is a possibility for imposing a fine (which, however, does not seem automatic in case of not reaching the target).

State-owned companies will have to do the same, whatever their size. (So far they should have equal representation, as far as possible.)

Finland

In 2004, the Finnish government set a target of 40% for female board members in state –owned companies. This objective was achieved in 2006. In 2010, women's share in state-owned companies was 45%. In listed companies with a state majority ownership in 2010 there were 39% of board members were women [51].

Furthermore, the Corporate Governance Code which is binding for listed companies recommends that both genders are represented on the board. If a company does not comply with this, it has to explain the departure from the code. After this recommendation was issued in 2008, more and more boards had a female board member. In 2011, in 80% of the company boards there was at least one female member.

In November 2011, the government adopted a resolution stressing the need to promote gender quality by ensuring equal opportunities for both sexes in appointment to board positions. Non-executive boards have a share of 26% of female members in January 2012.

Greece

In Greece the Gender Equality Act[52] imposes a 1/3 quota requirement for state-appointed members of boards of all executive bodies, including companies fully or partially state-controlled. Appointment decisions failing to respect the quota requirement are subject to annulment by administrative courts. Moreover, decisions adopted by those boards not respecting the quota rule are subject to annulment by civil courts.

Austria

In March 2011, the Austrian Council of Ministers issued an administrative decision to gradually implement quotas for boards of companies owned 50% or more by the state. Such companies need to achieve 25% representation of women in their company boards before 31 December 2013 and 35% representation before 31 December 2018. If possible, the quota mentioned should be applied not only to board members representing the public owners but also to the board as a whole, progress being monitored by an annual report.[53] If this objective is not achieved, Austria plans a legislative measure.

Also, the governance Code recommends equal representation of both genders. There are no sanctions if companies do not follow this recommendation.

Slovenia

The Regulation on Criteria for Respecting the Principle of Gender Balanced Representation[54] adopted by the government in 2004 establishes a principle of 40% representation of each sex in nominating or appointing government representatives in public enterprises and other entities of public law, including management and supervisory boards of state-owned enterprises. There are no sanctions for not respecting the principle.

6.6.        Female presence in the board throughout all Member States

Table 5: Female Presence in Corporate Boards across Countries between 2004 and January 2012 (across the EU, Iceland and Norway)[55]

|| 2004 || 2007 || 2010 || 2011 || Jan-12

Austria || 6% || 5% || 9% || 11% || 11%

Belgium || 7% || 6% || 10% || 11% || 11%

Bulgaria || 18% || 15% || 11% || 15% || 16%

Cyprus || 7% || 2% || 4% || 5% || 4%

Czech Republic || 11% || 11% || 12% || 16% || 15%

Denmark || 11% || 15% || 18% || 16% || 16%

Estonia || 15% || 10% || 7% || 7% || 7%

Finland || 16% || 18% || 26% || 27% || 27%

France || 6% || 9% || 12% || 22% || 22%

Germany || 12% || 11% || 13% || 15% || 16%

Greece || 7% || 11% || 6% || 7% || 7%

Hungary || 9% || 11% || 14% || 5% || 5%

Ireland || 6% || 6% || 8% || 9% || 9%

Italy || 2% || 3% || 5% || 6% || 6%

Latvia || 10% || 17% || 23% || 27% || 26%

Lithuania || 11% || 18% || 13% || 14% || 15%

Luxembourg || 4% || 3% || 4% || 6% || 6%

Malta || 2% || 4% || 2% || 2% || 3%

Poland || 9% || 12% || 12% || 12% || 12%

Portugal || 4% || 3% || 5% || 6% || 6%

Romania || 17% || 18% || 21% || 10% || 10%

Slovakia || 9% || 24% || 22% || 15% || 13%

Slovenia || 19% || 14% || 10% || 14% || 15%

Spain || 4% || 6% || 10% || 11% || 11%

Sweden || 21% || 24% || 26% || 25% || 25%

The Netherlands || 5% || 14% || 15% || 18% || 19%

United Kingdom || 13% || 12% || 13% || 16% || 16%

EU 27 || 9% || 10% || 12% || 13% || 14%

Iceland || 5% || 10% || 16% || 21% || 25%

Norway || 22% || 34% || 39% || 41% || 42%

Source: European Commission. Database: women & men in decision making. Available from: http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/business-finance/quoted-companies/index_en.htm

The figure below shows the percentage point change in female presence on company boards between 2004 and January 2012, thereby grouping countries into categories which correspond to the different types of measures taken.

Figure 1: Percentage Point Change in Female Presence in Corporate Boards between 2004 and January 2012 (across the EU, Iceland and Norway)

Source: European Commission. Database: women & men in decision making. Available from: http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/business-finance/quoted-companies/index_en.htm

7.           ANNEX 7: Fundamental Rights

EU legislation must fully comply with the provisions of the EU Charter of Fundamental Rights (hereinafter referred to as "the Charter"), which has become legally binding following the entry into force of the Lisbon Treaty. All legislative proposals of the Commission are subject to a systematic check to ensure their compliance with the Charter[56].

It should be underlined that the Charter does not constitute a legal basis upon which the EU could adopt secondary legislation, but lays down a legal framework in order to ensure that EU law will stay in conformity with the fundamental values of human rights, democracy and the rule of law.

Moreover, the fundamental rights contained in the Charter can be subject to limitations provided that they comply with the principle of proportionality[57]. When a measure impact various fundamental rights, it is necessary to assess the impact on each of these rights in order to ensure that all fundamental rights concerned will be respected.

This annex assesses in detail how the envisaged EU legislative instrument whose aim is to increase the gender balance on company boards (hereinafter referred to as "the instrument") will impact on the relevant fundamental rights embodied in the Charter.

It will first look at the different fundamental rights of the Charter that could be positively or negatively affected by the instrument (chapter 1), and then analyse the differences in impact that the various policy options considered in the Impact Assessment would have on those fundamental rights (chapter 2).

7.1.        Fundamental rights' check

The fundamental rights in the Charter that could be affected by the instrument include:

– Article 23 on equality between women and men and Article 21(1) on non-discrimination on the basis of sex ,

– Article 16 on the freedom to conduct a business,

– Article 17 on the right to property,

– Article 15(1) on freedom to choose an occupation and right to engage in work, and

– Article 47(1) on the right to an effective remedy.

– These will be analysed in turn.

7.2.        Article 23 on equality between women and men and Article 21(1) on non-discrimination on the grounds of sex

Article 21

Non-discrimination

1. Any discrimination based on any ground such as sex, race, colour, ethnic or social origin, genetic features, language, religion or belief, political or any other opinion, membership of a national minority, property, birth, disability, age or sexual orientation shall be prohibited.

[…]

Article 23

Equality between women and men

Equality between women and men must be ensured in all areas, including employment, work and pay.

The principle of equality shall not prevent the maintenance or adoption of measures providing for specific advantages in favour of the under-represented sex.

The principle of non-discrimination on grounds of sex (among other grounds) in Article 21(1)[58] of the Charter flows from the general principle of equality before the law which is enshrined in Article 20 of the Charter and in all international human rights instruments[59] and national Constitutions.

The right to non-discrimination means that no person must be treated less favourably on grounds of his or her sex than another is, has been or would be treated in a comparable situation[60]. The principle of equal treatment therefore naturally takes an individual perspective in that it compares the situations of individual persons and the treatment they receive. It gives a remedy to persons who have been discriminated against, by granting them reparation or compensation of damages. It does not, however, allow tackling structural discrimination, for instance gender segregation in the labour market.

By contrast, Article 23 of the Charter requires equality between men and women in all areas – this goes beyond individual equality of treatment and extends to equal opportunities and participation in all spheres of society, including positions of responsibility. This is not simply a matter of social policy, but a collective expression of the fundamental right of all persons, men and women, to be treated as equals. This principle does not only look at the individual situation of persons, compared to others, but also at the equality outcomes at a societal level.

This collective principle of equality between women and men is also reflected in Article 8 of the Treaty on the Functioning of the European Union (TFEU) which provides that "in all its activities, the Union shall aim to eliminate inequalities, and to promote equality, between women and men" and which contains a clear mandate to fight structural inequalities.

The second sentence of Article 23 of the Charter indicates the possible tension between the individual principle of equal treatment and the societal objective of equality between men and women. It stipulates that, under certain conditions, the collective aim of eliminating structural inequalities must be reconciled with the individual interest in equal treatment. Positive action, i.e. "the maintenance or adoption of measures providing for specific advantages in favour of the under-represented sex", with the aim of achieving de facto equality is therefore accepted.

The Charter provision is practically identical in substance with Article 157(4) TFEU (relevant for employment matters), which provides that, with a view to ensuring full equality in practice between men and women in working life, the principle of equal treatment does not prevent the maintenance or adoption of measures providing for specific advantages in order to make it easier for the under-represented sex to pursue a vocational activity or to prevent or compensate for disadvantages in professional careers.

In this respect, the aim of redressing a pre-existing situation of inequality has been accepted as a legitimate objective of differential treatment and the Court of Justice of the European Union (hereinafter referred to as "the Court") has further specified the conditions under which positive action is permissible.

As the instrument intends to increase the participation of women in company boards, it will be necessary to take into consideration the Court's case-law on positive action.

The case law of the Court[61] accepted that priority may in certain cases be given to women in employment under the following cumulative conditions:

– there are fewer women than men in the relevant department or sector (i.e. the female sex is clearly underrepresented);

– the female candidate is equally qualified as the male competitor in terms of suitability, competence and professional performance,

– the priority is not automatic and unconditional, but may be overridden if reasons specific to an individual male candidate tilt the balance in his favour,

– the candidature of all candidates is subject of an objective assessment which will take account of all criteria specific to the individual candidates (but such criteria must not indirectly discriminate against the female candidates).

Moreover, the Court has seen positive action measures in favour of women as an exception to the principle of equality. In this context, the Court has emphasised that positive action measures have to respect the principle of proportionality. In its Lommers[62] ruling, for example, the Court stated that:

"(…) according to settled case-law, in determining the scope of any derogation from an individual right such as the equal treatment of men and women laid down by the Directive, due regard must be had to the principle of proportionality, which requires that derogations must remain within the limits of what is appropriate and necessary in order to achieve the aim in view and that the principle of equal treatment be reconciled as far as possible with the requirements of the aim thus pursued (…)".

In so far as the instrument would impose a binding preference (at least to a certain degree) for the underrepresented sex in appointments to company boards, it would also derogate from the individual right to equal treatment with the aim of achieving de facto equality in practice. As this derogation implies a potential limitation of Article 21 (1) of the Charter, it has to be proportionate and must not go beyond what is necessary to achieve the intended aim.

To be proportionate, the instrument must, first, intervene in situations where one sex is obviously underrepresented. This is clearly the case of boards of listed companies throughout the EU. In January 2012, women occupied on average just 13.7% of board seats of the largest publicly listed companies in EU Member States. Even in the best-performing Member States, this share does not rise beyond 27%, which indicates that the underrepresentation is a general feature and does not only concern a few Member States. This criterion further implies the requirement to maintain a positive action measure only as long as it is indispensable to redress continuing underrepresentation. Provisions ensuring, from the outset, the temporary nature of the instrument and its expiration or repeal as soon as the disadvantages that justify positive action have sustainably been removed would thus underpin the proportionality of such action.

Another element for ensuring the proportionality of the instrument is to set an objective for the gender composition of company boards that leaves sufficient flexibility for shareholders to select the candidates of their choice. An objective of 40% would seem to leave a sufficient margin of choice, as 50-50 equality may be difficult to achieve in practice, while being ambitious enough for creating a situation of de facto equality. As from that threshold one sex can no longer be considered as underrepresented.

Moreover, the instrument would have to respect the case-law of the Court set out above defining the conditions under which positive action can be accepted. Concretely, the instrument can only give priority to equally qualified female candidates over male candidates. Furthermore, it must not give automatic and unconditional priority to equally qualified candidates but has to include a 'safeguard clause' which includes the possibility of granting exceptions in justified cases which take into account the individual situation of all candidates.

If these conditions are respected, the limitation to Article 21 (1) of the Charter will be proportionate and not go beyond what is necessary to achieve the aim of de facto equality between women and men in decision-making bodies of companies. In addition, such a measure would have a beneficial impact in that it would promote the fundamental right enshrined in Article 23 of the Charter.

7.3.        Article 16 on the freedom to conduct a business

Article 16

Freedom to conduct a business

The freedom to conduct a business in accordance with Union law and national laws and practices is recognised.

The freedom to conduct a business, provided under Article 16 of the Charter, is based on the Court's case-law which has recognised the freedom to exercise an economic or commercial activity[63] and the freedom of contract[64] and on Article 119(1) and (3) TFEU, which recognises free competition.

The freedom to conduct a business is a fundamental economic freedom, and one that is central to the principles of a liberal market economy upon which the EU was founded. The notion of 'business' is deliberately broad, and includes a very wide range of economic or commercial activities, including both small local businesses run by self-employed and large corporations operating internationally.

It is also important to note that Article 16 provides that this freedom is recognised "in accordance with Union law and national laws and practices", making this right subject to other principles of law in the European and national legal orders, including the principle of equality between men and women.

The right to decide how and by whom a company is managed or supervised is intrinsically linked to the quality of owner/shareholder of a company and must be seen as part of the freedom to run a business. The instrument, if it takes the form of binding objectives for the gender composition of company boards, would affect the entrepreneurs' and/or shareholders' right to freely appoint members of the company board and thereby have the effect of restricting their freedom to conduct a business, i.e. a negative impact on the right in Article 16.

Indeed, setting up a numerical objective on the gender composition may limit in certain situations the pool of candidates for the positions in question and the shareholders could be required to appoint board members they would not have otherwise chosen (e.g. if the shareholders would prefer to appoint an all-male board).

In accordance with Article 52 of the Charter, any such restriction of the freedom to conduct a business would have to be provided by law and to respect the essence of the freedom and the principle of proportionality. The principle of proportionality requires that limitations be made only if they genuinely meet objectives of general interest recognised by the Union. Moreover, the measure must be appropriate to achieve the objective of general interest or to protect the rights and freedoms of others, the measure must not go beyond what is necessary to achieve this objective, and there should be no less restrictive alternative measures to achieve this objective.

It is clear that the measure in question pursues an objective of general interest since, as explained above, it aims at promoting equality between women and men as enshrined in Article 23 of the Charter and the aim of redressing a pre-existing situation of inequality has been accepted as a legitimate objective of differential treatment by the Court.

The proportionality of the limitation of the freedom to conduct a business would have to be ensured through the following means:

– a targeted scope of the instrument: it would only apply to listed companies and would explicitly exclude small and medium-sized enterprises (SME) from its scope, even if they are listed[65]. Thereby it would only target relatively large companies with a widespread net of shareholders, who tend to have larger boards and therefore more leeway to accommodate gender requirements for board members. They will be able to search for appropriate female candidates for board positions, possibly with the professional help of executive search firms, in a wider pool of candidates. Meeting the gender requirements therefore constitutes less of an obstacle for listed companies than for other companies, where family ties often play an important role in the appointment of board members. The instrument would therefore not apply to companies where the limitation to the right to conduct a business would have the most intrusive effect.

– not providing for a ban or prohibition of certain kind of activities or regulating the business model of the companies concerned: the instrument only concerns a particular aspect of the organisation of the management of the supervision. Contrary to what was at stake in the cases Scarlet extended[66] and Sabam[67] where the Court concluded to a violation of the freedom to conduct a business, the measure envisaged does not require establishing a costly and complicated system, at the expense of the company, for carrying systematically a particular task. The interference would consist in limiting (and not eliminating), in certain specific situations, the discretionary power to choose the members of the board. This as such does not represent a specific cost affecting directly the business model of the companies.

– limiting the interference with decision on boards members: the measure would not interfere with the concrete choice of individual board members from a potentially very wide pool of male and female candidates and there would be in addition a 'saving clause' which allows to depart from the rules in cases where equally qualified candidates from the underrepresented sex could not be found. The instrument would not exclude any particular candidates for board positions, nor would it impose any individual board members on shareholders. The compliance with the requirements resulting from the Court's case law guarantees that qualification remains the decisive criterion for the selection of board members and that shareholders do not have to lower or modify their qualification standards. The instrument would thus fully respect the essence of the freedom to conduct a business and to choose the persons managing and supervising the company.

The limitation of the fundamental freedom would further be eased if the instrument focused on those board members who are not involved in the daily management of the company but rather in charge of supervisory tasks. While non-executive directors are important actors in corporate governance as they have a say on the strategic orientation of an enterprise and perform essential control functions, they are not involved in the day-to-day running of operations. Restricting the binding gender objectives to non-executive directors would further alleviate the limitation of the freedom to conduct a business.

Finally, and more generally, it should be noted that the freedom to conduct a business is limited by numerous legal instruments at EU and national level in the field of company law, labour law, environmental law, competition law etc., which often directly interfere with the way businesses are run. These include rules on the legal form of companies, their registration, the structure of management and supervisory bodies, qualification requirements for certain positions, accounting and reporting, information and consultation of workers (works councils etc.) and, in several Member States, rules on the membership or presence of worker representatives in management or supervisory boards.

Compared to these rules and their degree of interference with the freedom to conduct a business (which has to be seen in the light of the objectives they pursue), an instrument that lays down requirements for the overall gender composition of boards but does not interfere with the concrete choice of individual board members, and that is moreover mitigated by a 'saving clause' (as explained above), would not constitute a disproportionate restriction of the fundamental freedom, in particular if considered in light of the important objective to improve equality between men and women in economic decision-making positions.

7.4.        Article 15(1) on the freedom to choose an occupation and right to engage in work

Article 15

Freedom to choose an occupation and right to engage in work

1. Everyone has the right to engage in work and to pursue a freely chosen or accepted occupation.

[…]

The right to work is mainly based on the Court's case-law[68] and is meant to ensure that all persons are free to engage in work and to share the benefits that flow from it, both in terms of securing an adequate standard of living for themselves and promoting economic prosperity in general. Another way of understanding the right to work is to ensure that nobody is excluded from participation in the economic sphere[69].

In practical terms, the right to engage in work and to pursue a freely chosen or accepted occupation does not require Member States to provide EU residents with work or even the opportunity to obtain work. The State is only under an obligation to guarantee the freedom to work, i.e. by regulating a free market for the provision of labour, goods and services. Instances of this kind of regulation may include positive legislation to promote access to employment, e.g. prohibiting discrimination on the grounds of ethnicity, gender, disability, etc. In this regard, the promotion of a high level of employment is enshrined among the tasks assigned to the Union (Article 3 TEU and Article 9 TFEU). As such, improving access to employment facilitates the completion of this objective.

The freedom to choose an occupation also encompasses a person's right to choose a career path and the freedom to progress in their career to positions of responsibility. This principle applies both to employed workers and self-employed persons or persons in other forms of occupation. It allows persons to freely compete for any position and guarantees that one's application shall be objectively assessed without biases.

An instrument pursuing the objective of a gender-balanced composition of company boards would strongly contribute to breaking the "glass ceiling" that currently hampers the career progression of many women, due to a male-dominated business culture and intransparent selection procedures, and despite excellent qualifications of many female candidates for such positions. It could therefore reinforce the freedom of women to choose an occupation, as a whole range of senior management positions and new career opportunities would become accessible to them, whereas, under the present circumstances, the social bias would prevent them from attaining such a position. Such binding objectives could thus have a complementary effect with the prohibition of discriminatory practices in occupation and employment.

Furthermore, it is unlikely that the instrument would produce the adverse effect of restricting the right of men to choose an occupation. Indeed, the establishment of gender objectives for company boards would merely affect a restricted number of positions and would not automatically disqualify male candidates when applying for these positions. It also has to be noted that, in respect with Court's case-law as regards the lawfulness of positive action in EU law (see above in section 1.1), applications from male candidates must be objectively assessed in any case, the priority accorded to female candidates shall only be given in case of equally qualified candidates, and shall be overridden where one or more of those criteria tilt the balance in favor of the male candidates. As such, male candidates shall neither be automatically nor unconditionally excluded when applying for senior management positions.

Therefore, while having a beneficial impact on the right of women to seek an occupation as members of company boards, the instrument would not have a negative effect on men's exercise of this fundamental right.

7.5.        Article 17(1) on the right to property

Article 17

Right to property

1. Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest.

[…]

The right to property is based on Article 1 of the Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) and has been recognised as a fundamental constitutional right in all Member States of the EU. As such, it has been repeatedly confirmed as a fundamental right in the case-law of the Court (Nold and Hauer judgments)[70].

Article 17 of the Charter specifically protects the right to peaceful enjoyment of one's lawfully acquired possessions, including the right to have, use, dispose of, pledge, lend, and even to destroy one’s belongings. The term 'possessions' has been interpreted broadly. It includes all 'real property' (i.e. land and interests in land), chattels (i.e. any thing or moveable property) and also acquired rights involving economic interests such as shares[71], patents, fishing rights, alcohol licenses, planning consent, the ownership of a debt, and even commercial goodwill.

Article 17 nonetheless allows public authorities to interfere with individual property rights: deprivation of property is possible so long as it is "in the public interest" and subject to "fair compensation". Similarly, it is permitted to regulate the use of property by law "insofar as is necessary for the general interest". Moreover, Member States will be responsible only for interferences which affect the economic value of property.

The first sentence of Article 17(1) provides protection for the right to property in situations not covered under the second and third sentence, which constitute the exceptions. The third sentence includes the regulatory possibility to control the use of property. The use of property is a general term which covers various kinds of interference with property that are considerably milder than deprivation and thus subject to less strict conditions, depending on the specific degree of interference, in line with the principle of proportionality. 

The instrument might restrict the shareholders' voting rights with regard to the appointment of company board members in a way that is similar to the limitation of their freedom to conduct a business (see above in section 1.2). The right of shareholders to vote freely in general meetings of public limited companies can be considered as expression of their property rights on their shares which confer upon the shareholders the possibility to make use of them as they see fit.

It is important to note that if such a restriction affected the use of property, it would certainly not constitute deprivation of property. It is generally accepted that restrictions on the use of property have a much less severe impact than deprivation. Moreover the restriction concerns only one aspect of the property right, as other voting rights, the right to a dividend or other advantages for shareholders as well as the right to sell or otherwise dispose of the share would not be affected in any way.

As mentioned above, Article 17 stipulates that the use of property may be regulated by law in so far as is necessary for the general interest. The promotion of women in company boards, due to their current and significant underrepresentation, clearly constitutes an objective of general interest in the light of the fundamental principle of gender equality (see above in section 1.1).

Moreover, similarly as for the right to conduct a business, the voting right attached to the property of the share would only be restricted in a very light way, as only the overall composition of the board would be regulated, without any interference in the choice of individual candidates. Reference can be made to the more detailed considerations in section 1.2 above.

Finally, in the cases of listed companies (which usually have the legal form of public limited companies, with a very large number of owners of shares), the actual role of individual shareholders in the management of the company is very limited, and their right of property to shares rather consists in the right to receive payment of dividends and the right to sell the share at any given moment.

The limitation that the instrument would impose the shareholders' right to property would therefore seem necessary and proportionate to the objective pursued, and would fully preserve the essence of the right.

7.6.        Article 47 on the right to an effective remedy

Article 47

Right to an effective remedy and to a fair trial

Everyone whose rights and freedoms guaranteed by the law of the Union are violated has the right to an effective remedy before a tribunal in compliance with the conditions laid down in this Article.

[…]

Article 47 combines protection for two formerly distinct rights: the right to a fair trial and the right to an effective remedy before a court. Recognised by the Court as a general principle of Union law[72], the right to an effective remedy also applies to the Member States when they are implementing Union law. The right to access to a court is one of the most basic prerequisites of an effective system of justice.

The right to an effective remedy means in essence that everyone is entitled to a judicial remedy if their rights have been violated[73]. An instrument imposing binding objectives for a gender-balanced composition of company boards would as such not confer any individual, enforceable rights on any particular person. Therefore no general individual remedy for unsuccessful candidates for a board position must be provided.

Nevertheless, if the objective is meant to be binding and to be applied in an equivalent manner across the European Union, the instrument should provide for effective, proportionate and dissuasive sanctions for companies that do not comply with the requirements of the instrument. Naturally, deriving from the principle of the right to an effective remedy, companies that would be targeted by such sanctions should be given the possibility to appeal against these decisions, notably by providing sufficient evidence that in a particular case they exhausted all reasonable means to find qualified directors of the underrepresented sex.

Furthermore, Member States would need to provide judicial remedies for cases where the case-law requirements on positive action have not been respected, e.g. where a male candidate considers that he was more qualified than a female candidate who was given the post. This would require that selection procedures are conducted in a transparent way with clear criteria and that candidates have access to a court.

The instrument would therefore fully respect the right to an effective remedy, as long as Member States provide for effective administrative and/or judicial procedures to appeal against any measures or sanctions that would be imposed pursuant to the provisions of EU law.

2.    Impact of various policy options on fundamental rights

This chapter will analyse the differences in impact that the five policy options selected for the Impact Assessment would have on the various fundamental rights examined above.

Option 1: No further action at EU level (baseline scenario).

This policy option would obviously have the smallest impact on the fundamental rights enshrined in the Charter, or even no impact at least as far as the EU level is concerned. There would neither be a beneficial impact on equality between women and men (Article 23) and the freedom to choose an occupation and right to engage in work (Article 15), nor would there be any negative impact on the freedom to conduct a business (Article 16) and the right to property (Article 17).

Obviously, binding measures or soft regulation in Member States do have an impact on those fundamental rights, but as they would not be implementing Union law, the Charter would not be applicable pursuant to its Article 51(1).

Option 2: A Commission Recommendation encouraging Member States to achieve an objective of at least 40% of board members of each gender by 2020 for executive and non-executive directors of listed companies.

The impacts of a Recommendation are difficult to assess in general due to the high uncertainty with regard to how Member States will react to a non-binding measure. This is also true for its impact on fundamental rights.

Nevertheless, to the extent that the Recommendation will achieve its objective of increasing the proportion of women on company boards and in managerial positions in the economy and thereby reducing gender gaps, it will positively contribute to the promotion of the right to equality between women and men in the labour market (Article 23) and of women's freedom to choose an occupation and to engage in work (Article 15).

Inasmuch as action by Member States following up to the Recommendation has to be considered as implementing EU law within the meaning of Article 51(1) of the Charter, Member States would have to ensure that the negative impact on the freedom to conduct a business (Article 16) and the right to property (Article 17) is minimised as far as possible in order to respect the essence of these fundamental rights. As outlined above, the proportionality of these limitations can be ensured.

Option 3: A Directive introducing an objective of at least 40% of each gender by 2020 for non-executive directors of listed companies.

A binding objective of 40% for non-executive directors backed by proportionate sanctions would certainly achieve the intended objective of bringing more women into economic decision-making positions and therefore also have a clear beneficial impact on equality between women and men (Article 23) and on women's freedom to choose an occupation and right to engage in work (Article 15).

It clearly also represents a limitation to the freedom to conduct a business (Article 16) and the right to property (Article 17) of owners and shareholders of companies in that it restricts their right to determine by whom the company is managed and supervised. However, as argued above in sections 1.2 and 1.З., such limitation still respects the principle of proportionality since it leaves a sufficiently wide margin of choice for selecting board members and does not go beyond what is necessary to achieve the intended objective. Companies do not face restrictions in defining qualification requirements and in the appointment of the best qualified candidates and the instrument only affects the overall gender composition of the body. Moreover, the limitation is lighter if the binding objective only covers non-executive directors who are not involved in day-to-day management tasks.

Option 4: A Directive introducing both a) an objective of at least 40% of board members of each gender by 2020 for non-executive directors of listed companies and, in addition to option 3, also b) a flexible objective for executive directors of listed companies.

The impact on fundamental rights of this option would be very similar to option 3. As a result of a not too prescriptive provision acting as an incentive for companies to raise their share of female executive directors and thereby bring more women into the highest management posts, the beneficial impact on promoting equality between women and men (Article 23) and on women's freedom to choose an occupation and right to engage in work (Article 15) could be even more substantial.

At the same time, the negative impact on the freedom to conduct a business (Article 16) and the right to property (Article 17) of owners and shareholders of companies would not increase, as each company would be free to set their own objective and only the company's own ambition would determine the extent of its duties.

Option 5: A Directive introducing an objective of at least 40% of board members of each gender by 2020 for executive and non-executive directors of listed companies.

The positive impact on gender equality (Article 23) and on women's freedom to choose an occupation and right to engage in work (Article 15) would undoubtedly be strongest for this option, which extends the binding objective of gender composition to executive directors of listed companies. It would achieve the furthest-reaching and most sustainable change in management and business culture, with the strongest positive effects for the position of women on the labour market.

As argued above in sections 1.2 and 1.З., the limitation to the fundamental freedom to conduct a business (Article 16) and the fundamental right to property (Article 17) of owners and shareholders of companies would be more significant if gender equality considerations would limit the choice of those persons who run the enterprise on a daily basis and decide on important business transactions.

Nevertheless, other restrictions of these fundamental rights in company law, labour law, environmental law etc. would not make this limitation appear disproportionate, especially given the importance of the intended aim of gender equality which is recognised both in the Charter and the Treaties. It can, however, be argued that such limitation needs in any case to be mitigated by a 'saving clause' which allows departing from the binding gender objective where equally qualified candidates of the underrepresented sex cannot be found, e.g. in sectors where female participation in the workforce and management is particularly low and for executive positions which require specific expertise and experience in that sector. Policy makers would have to consciously take into consideration the extent of the restricting shareholders' fundamental rights when choosing this option.

8.           ANNEX 8: Background on methodology of calculation of the impacts

8.1.        Assessing the Effectiveness

8.1.1.     Calculating the impacts of policy option 2 on female presence in company boards

Policy option 2 would be a Recommendation encouraging Member States to introduce appropriate measures (binding or non-binding) to achieve a target of at least 40% of board members of each gender by 2020 for executive and non-executive boards/ board members of listed companies

Recommendations are not legally binding on Member States. This policy option would hence leave it to the discretion of each government to choose its own level of compliance. In particular, Member States will decide whether to:

– Follow the Recommendation and introduce binding measures;

– Follow the Recommendation and introduce non-binding measures;

– Not follow the Recommendation.

Naturally, the impact of the policy option would materialise only in those Member States which decide to follow the Commission Recommendation.

While it is not possible to establish with any certainty how national governments would react to the introduction of an EU level Recommendation (predictions should thus not be viewed as prescriptive), the assumptions were based on assessment of the following factors:

The current national policy framework in a given Member State with respect to gender quotas in corporate boardroom, in the public sector or in state-owned companies, namely whether the Member States has introduced any binding or non-binding policy to increase the number of women in corporate boards and the existence of a proposal for gender quotas in corporate boards which has been discussed at the national level.

On this basis, the following reactions of Member States[74] can be identified:

(1) Member States that have not introduced any type of measure to ensure gender equality in boards of listed companies, public companies or state-owned companies[75] are assumed to be highly likely not to adopt the Commission Recommendation.

(2) Most of the Member States that have introduced measures (binding or non-binding) on gender equality in the board of public sector companies, in the board of state-owned companies or on corporate boards of listed companies are assumed to stay at the level of their current national measures and not adopt any additional measures following the Commission Recommendation (Policy Option 2).

(3) 5 Member States are assumed to be likely to adopt non-binding measures following the Commission Recommendation (Policy Option 2). This is however a highly uncertain assumption. In the past – as has been shown for the baseline scenario - recommendations at EU level have not had a measurable impact. However, as currently the discussion on measures how to achieve better gender balance in boards of companies has some momentum in certain Member States, the assumption that 5 Member States will react seems a realistic optimism.

(4) 2 Member States will take binding measures. Again, considering the effect of previous recommendations at EU level, this seems optimistic.

Non-executive directors:

Where non-binding measures are introduced at the Member State level, estimates on the effect of this recommendation on female presence in corporate boards have been based on progress made in countries where non-binding measures to improve gender equality in corporate boards have been introduced. Of all the Member States, which have introduced non-binding measures to increase the number of women on boards of listed companies, the UK has been the only country to set a specific target. For this reasons, UK figures are used as a basis for extrapolation for the 5 Member States that take non-binding action.

In the United Kingdom, the corporate governance code sets specific targets that companies should aim to achieve. An Independent Review into Women on Boards, led by Lord Davies and concluded in February 2011 (Department for Business Innovation & Skills. 2011), recommends that UK listed companies in the FTSE 100 should be aiming for a minimum of 25% female board member representation by 2015. This recommendation has contributed to accelerated progress in the percentage of women in corporate boards in the United Kingdom. The number of women in executive positions in the UK has increased by 11.11% between October 2010 and January 2012 (25 months)[76] and the number of women in non-executive positions in the UK has increased by 22.22% in the same period[77]. These – rather optimistic - growth rates have been used in order to estimate the possible effects of Policy Option 2 on the percentage of women in corporate boards.[78] It was further assumed that all companies in the Member States concerned would set themselves a non-binding target of 40%, which again is probably too optimistic.

As to the two Member States that will introduce binding measures with a 40 target, this probably is also too optimistic.

Therefore, the figures have to be seen only as a highly speculative estimate which is most likely to overstate the likely effect of a recommendation and have to be treated with great caution.

Executive directors:

For this part of the Commission Recommendation it was also assumed that companies following the Recommendation set themselves a target of 40%, which again is probably too optimistic. However, it was assumed that Member States and companies would be less willing to follow this recommendation, because, in general, rules for the management board are assumed to be more difficult to implement. Therefore, for this part of the Recommendation, it was assumed that the effect might be comparable to the effect of PO4 on executive board members (flexiquota), though less significant. As a consequence, it was assumed that, due to the non binding nature of a Recommendation and the fact that only a few Member States will take action, the recommendation would only have one tenth of the effect of PO 4 on the number of executive board members (see further explantion for PO4 below). This would mean that only one out of ten companies replaces a male by a female executive board member.

8.1.2.     Calculating the impacts of the other policy options

For the other options, it was assumed that Member States will comply with binding measures. Therefore, for PO 3 and 5 the effect of the policy option was calculated as the difference between the target set in the policy option and the percentage of board members who would be female in 2020 (baseline scenario).

For PO4 which is a combination of a target and a ‘flexiquota’ a combination of the approaches was used.

Executive directors: Listed companies across Europe will be required to set their own individual targets for female presence in the executive board. Once the target has been communicated to the relevant national authority, should the company not comply with it, sanctions will apply. The flexible quota set by individual companies is likely to depend on:

– The current female representation on boards;

– the sector in which the company operates;

– the existence of a talent pool of women to be promoted to board position; and

– company performance before the introduction of the quota.

A small number of listed companies across Europe have introduced voluntary and independent initiatives to increase female participation in board. Among these, approximately half have set specific targets (mainly for non-executive board members), which tend to vary from doubling female presence in corporate board to maintaining the current share of women or ensuring that at least one woman sits on the board.

On this basis, and due to the lack of consistency across listed companies, it was decided to predict the effects of the policy option using a “conservative” estimate. Taking the average board size (8.31 members in the scenario excluding SMEs) and average number of female directors (1.1) as starting point, we assume that under a flexi quota, each company would replace one man with one woman (leaving the average board size unchanged[79]). This results in nearly doubling the number of females from 1.1 to 2.1.

For the non-executive directors, it was assumed that Member States would comply with a 40% target.

8.1.3.     Assessing the impacts on company performance: corporate governance

Research shows that companies with more women on their boards have better corporate governance. Based on 26 studies relevant to this purpose, the following nine non-financial performance dimensions were identified, which appear to be positively affected by female presence in corporate boards. The corporate governance indices, which were developed by governance rating firms, include several hundred factors, designed to help evaluate the quality of corporate boards and the impact their governance practices may have on performance. Notwithstanding the challenges around disaggregating complex governance mechanisms into a single integrated yet informative indicator, Ertugrul and Hegde (2009) have identified seven key dimensions of dynamic governance structures which provide positive and reliable evidence of their information content in predicting the multiple dimensions of firm performance. These are outlined in the table below and linked to specific non-financial performance dimensions.

Table 2: Overview Corporate Governance Indicators – Female Performance

Non-financial Performance Dimensions || Corporate Dimension || Balanced Score Card Dimension

Accountability, risk and audit || Accounting || Business Process Perspective

Monitoring and Control || Litigation and Regulatory Problems || Business Process Perspective

Innovation and creativity || || Learning & Growth Perspective

Work environment and values || || Learning & Growth Perspective

Direction and leadership || Shareholders’ Responsiveness || Learning & Growth Perspective

Pay policies || Compensation || Business Process Perspective

Corporate Reputation and Corporate Social Responsibility (CSR) || Shareholders’ Responsiveness || Customer Perspective

Improved understanding of the market || Shareholders’ Responsiveness || Customer Perspective

Board Dynamics || Board Composition || Business Process Perspective

The next paragraphs present each of the performance indicators separately and discuss:

· the relationship between good corporate governance as defined by the abovementioned dimensions and a company’s financial performance, and

· the relationship between greater gender diversity in corporate boards and the performance dimension.

Accountability, Risk and Audit

One of the main tasks of the corporate board is to evaluate individual and company performance to ensure accountability and responsibility for business results. Non-executive directors hold top management and executive directors accountable for company performance. Accountability is associated with positive company performance if expectations and targets are defined clearly and if the achievement of targets is rewarded (McKinsey, 2008). In addition, the audit committee, which is typically composed of non-executive directors, is charged with oversight of financial reporting and disclosure; and, the risk committee, also composed of non-executives, assists the board in assessing the different types of risks to which the company is exposed. However, the relation between risk exposure and company performance is difficult to determine and it is likely to depend on the sector in which the company operates, as well as other factors.

Existing evidence suggests that there is a positive relationship between gender diversity on the board and accountability and audit. According to McKinsey (2008), women use leadership behaviours such as expectations and rewards more frequently than men. Thus, they set clear targets for top management and for the company in general and they reward their achievement more frequently than men do. Similarly, according to the Association of British Insurers (ABI, 2011), boards with better gender balance pay more attention to audit and control. Female auditors are associated with higher audit fees than male auditors, suggesting that they are attributed a higher value (Peni, 2012).

The evidence on the relationship between gender diverse boards and risk is instead mixed. While the Association of British Insurers (2011) concludes that boards with better gender balance pay more attention to risk oversight, Miller and del Carmen (2009) and Adams and Funk (2011) conclude that female directors are slightly more risk loving than male directors. This suggests that having women on the board does not lead to more risk-averse decision-making.

Monitoring and Control

In their capacity as ‘guardians’ of the corporate good, non-executive directors monitor executive actions, question executive decisions and are required to ensure that the company is acting in a ‘responsible’ way and in the best interests of the shareholders and other stakeholders (Pass, 2002). Monitoring and control are thus one of the main responsibilities of the non-executive board and, in particular, of the monitoring committees. Both monitoring and control influence company financial performance as they allow the identification of possible errors and gaps and the development of any possible corrective measure needed.

According to the evidence, there is a positive relationship between female presence on board and monitoring and control. Watson et al. (1993) and Fondas and Sassalos (2000) argued that diversity in board composition via greater female representation would improve the board’s monitoring role in protecting shareholder interests by better top management control, reducing agency costs. Board with better gender balance appear to be better at explicitly identifying criteria for measuring and monitoring the implementation of corporate strategy as compared to all male boards (ABI, 2011). Moreover, women are more likely to join monitoring committees on non-executive boards, suggesting that if the number of women on the board increases, more efforts would be allocated to monitoring (Adams and Ferreira, 2009). However, Adams and Ferreira (2009) also stress how gender diversity on the board has beneficial effects in companies with weak shareholder rights, where additional board monitoring could enhance firm value.

Innovation and Creativity

Another important non-financial indicator of company performance is the level of innovation and creativity. A flow of ideas would allow the company to adapt to the ever-changing market dynamics and face upcoming challenges (McKinsey, 2008), ultimately leading to improved company performance. Board members need to be involved in the initiation and implementation phases of the strategic process in order to affect innovation (Torchia et al., 2011). In addition, they should identify strategies that provide new opportunities for the firm to create products or services. Intellectual stimulation is particularly important in order to challenge assumptions and encourage risk taking and creativity (McKinsey, 2008). Similarly, teamwork and the introduction of a new perspective within the board or top management team will contribute to a more innovative environment (Dezsö and Ross, 2011).

Gender diversity in corporate boards is positively related to innovation. According to Torchia et al. (2011) going from one or two women to at least three women on the board enhances the level of firm innovation. There are two main reasons for this: firstly, female management style favours teamwork (Dezsö and Ross, 2011) and intellectual stimulation (McKinsey, 2008), which are the main drivers of innovation; secondly, women on the board bring new perspectives, which lead to innovation. While the first explanation relates particularly to female management style, the second explanation relates more broadly to the fact that heterogeneous groups produce a broader range of ideas and information, because they contain a diverse body of knowledge (Miller and Triana, 2009). Thus, in the second case, it is not gender diversity but diversity in general that brings new perspectives that lead to innovation (Teigen, 2010b).

Work Environment and Values

Work environment and values influence company performance, as they affect labour force productivity. According to McKinsey (2008), a well-functioning company should shape employee interactions and foster a shared understanding of values. In this sense, it should also inspire and encourage employees to perform and stay. Finally, it should ensure that the right internal skills and talent to support strategy are identified. Top management and executive board members play a key role in creating a productive work environment, setting the right values, communicating them to the workforce and motivating the staff. In particular, in order to have a positive impact on work environment and values in the company, the top management should build a team atmosphere in which everyone is encouraged to participate in decision-making (‘participative decision-making’, McKinsey, 2008). Moreover, they should spend time teaching, mentoring, listening to individual needs and concerns (‘people development’, McKinsey&Company, 2008).

Gender diversity generally leads to improvements in workers motivation and loyalty (Brammer et al., 2009), as it helps bring closer the company, its employees, its shareholders and its customer (McKinsey, 2007). According to a study conducted by the European Commission (2003), diversity programmes have had a positive impact on employee motivation for 58% of the companies that have implemented them. More specifically, the leadership style of women in top management or executive board positions is conducive to more productive work environment and values (McKinsey, 2008). For this reason, having three or more women on the board would help improve the company’s work environment and values. This appears to be related to the fact that women apply leadership styles such as people development and participative decision-making more frequently than men do. The role of female directors as providers of much-needed mentoring for more junior colleagues has often been cited as a spur for employees endeavour to reach their career goals within the firm (Brammer et al., 2009).

Direction and Leadership

A company’s financial performance is driven by the choices and the leadership of its top management. Executive and non-executive directors should shape and inspire the action of others to drive better company performance. They should also articulate where the company is heading, instruct the team on how to get there and align employees to these goals. In this sense, the leadership style of executive and non-executive board members can influence company performance. In particular, directors should a) act as role models, b) present a compelling vision of the future and inspire optimism about its implementation (inspiration) and c) communicate effectively and efficiently with charisma (McKinsey, 2008).

Gender diverse boards play a more active role in setting the strategic direction of the company (Brown et al, 2002), thus contributing to better company performance. It appears that female executive and non-executive directors add organisational value through the quality of their decision making, because they add (Insync Survey, 2010): fresh thinking and wider debate; increased focus on problem solving; more productive discussion and greater unity; increase conscientiousness; and greater self-reflexivity.

Thanks to their leadership style, female directors bring specific advantages to board decision-making, particularly when it comes to boards’ strategic tasks, such as setting the direction of the company (Nielsen and Huse, 2010). Women in fact use leadership style such as role model and inspiration more frequently than men, while men tend to use efficient communication as frequently as women (McKinsey, 2008).

Compensation Policies

Compensation of directors and CEO is crucial to company performance, because performance pay in particular is an important mechanism to ensure that directors and managers act in the interests of shareholders (Adams and Ferreira, 2009). The remuneration committee, composed primarily of non-executive directors, is usually in charge of establishing pay policies, in particular when it comes to bonus structures for executives and top management.

Evidence suggests that gender diverse boards are more likely to design remuneration packages and incentives structures, which drive strategy and performance (Campbell and Minguez-Vera, 2008 and Insync Survey, 2010). Boards that are gender diverse have a greater propensity to interrogate the structure of remuneration packages and the incentive capacity of remuneration packages to drive strategy and performance (Campbell and Minguez-Vera, 2008). This appears to be related to the fact that women define expectations and responsibilities more clearly than men and they also reward the achievement of targets more consistently than men (McKinsey, 2008). If gender-diverse boards take a more critical and broader view on remuneration and incentives schemes, one would expect that, over time, those boards will embed improvements in the alignment of remuneration with strategy (Insync Survey, 2010). A better alignment of company goals and employee objectives results in highly incentivised employees helping the company achieve its targets, and ultimately driving company performance.

Corporate Reputation and Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) refers to a relatively broad category of actions for instance, firm activities benefiting community or social concerns, protecting the environment and the like (Miller and Carmen, 2009). Reputation is the perceptual representation of a company’s past actions and future prospects that describe the firm’s overall appeal to all its key constituents when compared to other leading rivals (Fombrun, 1996). CSR initiatives are usually promoted by the board; corporate reputation is influenced by the direction and leadership style of executive and non-executive board members. Moreover, CSR is usually a mediator of company reputation (Bear et al, 2010). Both CSR (directly or as a mediator) and company reputation can affect the company’s attractiveness and customer loyalty, ultimately affecting market share.

The evidence suggests that there is a positive relationship between female presence on corporate boards, corporate social responsibility (CSR) initiatives and corporate reputation. Women on board are more likely than men to be support specialists or community influential; hence, having more women on the board may increase the number of CSR initiatives. This is supported by evidence that firms with a higher percentage of female board members have a higher charitable giving (Bear et al, 2010). Miller and del Carmen (2009) also confirm this by arguing that, because female directors care less about power and more about universalism than male directors, gender diverse boards consider stakeholders interests more broadly. Finally, female directors embrace values that precede ethical decisions more strongly than male directors (Miller and del Carmen, 2009).The positive relationship between female representation in corporate boards and CSR also suggests that a higher percentage of women in the board might have a positive impact on corporate reputation. CSR is in fact a mediator of corporate reputation (Bear et al., 2010). While confirming the reputation effect associated with a female presence at board level, Brammer et al. (2009) argues that this effect varies across sectors. There is an indication that the presence of women on the board is favourably viewed only in those sectors that operate close to final consumers. For instance, the relationship between female presence in board and corporate reputation is positive in the consumers’ good sector but negative in the banking sector. This demonstrates the influence of a firm’s stakeholder environment in determining whether a female presence on the board enhances or harms the reputation of the firm (Brammer et al., 2009).

Understanding of the Market

The understanding of the market is a key driver of company performance. In order to increase the market share, the company governance needs to engage in constant two way interactions with customers, suppliers and other partners (McKinsey, 2008) to understand needs, requirements and demand trends. Ultimately, this would affect the company image and its ability to reap market share.

Women may have a better understanding of certain market segments, which may improve the creativity and quality of the decision-making (Singh and Vinnicombe, 2004). For instance, women now have a major influence on purchase decisions: in Europe, they are the driving force behind more than 70% of household purchases, including some traditionally male-dominated fields such as car purchase or PC purchases (McKinsey, 2007). In order to successfully capture the relevant markets, it would make business sense to include women in the strategic decision making of the company. This evidence is also supported by the fact that diversity programmes have had a positive impact on customer satisfaction for 57% of the companies that have implemented them, while 69% of the companies noted an improvement in their brand image (European Commission, 2003).

Board Dynamics

Board dynamics influence the way a company is managed and run, its direction, leadership, goals and market position. The most relevant board dynamics include board governance, attendance, motivation, conflict management, integrity, clarity of roles and responsibilities and, finally, the influence of board decisions on company management.

As suggested in the previous paragraphs, the presence of three or more women on the corporate board might positively impact company non-financial performance, such us accountability, work environment and values, understanding of the market, etc. This is due to the fact that female directors exert influence on board decisions and dynamics through: (a) their non-traditional professional experiences (Hillman et al., 2002; Singh, Terjesen and Vinnicombe, 2007) and (b) their different values (Selby, 2000). Accordingly, Nielsen and Huse (2011) argue that the impact of female board members on board decision-making and effectiveness depends not on their gender per se but rather on the prior professional experiences and particularly the values they bring along. In particular, women’s presence on the corporate board is associated with a lower level of detrimental conflict in the boardroom (Nielsen and Huse, 2010). Women have better board attendance record and prepare more thoroughly for board meetings, possibly leading to better decision making (Adams and Ferreira, 2008).

Table 3: Qualitative Analysis – Impact of Gender Diversity on Non-Financial Company Performance

Dimension || Definition || Keywords || # Studies || Relationship || Case Study Evidence

Accountability, Risk & Audit || Evaluate individual and company performance to ensure accountability and responsibility for business results. || Accountability, Audit, Risk oversight, Audit fees || 4 || All studies confirm a positive relationship between more gender-diverse boards and accountability. Boards with better gender balance pay more attention to audit, risk oversight and control. A study shows that female auditors’[80] diligence and higher level of preparation are associated with higher audit investment and higher audit fees. The evidence on the relationship between gender diverse boards and risk is mixed. || Three case studies support the secondary research evidence. The responses confirm a positive relationship between more gender-balanced boards and accountability.

Monitoring & Control || Measure and evaluate business performance and risk. || Number of 10K investigations, Monitoring, Control, quality of financial reporting, || 5 || Four out of five studies confirm a positive relationship between more gender-diverse boards and better coordination and control. A positive relationship between firms with female CEOs and CFOs and the quality of financial reporting was also verified. One study shows a negative relationship between gender-diverse boards and monitoring. In some instances, such boards are inclined to overcontrol and ultimately decrease firm’s value. Gender diverse boards appear to be particularly valuable for firms with otherwise weak governance. || Four out of five case studies support the secondary research evidence. The responses confirm that more gender balanced boards can positively affect the monitoring and control of the company. The Norwegian case study respondents think no relationship exists between having more women on board and the monitoring of a company.

Innovation and Creativity || Generate flow of ideas that the company adapt. Identify new market perspectives. || Innovation, Creativity, New perspectives, External Orientation || 5 || All studies confirm a positive relationship between more gender-diverse boards and innovation in the company. Diversity generates new perspective and brings creativity into the board. The innovation sector seems to be particularly positively affected by higher female presence. || Three out of four case studies[81] support the secondary research evidence. The responses confirm that more gender balanced boards can improve company thinking about further market opportunities. The German case study respondents think more gender balanced boards might have a negative impact on innovation.

Work Environment & Values || Shape employees interactions, generate discussions through team work and foster a shared understanding of organizational values. || Work environment and values, team work, discussions , organizational value || 6 || All studies confirm a positive relationship between more gender-diverse boards and work environment. Female managers seem to have different styles of contribution which add value to the team work and foster unity. Having more women on boards can lead to more board agenda discussions and ultimately, enhance the organizational value. || All case studies support the secondary research evidence. The responses confirm that more gender balanced boards can positively affect working relations, working conditions and the communication with employees. The French case study respondents think that women are more emphatic than men, caring more about relationships with employees than men.

Direction & Leadership || Ensure leaders shape and inspire the actions of others to drive better performance. || Direction, board operational control, board strategic control, decision making, esteem for chair, leadership team, leadership || 4 || All studies confirm a positive relationship between more gender diverse boards and greater decision making. Women seem to bring in fresh thinking, different styles of contribution and personal capabilities that build unity. Members of diverse boards are more likely to regard their chair as a better manager of boardroom dynamics, as demonstrating greater personal integrity, having a more effective leadership style and conducting a more effective decision making process. || All case studies support the secondary research evidence. The responses confirm that more gender balanced boards can have positive impact on the strategic direction of a company and leadership. The German case study respondents add that any change in company direction requires the commitment of the top management.

Compensation Policies || Ensure board members’ earnings reflect company’s performance and personal achievements. || Pay, satisfaction with the connection between remuneration and outcomes on gender diverse boards, earnings, earnings management strategies || 3 || All studies confirm a positive relationship between more gender-diverse boards and more equity based pay for directors. Gender diverse boards are more critical of the appropriateness of management remuneration and its alignment with performance and they are more questioning of the effective use of remuneration to drive organisation strategy. One study shows that firms with female CFOs follow less aggressive earnings management strategies. || This dimension was not initially covered by case studies.

Corporate Reputation and Corporate Social Responsibility (CSR) || A broad category of actions including firm activities benefiting community or social concerns, protecting the environment, and the like || CRS control, CSR, philanthropy, female executives, potential female board members, women in top management, corporate reputation || 9 || All studies confirm a positive relationship between more gender-diverse boards and corporate social responsibility strategies. Five studies confirm a positive relationship between more gender-diverse boards and the corporate reputation and the quality of corporate governance. The reputational effect is especially positive in sectors which operate close to final consumers. The effect is negative in producer services and banking sector. Studies show that having gender issues in the CSR strategies positions the organisation in the support for sustained growth, and the payoff extends beyond the company to society. There may also be a feedback cycle in which the presence of more female managers increases the qualified pool of potential female board members leading to greater female board membership and then further increases in female executives. Studies show a positive market reaction to the appointments of female directors. One study shows a negative relationship between more gender-diverse boards and investors’ reactions to the announcement of female CEO. || This dimension was not initially covered by case studies.

Understanding of the Market || To engage in constant two way interactions with customers, suppliers and other partners and to understand needs, requirements and demand trends. || Customers, suppliers, interaction, needs and demand trends || 4 || Studies show that women may have a better understanding of certain market segments, which may improve the creativity and quality of the decision-making. || This dimension was not initially covered by case studies.

Board Dynamics & Governance || The way a company is managed and run, its direction, leadership, goals and market position. Ensure board roles and responsibilities are clearly defined. || Governance, attendance, motivation, conflict, integrity, clarity of roles and responsibilities, influence of board decisions, stock price informativeness, investors' reactions, market reaction to the appointment of female director || 7 || All studies confirm a positive relationship between more gender-diverse boards and board dynamics. Gender diverse boards are more critical to the appropriate codification of roles and responsibilities of members and chairs. Studies confirm that such boards show better attendance records, more motivations and fewer conflicts. || This dimension was not initially covered by case studies. .

Source: Matrix

Scoring the impact on corporate governance indicators

Table 4: Key Aspects of the Policy Options on Non-financial Performance

Non-financial Performance Dimension || Corporate Dimension || Group || Strength of Relationship (from 1 to 3)

Executive Directors (or Top Management) (ED) || Non-executive Directors (NED)

Accountability, risk and audit || Accounting || -[82] || √ || 1

Monitoring and Control; || Litigation and Regulatory Problems || - || √ || 2

Innovation and creativity || || √ || - || 1

Work environment and values || || √ || - || 3

Direction and leadership || Shareholders’ Responsiveness || √ || √ || 2

Pay policies || Compensation || - || √ || 2

Corporate Reputation and Corporate Social Responsibility (CSR) || Shareholders’ Responsiveness || √ || √ || 2

Understanding of the market || Shareholders’ Responsiveness || √ || - || 3

Board Dynamics || Board Composition || √ || √ || 3

8.1.4.     Assessing the impacts on company financial performance

The calculation in this impact assessment was based on data and results presented by Catalyst in research from 2004.[83]

Catalyst assessed the gender diversity and financial performance of Fortune 500 companies from 1996 to 2000. Eleven industry sectors were represented in the sample including: Aerospace & Defence, Consumer discretionary, Consumer staples, Energy, Financials, Health care, Industrials, Information technology/ Telecommunication services, Materials, Pharmaceuticals and Utilities. This list was narrowed to include only those companies for which there existed at least four years of data on financial performance (return on equity and total return to shareholders), as well as the gender diversity of the top management team. The final sample included 353 companies.

Basis for Comparison: Catalyst divided the companies into quartiles based on the percentage of female representation in their top management teams. Eighty eight companies were categorised as “top quartile” and had an average of 20.3% women in the top management teams. 89 companies were reported as “bottom quartile” and had an average of 1.9% women in the top management teams.

Financial Performance Indicator: Financial performance was measured in terms of return on equity (ROE) – i.e. the profit on every Euro invested by the company’s shareholders. The average ROE for top and bottom quartile companies was compared, finding that top quartile companies financially outperformed bottom quartile companies by 35.1%. Top quartile companies, on average, had an ROE of 17.7%, whereas bottom quartile companies had an ROE of 13.1%. The difference between 17.7% and 13.1% was found statistically significant. Using ROE as a measure for financial performance of a company indicates how the value of a company is growing. It is also an accounting indicator, meaning that the inputs to calculate ROE (shareholders equity and net income) are published in the company accounts, allowing for accurate measurement of the indicator.

As a result, Catalyst concludes that companies with the highest representation of women on their top management teams experienced better financial performance than companies with the lowest women’s representation. This finding holds for both financial measures analyzed: Return on Equity (ROE), which is 35 percent higher, and Total Return to Shareholders (TRS), which is 34 percent higher. In each of the five industries analyzed, the companies with the highest women’s representation on their top management teams experienced a higher ROE than the companies with the lowest women’s representation. In four out of five industries, the companies with the highest women’s representation on their top management teams experienced a higher TRS than the companies with the lowest women’s representation.

The data of this study was then adapted to this impact assessment.

Calculating the Effect Size: populating the formula below with the estimates provided above in the ‘Basis for Comparison’ and the ‘Financial Performance Indicator’ it was estimated that a 1% point increase in women among board members is associated with a 0.25% point increase in the average ROE. The methodology to obtain this estimate is described below. To calculate the effect size – i.e. the change in ROE associated with a change in the percentage of board member who are female – the following formula was used:

Where:

ROET = ROE of the top quartile = 17.7%

ROEB = ROE of the bottom quartile = 13.1%

WOBT = percentage of women in top management teams for the top quartile = 20.3%

WOBB = percentage of women in top management teams for the bottom quartile = 1.9%

The above effect size was multiplied by the percentage point change in the percentage of board members who are female as a result of the policy options and then added to the average baseline ROE of the companies in each Member State (estimates based on data for listed companies based in the EU27 provided by Standard and Poor’s). The results of this calculation shows how the average ROE would be affected after the implementation of the policy options, if all of the differences in performance between companies could be explained by differences in the share of their boards who are women. In the main text, the effect on ROE of assuming that differences in the share of women on company boards account for a smaller share of observed differences in company performance are also shown.

In order to calculate the impact of the policy options on companies’ financial performance in terms of the companies’ net income the following method was used:

· Financial data for all publicly listed companies in Europe for the period 2005-2010 was obtained from Standard&Poor’s. Data included total assets, total liabilities and ROE.

· Financial data reported in currencies other than Euros was converted to Euros using exchange rates published in the EC Financial Programming and Budget website.[84]

· Total assets were subtracted from total liabilities to estimate the shareholders equity. From there, shareholders equity was multiplied by ROE to produce an estimate of net income for each company.

8.1.5.     Assessing the impacts on investment costs

Investment costs reflect the investment in mechanism to increase participation of women on company boards. Companies can either invest in broadening the talent pool in their company (training, mentoring etc.), or, particularly where there are few women, increase the efforts of recruitment of qualified women from the outside (with the help of executive search companies). We assume that the overall additional costs of both options are roughly "equivalent". The calculation focuses on the costs caused by mentoring and training programs as well as on the costs for more transparency in the selection procedure in general.

In order to understand the calculation, the factors allowing a calculation are presented here.

The amount of investment costs incurred in companies by each country will vary depending on existing provisions (binding or non-binding) already introduced in each country and on the policy option and current levels of female participation in corporate boards in each country. Therefore, in a first step the existing provisions in Member States related to the policy option will be presented. Furthermore, it will be explained that investment costs have to be calculated separately for two periods (until 2020 and after 2020). Moreover, the mechanisms causing investment costs will be presented and clarified that costs occur as financial and non-financial investment costs. Finally, the formula of calculation will be discussed in detail.

Existing provisions in the Member States

In countries where there is already a binding quota in place, it is unlikely that companies will have to face additional investment costs in terms of mechanisms to increase female presentation on boards. The investment costs are likely to be incurred regardless and therefore are not costs to be related to or caused by the policy option.[85] These costs will therefore not be presented in the framework of this impact assessment. In comparison, it is likely that countries with no binding quotas in place will face large investment costs.

An overview as to the Member States that would have to incur costs to comply with the policy options is outlined in the table below.[86] The assumptions regarding the Member States for each policy option is based on determining which Member States would require changes in their current provision in order to adopt the policy options. For example, Member States, which already have binding quotas in place, are not included in the costing analysis as these costs are likely to be incurred regardless of the policy options. Therefore, BE, ES, FR, IT and NL are excluded from the analysis as they already have binding quotas in place. In addition, for PO2 the Member States included are based on the assumed compliance with the option for a recommendation.

Table 5: Compliance costs associated with each policy option

Policy option || Description || Member States

PO1 || Status Quo – Baseline Scenario || No MS has to take specific action

PO2 || Recommendation to Member states to introduce binding (or non-binding) measures with a target of at least 40% of board members of each gender by 2020 for non-executive boards/and executive board members of listed companies || General assumptions: 5 Member States take non-binding action, 5 Member States take legislative action

PO3 || Binding target of at least 40% of each gender by 2020 for non-executive boards/board members of listed companies || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

PO4 || Binding target of at least 40 % of board members of each gender by 2020 for non-executive boards/board members of listed companies+ flexi target for executive directors: || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

PO5 || Binding target of at least 40% of each gender by 2020 for executive and non-executive boards/board members of listed companies || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

Two time periods for assessing investment costs

The investment costs have to be measured separately for two periods, namely until 2020 and from 2020 onwards. Companies will face a one-off investment cost between the year of adoption and 2020 as by 2020 the targets will need to be met. For the purpose of the costing analysis, it is assumed that companies will begin to invest in meeting the target a few years before it is required to be complied with – that is from 2017. This assumption is based on case studies of Member States with gender quotas in place which indicate that investment in meeting quotas occurs 2 to 5 years prior to the year in which targets need to be met. A conservative estimate of 4 years was chosen, as longer periods of times would marginally increase investment costs. Therefore, the investment costs are incurred from 2017 to 2020. After 2020, the percentage of women in boards will need to be maintained. Therefore, post 2020 there is an on-going annual investment cost associated with maintaining the participation of women in company boards going forward. For the purpose of this assessment, the on-going cost of each policy options is estimated from year 2021 to year 2030.

Mechanisms which will cause investment costs

The following three mechanisms for increasing female participation in the boards have been identified:

· Informal mentoring programs: Informal mentoring programs involve senior executives within companies providing mentoring support to women in the company who are currently not part of the board but have the potential to be elected into boardrooms in the future.

· Formal mentoring programs: Formal mentoring programs involve providing women within companies the opportunity to attend structured networks which focus on helping women position themselves to be elected into boardrooms.

· Formal training programs: Formal training programs involve giving women access to training classes which will provide them with the skill set required to be elected into boardrooms. Examples of training courses are: “communication to senior management”, “advanced negotiation skills”, and “assertiveness for women – how to compete without being aggressive” (Management Centre Europe, 2012).

· Costs of more transparency: if selection procedures or board members are made more transparent, this might contribute to investment costs for better procedures, more information distributed, external consultants to advise on the criteria and procedure to follow, etc.

Financial and Non-Financial Investment Costs

The cost of each of the above mechanisms can be disaggregated into financial and non-financial costs. Financial costs represent the monetary costs incurred by the company to pay for the mechanism – e.g. cost of training program, fees. Non-financial costs represent the monetary value of the time associated with individuals participating in the mechanisms – e.g. the value of the time spent by an individual attending a training program.

Calculation of the investment costs

Calculation of annual financial investment cost per Member state (2017-2020) = (number of listed companies in each Member State) * (conversion factor) * (additional number of women required to achieve quota per company by policy option (2017-2020)/number of years of investment) * (average unit financial cost) * (discount rate).

The factors/elements necessary to calculate:

The total number of listed companies (SMEs excluded) in EU27 is 5009. The country data is outlined in the table below.

Table 6: Listed companies (excluding SMEs) per Member State

. Member State || Listed companies

AT || 79

BE || 122

BG || 30

CY || 103

CZ || 15

DE || 714

DK || 134

EE || 12

EL || 217

ES || 271

FI || 109

FR || 536

HU || 24

IE || 60

IT || 235

LT || 33

LU || 48

LV || 16

MT || 11

NL || 137

PL || 540

PT || 56

RO || 173

SE || 356

SI || 21

SK || 9

UK || 947

EU 27 || 5009

Source: Matrix calculation

The conversion factor is outlined in the table below. The conversion factor is used to translate the UK unit investment costs to Member State specific costs.

Table 7: Conversion factor per Member State

Member state || Conversion factor ||

AT || 1.47 ||

BE || 1.40 ||

BG || 0.21 ||

CY || 0.95 ||

CZ || 0.60 ||

DE || 1.83 ||

DK || 0.47 ||

EE || 1.46 ||

EL || 1.33 ||

ES || 1.32 ||

FI || 0.89 ||

FR || 0.43 ||

HU || 1.28 ||

IE || 1.52 ||

IT || 0.35 ||

LT || 0.36 ||

LU || 3.57 ||

LV || 0.65 ||

MT || 1.54 ||

NL || 2.76 ||

PL || 0.71 ||

PT || 0.25 ||

RO || 0.53 ||

SE || 0.77 ||

SI || 1.00 ||

SK || 1.61 ||

UK || 1.18 ||

Source: Matrix calculation

The number of additional women required to achieve the quota per policy option (2017-2020) is outlined in the table below.

Table 8: Additional number of women required to achieve gender quota of 40% (2017-2020) per Member State in an average company (SMEs included)

Member  State || PO2 ||  PO3 ||  PO4 ||  PO5

AT || 2.2 || 2.2 || 2.2 || 2.5

BE || 0.9 || 0.9 || 0.9 || 1.5

BG || 1.6 || 1.6 || 1.6 || 1.6

CY || 0.0 || 1.9 || 1.9 || 2.6

CZ || 0.0 || 1.1 || 1.1 || 2.1

DE || 1.1 || 1.1 || 1.1 || 2.1

DK || 0.7 || 0.7 || 0.7 || 1.0

EE || 0.0 || 1.9 || 1.9 || 2.0

EL || 2.0 || 2.0 || 2.0 || 3.2

ES || 0.5 || 0.5 || 0.5 || 1.1

FI || 0.0 || 0.0 || 0.0 || 0.3

FR || 0.0 || 0.0 || 0.0 || 0.6

HU || 0.0 || 2.7 || 2.7 || 3.8

IE || 1.8 || 1.8 || 1.8 || 2.5

IT || 0.9 || 1.7 || 1.7 || 2.6

LT || 0.0 || 0.8 || 0.8 || 1.3

LU || 2.6 || 2.6 || 2.6 || 3.3

LV || 0.0 || 0.2 || 0.2 || 0.2

MT || 2.0 || 2.0 || 2.0 || 2.5

NL || 0.2 || 0.4 || 0.4 || 0.7

PL || 1.3 || 1.3 || 1.3 || 1.5

PT || 2.7 || 2.7 || 2.7 || 3.8

RO || 0.0 || 1.2 || 1.2 || 1.5

SE || 0.3 || 0.3 || 0.3 || 0.6

SI || 0.0 || 2.1 || 2.1 || 2.7

SK || 0.0 || 0.6 || 0.6 || 0.6

UK || 0.9 || 0.9 || 0.9 || 1.6

Source: Matrix calculation

It is assumed that investment starts in year 2017 to achieve the quota in year 2020. Therefore the number of years of investment is 3 years.

The average unit financial cost is outlined in the table below:

Table 9: Parameters for Calculation of Cost of Investment Mechanisms

Parameter || Value || Calculation/Source

Wage of senior level staff per hour (min) || £47.20 || UK (2009) Annual Survey of Household Earnings. These wages are used to estimate the non-financial cost associated with informal and formal mentoring outlined below.

Wage of senior level staff per hour (max) || £74.59

Informal mentoring program || ||

Hours of mentoring per person per year || 24 || Assumption

Total financial cost (min) || €0 || No financial cost

Total financial cost (max) || €0 || No financial cost

Total nonfinancial cost (min) || £1,133 || Total nonfinancial cost (min) = hours of mentoring per person per year * wage of senior level staff per hour (min) = 24 * £47.20 = £1,333

Total non financial cost (max) || £1,790 || Total nonfinancial cost (min) = hours of mentoring per person per year * wage of senior level staff per hour (min) = 24 * £74.59 = £1,790

Formal mentoring program || ||

Registration fee || £500 || Assumption

Hours of mentoring per person per year || 30.4 || Average time outlined in various mentoring programs (http://www.peer.ca/mentorlinks.html ). Specifically: Commonwealth Institute Program, Peer Power, Global Executive Forum Group, Inner Circle International Peer Mentoring Group)

Total financial cost (min) || £500 || Only financial cost is the registration fee

Total financial cost (max) || £500 || Only financial cost is the registration fee

Total nonfinancial cost (min) || £1,453 || Total non-financial cost (min) = hours of mentoring per person per year * wage of senior level staff per hour (min) = 30.4 * £47.20 = £1,1453

Total non financial cost (max) || £2,268 || Total non-financial cost (max) = hours of mentoring per person per year * wage of senior level staff per hour (min) = 30.4 * £74.59= £2,268

Formal training programs || ||

Average cost of training program || £4,750 || Average cost of training programs specifically for senior level management (http://www.mce-ama.com/ ).

Average duration of training program (in hours) || 30.4 || Average duration of training programs specifically for senior level management (http://www.mce-ama.com/ ).

Total financial cost (min) || £4,750 || Only financial cost is the fee

Total financial cost (max) || £4,750 || Only financial cost is the fee

Total nonfinancial cost (min) || £1,435 || Total non-financial cost (min) = number of hours in formal mentoring * wage of senior level staff per hour (min) = 30.4 * £47.20 = £1,435

Total non financial cost (max) || £2,268 || Total non-financial cost (max) = number of hours in formal mentoring * wage of senior level staff per hour (min) = 30.4 * £74.59 = £2,268

Average total unit investment cost || ||

Average financial cost || £5,250 || Average financial cost = (Average financial cost of informal mentoring) + (average financial cost of formal mentoring) + (average financial cost of formal training) = £0 + £500 + £4750 = £5,250

Average non-financial cost || £5,164 || Average financial cost = (Average non- financial cost of informal mentoring) + (average non-financial cost of formal mentoring) + (average non-financial cost of formal training) = £1,461 + £1,851 + £1,851 = £5,164

Source: Matrix calculation

A 4.0 % discount rate is applied according to the Commission’s Impact Assessment Guidelines. The average number of years before turnover of directors is assumed to be 5 years.

It should be noted that the same method and formula is used to estimate the annual non-financial investment costs per Member State except that the average unit non-financial cost value (see last row in the table above) is used.

Overview of total investment costs per Member State

The table below provides an estimate of the total and national average investment cost of each policy option across EU-27. These estimates are based on data provided during the cases studies Matrix undertook. It is evident from the table below that the investment costs vary significantly by policy option. The variation in investment costs is mainly driven by the specific population to which each policy option applies. For example, Policy Option 2 is the least costly due to the fact it is non-binding. Therefore, only selected Member States adopt the policy option; and within Member States which adopt the policy option it is assumed only 50 per cent of listed companies adopt the regulation. In comparison, Policy Option 5 is the most expensive as it applies to both the executive and non-executive boards in all listed companies (SMEs excluded). Also, there is a difference between the costs until 2020 and the costs occurring on an annual basis as of 2020. The investment costs necessary to achieve the target until 2020 are higher than for the later period when the current level of gender balance only has to be maintained.

Table 10: Annual Investment Costs of Policy Options in Present Value Terms – Excluding SMEs (in € and €1’000, 2010 prices)

Total Investment cost || PO2 || PO3 || PO4 || PO5

Avg annual (2017-2020) || Avg annual (2021-2030) || Avg annual (2017-2020) || Avg  annual (2021-2030) || Avg annual (2017-2020) || Avg annual (2021-2030) || Avg annual (2017-2020) || Avg annual (2021-2030)

Avg per company (€) || € 1,125 || € 197 || € 3,327 || € 600 || € 3,673 || € 700 || € 5,311 || € 1,011

Average per Member State || € 168,800 || € 29,600 || € 757,000 || € 136,000 || € 836,200 || € 159,400 || € 1,2 mill. || € 230,200

Total EU || € 3,7 mill || € 651,800 || € 16,6 mill. || € 3 mill || € 18,3 mill. || € 3,5 mill. || € 26,5 mill. || € 5 mill

8.2.        Economic impact

8.2.1.     Calculating the impact on the Gender Pay Gap (GPG)

The policy options lead to an increase in female salaries at board and managerial level. The table below presents the effect of each policy option on average annual female salaries in listed companies by Member State in 2020.

Table 11: Average Impact of the Policy Options on Female Salaries in Listed Companies excluding SMEs – Euros

MS || Level || ||

Baseline (2020) || PO2 || PO3 || PO4 || PO5 ||

EU27 || Board || 73,648 || No estimates possible || 66,895 || 72,690 || 99,316 ||

|| Executive || 161,249 || || 162,984 || 166,870 || 199,471 ||

|| Non-Executive || 65,372 || || 61,279 || 62,508 || 69,319 ||

AT || Board || 95,093 || || 95,409 || 97,021 || 118,498 ||

|| Executive || 276,897 || || 282,886 || 284,873 || 310,938 ||

|| Non-Executive || 92,299 || || 94,295 || 94,958 || 103,646 ||

BE || Board || 85,506 || || 82,967 || 90,920 || 113,037 ||

|| Executive || 223,754 || || 224,790 || 229,251 || 242,554 ||

|| Non-Executive || 74,585 || || 74,930 || 76,417 || 80,851 ||

BG || Board || 27,820 || || 14,401 || 17,448 || 14,699 ||

|| Executive || 27,820 || || 27,820 || 28,630 || 27,889 ||

|| Non-Executive || 9,273 || || 9,273 || 9,543 || 9,296 ||

CY || Board || 83,260 || || 58,438 || 62,492 || 106,130 ||

|| Executive || 127,894 || || 164,932 || 168,382 || 206,924 ||

|| No- Executive || 42,631 || || 54,977 || 56,127 || 68,975 ||

CZ || Board || 33,174 || || 31,266 || 35,339 || 49,685 ||

|| Executive || 80,906 || || 81,384 || 83,808 || 93,268 ||

|| No- Executive || 26,969 || || 27,128 || 27,936 || 31,089 ||

DE || Board || 71,407 || || 66,950 || 74,713 || 113,585 ||

|| Executive || 177,286 || || 178,663 || 183,991 || 212,972 ||

|| Non-Executive || 59,095 || || 59,554 || 61,330 || 70,991 ||

DK || Board || 124,390 || || 119,628 || 134,305 || 136,344 ||

|| Executive || 305,340 || || 306,632 || 311,383 || 312,079 ||

|| Non-Executive || 101,780 || || 102,211 || 103,794 || 104,026 ||

EE || Board || 38,150 || || 32,353 || 34,034 || 37,217 ||

|| Executive || 84,739 || || 91,878 || 92,663 || 94,205 ||

|| Non-Executive || 28,246 || || 30,626 || 30,888 || 31,402 ||

EL || Board || 56,856 || || 41,703 || 45,770 || 101,424 ||

|| Executive || 106,872 || || 115,426 || 119,414 || 174,358 ||

|| Non-Executive || 35,624 || || 38,475 || 39,805 || 58,119 ||

ES || Board || 59,566 || || 59,040 || 63,558 || 83,636 ||

|| Executive || 164,148 || || 164,457 || 167,565 || 182,082 ||

|| Non-Executive || 54,716 || || 54,819 || 55,855 || 60,694 ||

FI || Board || 94,966 || || 94,966 || 106,612 || 106,507 ||

|| Executive || 243,081 || || 243,081 || 246,678 || 246,644 ||

|| Non-Executive || 81,027 || || 81,027 || 82,226 || 82,215 ||

FR || Board || 73,287 || || 73,287 || 80,109 || 110,390 ||

|| Executive || 200,481 || || 200,481 || 205,094 || 226,918 ||

|| Non-Executive || 66,827 || || 66,827 || 68,365 || 75,639 ||

HU || Board || 24,874 || || 23,518 || 24,917 || 41,047 ||

|| Executive || 65,915 || || 67,342 || 68,798 || 85,453 ||

|| Non-Executive || 21,972 || || 22,447 || 22,933 || 28,484 ||

IE || Board || 101,476 || || 84,745 || 96,440 || 123,034 ||

|| Executive || 212,013 || || 216,272 || 222,179 || 237,160 ||

|| Non-Executive || 70,671 || || 72,091 || 74,060 || 79,053 ||

IT || Board || 67,778 || || 67,277 || 69,856 || 108,132 ||

|| Executive || 195,178 || || 196,504 || 199,668 || 245,075 ||

|| Non-Executive || 65,059 || || 65,501 || 66,556 || 81,692 ||

LT || Board || 24,267 || || 20,871 || 24,692 || 28,023 ||

|| Executive || 47,830 || || 48,326 || 49,851 || 51,363 ||

|| Non-Executive || 15,943 || || 16,109 || 16,617 || 17,121 ||

LU || Board || 182,689 || || 191,324 || 191,324 || 266,263 ||

|| Executive || 548,068 || || 573,971 || 573,971 || 573,971 ||

|| Non-Executive || 182,689 || || 191,324 || 191,324 || 191,324 ||

LV || Board || 24,451 || || 24,262 || 27,037 || 25,235 ||

|| Executive || 62,453 || || 62,508 || 63,155 || 62,728 ||

|| Non-Executive || 20,818 || || 20,836 || 21,052 || 20,909 ||

MT || Board || 66,850 || || 45,158 || 48,775 || 62,984 ||

|| Executive || 99,154 || || 124,557 || 126,543 || 134,967 ||

|| Non-Executive || 33,051 || || 41,519 || 42,181 || 44,989 ||

NL || Board || 99,150 || || 97,439 || 107,448 || 115,249 ||

|| Executive || 258,187 || || 258,793 || 262,677 || 265,883 ||

|| No- Executive || 86,062 || || 86,264 || 87,559 || 88,628 ||

PL || Board || 27,549 || || 26,029 || 27,389 || 30,455 ||

|| Executive || 72,388 || || 74,005 || 74,717 || 76,378 ||

|| Non-Executive || 24,129 || || 24,668 || 24,906 || 25,459 ||

PT || Board || 54,530 || || 38,057 || 42,139 || 64,287 ||

|| Executive || 93,979 || || 102,490 || 105,251 || 121,554 ||

|| Non-Executive || 31,326 || || 34,163 || 35,084 || 40,518 ||

RO || Board || 23,441 || || 16,280 || 19,534 || 18,882 ||

|| Executive || 33,464 || || 34,793 || 35,786 || 35,569 ||

|| Non-Executive || 11,155 || || 11,598 || 11,929 || 11,856 ||

SE || Board || 98,578 || || 98,349 || 101,853 || 125,103 ||

|| Executive || 285,670 || || 286,205 || 289,239 || 309,631 ||

|| Non-Executive || 95,223 || || 95,402 || 96,413 || 103,210 ||

SI || Board || 57,552 || || 44,384 || 50,579 || 60,050 ||

|| Executive || 108,555 || || 112,207 || 114,958 || 119,621 ||

|| Non-Executive || 36,185 || || 37,402 || 38,319 || 39,874 ||

SK || Board || 38,726 || || 37,633 || 42,318 || 38,960 ||

|| Executive || 94,905 || || 95,190 || 96,255 || 95,479 ||

|| Non-Executive || 31,635 || || 31,730 || 32,085 || 31,826 ||

UK || Board || 65,989 || || 60,412 || 68,981 || 98,729 ||

|| Executive || 153,488 || || 154,713 || 159,727 || 179,263 ||

|| Non-Executive || 51,163 || || 51,571 || 53,242 || 59,754 ||

Source: Matrix calculation

The figures are presented separately for: executive board members, non-executive board members and managers. For example, in Austria the average salary of a female board member in listed companies (without SMEs) at baseline (2020) is on average €95,093 per annum. If PO2 is implemented, a female board member would be expected to earn on average €109,055 per annum.

Average salaries in the baseline (2020) were estimated based on salary data for male and female directors and chief executives of major organisations available for the UK (Annual Survey of Hours and Earnings 2010, Office for National Statistics) and adjusted for each Member State based on the GDP ratio between the UK and the Member State (IMF).

The average salaries as a result of each policy option capture the one-off effect of the policy option in the year of implementation (2020) on the number of female employees and on their average salaries based on evidence drawn from Matsa and Miller (2011). The impact of the policy options on the GPG – i.e. the resulting change on the difference between male and female salaries – was estimated using the following assumptions:

Matsa and Miller (2011) estimated that:

· a 10% increase in female non-executive board members increases female top management compensation share by 6%;

· a 10% increase in female board members, both executive and non-executive, increases female top management compensation share by 14%.

The figures above were used to estimate the impact that the policy options would have on female salaries via the effect on the percentage of women in company boards. Thus, for instance, for every 10% increase in the percentage of non-executive female board members generated by the policy options, female salaries at board and manager level were increased by 6%. The estimates relate to ‘top management’. It was thus considered appropriate to extrapolate this effect to a proportion of employees – namely, 25%. Hence, any increase of female participation in board would impact on 25% of employees at managerial level.

The resulting female salaries were then compared against male salaries to estimate the impact on the GPG at board and manager level. Female salaries at junior level were assumed to remain constant at 2020 baseline levels given that an extensive search of the literature did not provide evidence on the potential impact of female board members other than on top level female managers.

In policy options where the number of female non-executive board members increases whilst the number of female executive board members remains constant, the weighted average female salary at board level decreases. At managerial level, however, the impact of the policy options is always favourable, with no change at junior level.

The reason for this reduction is that female salaries at board level are calculated as the weighted average of the salaries for executive and non-executive female board members. The average salary for non-executive female members is consistently lower than the average salary for executive female members. This means that changes in the relative weights may lead to increases or decreases of the weighted average at board level. Therefore although for all policy options (except policy option 1) the average salary for executive and non-executive increases, the average at board level may decrease.

The policy options may lead to a reduction in the gender pay gap (GPG). The calculation of the baseline GPG involved two main steps:

Calculation of the GPG at each level: This was calculated as the difference between male and female annual salaries, divided by male salaries. Thus, for example, a GPG of 31% at board level indicates that the difference between male and female salaries at board level is equivalent to 31% of the male salaries at the same level.

Calculation of the GPG across all levels: This was calculated as the weighted average of the GPG at board, manager and junior level where the weights are given by the proportion of employees at each level relative to the total number of employees.

The calculation of the effect of the policy options was done by estimating the average salaries following implementation of the policy options and the GPG post policy following the same steps described above. The table below presents the effect in % of the policy options on the GPG in listed companies (without SMEs) by Member States in 2020. The figures represent the average change across all levels: board, manager and junior level.

Table 12: Impact of policy options on the gender pay gap (percentage point change compared to baseline)

MS || Baseline Percentage of Women on Board by 2020 Baseline || ||

PO1 || PO2 || PO3 || PO4 || PO5 ||

EU27 || 23.72% || 0.00% || -0.09 (further estimates not possible) || -0.10% || -0.79% || -4.50% ||

AT || 24.34% || 0.00% || || -0.54% || -0.72% || -3.15% ||

BE || 23.02% || 0.00% || || -0.14% || -0.87% || -3.06% ||

BG || 24.34% || 0.00% || || 0.48% || -0.76% || 0.38% ||

CY || 24.86% || 0.00% || || -5.27% || -5.84% || -12.31% ||

CZ || 24.28% || 0.00% || || -0.13% || -1.11% || -4.93% ||

DE || 24.42% || 0.00% || || -0.16% || -0.92% || -5.10% ||

DK || 24.03% || 0.00% || || -0.06% || -0.54% || -0.62% ||

EE || 24.42% || 0.00% || || -4.05% || -4.54% || -5.51% ||

EL || 25.32% || 0.00% || || -2.69% || -4.03% || -22.59% ||

ES || 22.48% || 0.00% || || -0.07% || -0.77% || -4.06% ||

FI || 23.86% || 0.00% || || 0.00% || -0.77% || -0.76% ||

FR || 23.54% || 0.00% || || 0.00% || -0.78% || -4.47% ||

HU || 23.12% || 0.00% || || -0.69% || -1.46% || -10.29% ||

IE || 23.72% || 0.00% || || -0.65% || -1.87% || -4.99% ||

IT || 22.16% || 0.00% || || -0.19% || -0.69% || -7.89% ||

LT || 23.67% || 0.00% || || -0.45% || -2.21% || -3.96% ||

LU || 24.59% || 0.00% || || -0.99% || -0.99% || -1.13% ||

LV || 24.01% || 0.00% || || -0.03% || -0.72% || -0.26% ||

MT || 23.70% || 0.00% || || -7.07% || -7.80% || -10.91% ||

NL || 23.62% || 0.00% || || -0.08% || -0.66% || -1.13% ||

PL || 24.23% || 0.00% || || -0.79% || -1.15% || -1.99% ||

PT || 24.72% || 0.00% || || -2.44% || -3.30% || -8.40% ||

RO || 24.17% || 0.00% || || -0.70% || -1.40% || -1.24% ||

SE || 24.32% || 0.00% || || -0.05% || -0.39% || -2.70% ||

SI || 24.67% || 0.00% || || -1.56% || -1.86% || -2.38% ||

SK || 22.54% || 0.00% || || -0.04% || -1.30% || -0.38% ||

UK || 24.92% || 0.00% || || -0.11% || -1.76% || -8.23% ||

Source: Matrix calculation

The model provides quantitative estimates of the impact of the policy options on the following ways in which women can participate in the labour force:

– Women who would have been inactive now deciding to participate in the labour force.

– Part-time female employees being incentivised to work for longer hours.

– Women reducing the amount of time they take out of employment to have children.

– The impact of the above dynamics on the probability that women claim low income benefits.

– Women being motivated to stay longer in education, thus increasing their chance of employment.

The timing of these impacts stretches from short-term to long-term. All impacts occurring in the future have been discounted using a 4% annual rate.

The impact of the options on the gender pay gap at EU level is presented in the table below.

Table13: Impact f policy options on gender pay gap at EU level

Policy options || Impact on gender pay gap in p.p. compared to baseline in listed companies (without SMEs)

Policy option 1 (baseline) || (23.72%)

Policy Option 2 || - 0.09

Policy Option 3 || - 0.10

Policy Option 4 || -0.79

Policy Option 5 || - 4.50

Source: Matrix calculation

8.2.2.     Calculating the impact on the Gender Employment Gap (GEG)

In estimating the overall impact of the policy option on the GEG, a distinction was made between the following two effects:

· an effect of the policy options on board composition; and

· a ‘governance effect’ of the change in board composition on employment of females elsewhere in the organisation.

An extensive review of the literature on female participation on company boards was used to identify the best quality evidence on the ‘governance effect’. Matsa and Miller’s (2011) estimates were used in the analysis, as the method they employed was considered better than that available in other studies.[87] Based on data on US companies’ from 1997 to 2009 Matsa and Miller (2011) estimated that:

· a 10% increase in female non-executive board members increases the average female top manager share by 4%;

· a 10% increase in female board members (both executive and non-executive) increases the average female top manager share by 7%.

Based on this model, the impact of the different policy options on the gender employment gap at EU level is presented in the table below.

Table 14: Impact of options on gender employment gap at EU level

Policy options || Impact on gender employment gap: % change of females at board and managerial level

Policy Option 1 (Baseline) || (343%/118%)

Policy Option 2 || -18.74%/-0.23%

Policy Option 3 || -58.36%/-0.96%

Policy Option 4 || -62.74%/-2.26%

Policy Option 5 || -76.32%/-8.48%

Source: Matrix calculation

8.2.3.     Calculating the return on education

Based on the average increase in female salaries across levels, the impact on return to education was estimated. In the context of this impact assessment, the impact on return on education is interpreted as the contribution of the policy options to increasing the individual and public sector benefits of education. The analysis is thus based on the fact that increasing participation of women at board level represents an opportunity for increasing the benefits from education these women already invested in.[88] In this context it is reasonable to assume that women who will be brought to board level have already invested in formal education and that they have achieved tertiary education. The analysis then accounts for the costs and benefits of tertiary education (compared to secondary education).

The approach and data to estimate the impact of the policy options on return to education were obtained from the OECD Education at a Glance 2011 report. A summary of the approach and methodology applied in such report is provided in the Box below. Following OECD (2011), return to education was defined as the internal rate of return which is given by the rate that makes the financial benefits equal the costs.

Box 1: OECD Education at a Glance 2011: Incentives to Invest in Education

The analysis on incentives in education brings together available information on education investments and the benefits that education brings in terms of employment and earnings. Using information on taxes and benefits makes it possible to calculate the net benefits for individuals and for the public sector. The approach is that of an investment analysis from the financial literature. The calculations are made by comparing the specific costs associated with achieving a certain educational level and the benefits that flow from this level over the working life. These cash-flows are then discounted back in time to the start of the investment decision. The basis for an investment approach is the discount rate (the time-value of money), which makes it possible to compare costs or payments (cash flows) over time. The discount rate can be estimated by raising it to the level at which financial benefits equal costs, which is then the internal rate of return. The financial benefits and costs considered are: Direct cost of education. Forgone earnings while in education. Gross earnings benefits given by the difference in earnings between varying educational groups over their lifetimes. Income tax effects applied on earnings. Social contribution effect capturing contributions paid by individuals. Social transfer effect capturing social welfare benefits. Grant effect capturing student loans and grants received by students, often charged at an interest rate. Unemployment effect capturing the effect of how different unemployment rates impact differently on individuals depending on their educational level. Whether the above components constitute a cost or a benefit depends on the perspective of the analysis. For example, whilst the income tax applied on earnings represents a cost to individuals, it is considered a benefit for the public sector. Based on these data, OECD estimated a private internal rate of return for a women obtaining tertiary education across OECD countries of 11.5% and a public internal rate of return of 9.2%.

The effect of the policy options on return to education was estimated through the following process:

First, the components of the financial net benefits and costs of investment in education described in the Box above were used to replicate the calculation of the internal rate of return.[89] This required making an assumption on the number of years over which those benefits span (as the information was not available through OECD report, a period of 40 years was assumed). Following this process it was estimated that the internal rate of return to tertiary education across the EU member states included in the OECD for which data was available is 18.20% for private individuals and 22.11% for the public sector.[90]

Second, as the policy options would lead to the promotion of women at managerial level to board level, we applied the average difference in female salaries between board and managerial level to the gross earnings component of the internal rate of return calculation. A proportional change was applied to income tax payments and social contribution payments. These changes were then feed into the calculation of the net present value and the internal rate of return to education following implementation of the policy options. The difference in salaries was applied to the last 20 years, thus assuming that female would be at the mid-point of their professional career (spanning over 40 years).The impact of the different policy options on the return on education rate at EU level is presented in the following table.

Table 15: return on education for individuals and for the public sector (EU level)

Policy Options || Return on education in % for individuals/ for the public sector

Policy Option 1 (Baseline) || 18.20% / 22.11% (baseline)

Policy Option 2 || 18.95%/22.87%

Policy Option 3 || 18.91%/22.83%

Policy Option 4 || 19.01%/22.93%

Policy Option 5 || 19.36%/23.28%

Source: Matrix calculation

8.3.        Calculating the administrative burden

Two types of administrative costs are included in this analysis:

– the cost of complying from the perspective of the companies (costs of compliance, costs or reporting) and

– the cost of monitoring compliance from the perspective of Member States (costs of monitoring).

These costs will be incurred on an annual basis from year 2020. In addition, both of these costs will be incurred independently of the policy option chosen. For example changing the quota percentage or changing the board type to which it applies to (executive or non-executive board) does not change the need of companies to provide information on compliance and of Member States to monitor compliance. In this annex it will first have to be defined, in which Member States administrative burden will be incurred for companies and for public authorities. Then the calculation for companies' compliance costs will be presented in detail.

In countries where there is already a binding quota in place, it is unlikely that companies will have to face additional investments and costs in terms of mechanisms to increase women in boards and report about women on boards. The costs of complying are likely to be incurred regardless and therefore are not costs to be related to the policy option.[91] In comparison, it is likely that countries with no binding quotas in place will face costs or reporting.

An overview of Member States in which companies would incur administrative burdens linked to the policy options is outlined in the table below. The assumptions regarding the Member States for each policy option is based on determining which Member States would require changes in their current provision in order to adopt the policy options. For example, Member States which already have binding quotas in place are not included in the costing analysis as these costs are likely to be incurred regardless of the policy options. Therefore, BE, ES, FR, IT and NL are excluded from the analysis as they already have binding quotas in place.  In addition, for PO2 the Member States included are based on the assumed compliance with the recommendation.

Table 16: Administrative burdens linked to the policy options per Member State

Policy option || Description || Member States

PO1 || Status Quo – Baseline Scenario || No MS has to take specific action

PO2 || Recommendation to Member states to introduce binding (or non-binding) measures with a target of at least 40% of board members of each gender by 2020 for non-executive boards/and executive board members of listed companies || 5 Member States move from no action to non-binding, 2 Member States take binding action

PO3 || Binding target of at least 40% of each gender by 2020 for non-executive boards/board members of listed companies || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

PO4 || Binding target of at least 40 % of board members of each gender by 2020 for non-executive boards/board members of listed companies and flexi –target for executive directors || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

PO5 || Binding target of at least 40% of each gender by 2020 for executive and non-executive boards/board members of listed companies || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

(a) Methodology for assessing the cost of compliance for companies

Case studies were utilised to identify the cost of compliance from the perspective of companies. Specifically, the cost of compliance was identified as the cost of reporting on a company level the percentage of women on boards to a public authority. Data from case studies indicated that the cost of reporting would be minimal as several existing company reports could be utilised to report/estimate the percentage of women on boards.

In order to measure the compliance costs for companies, the time necessary for an employee to establish a compliance report had to be assessed

Table 17: Parameters for Calculation of Administrative Burden for compliance costs

Parameter || Value || Calculation/Source

Cost of complying || ||

Time required to compile report on percentage of women in boards by staff type (in hours): || ||

HR Manager || 1.9 || DG MARKT (2007): Study on administrative costs of the EU Company Law Acquis; Matrix Insight (2011) Study to Support an Impact Assessment on further Action at European Level regarding the Pay Gap between Men and Women

HR Personnel || 0.2

Employee representative || 0.9

Wage of HR Manager per hour (min) || £18.6 || UK (2009) Annual Survey of Household Earnings

Wage of HR Manager per hour (max) || £25.3

Wage of HR Personnel per hour (min) || £9.8

Wage of HR Personnel per hour (max) || £11.8

Wage of employee representatives (min) || £9.5

Wage of employee representatives (max) || £10.5

Total financial cost (min) || € 0 || No financial cost

Total financial cost (max) || € 0 || No financial cost

Total nonfinancial cost (min) || £46.3 || Total non-financial cost (min) = ∑(hours per staff type * wage of staff (min) = (1.9*£18.6)+(0.2*£25.3)+(0.9*£9.5) = £46.3

Total nonfinancial cost (max) || £59.6 || Total non-financial cost (min) = ∑(hours per staff type * wage of staff (max) = (1.9*£25.3)+(0.2*£11.8)+(0.9*£9.5) = £59.6

Average total unit cost || ||

Average unit non-financial cost of complying || £52.9 || Average unit non-financial cost of complying = (non-financial cost min + non financial cost max)/2 = (£46.3+£59.6)/2=£52.9

The parameters above (the average unit of non-financial cost of £52.9) were transformed into costs per Member States via a conversion table (see table above). The conversion factor is used to translate the UK unit investment costs to Member State specific costs.

Furthermore, the calculation was based on the numbers of listed companies per Member State, thereby exempting SMEs (see table above).

Cost of Monitoring Compliance for Member States

It can be assumed that the cost of monitoring compliance would be minimal, as reviewing a report on the percentage of women in boards would not be time consuming. However, it is not possible to provide an exact estimate of the time required to review each company report.

The values used to calculate the monitoring costs are based on the parameters in the table below.

Table 18: Parameters for calculation of Administrative Burden Member States' monitoring

Parameter || Value || Calculation/Source

Cost of monitoring compliance || ||                       

Time required of government officials to review report submission (in hours) || 1.75 || DG MARKT (2007): Study on administrative costs of the EU Company Law Acquis

Wage of government official (min) || £10.7 || UK (2009) Annual Survey of Household Earnings

Wage of government official (max) || £31.6

Total financial cost (min) || £0 || No financial cost

Total financial cost (max) || £0 || No financial cost

Total nonfinancial cost (min) || £19.2 || Total non-financial cost (min) = hours of government officials time required to review report * wage of government official (min)= (1.75*£11)= £19.2

Total nonfinancial cost (max) || £55.3 || Total non-financial cost (min) = hours of government officials time required to review report * wage of government official (min)= (1.75*£32)= £55.3

Average unit non-financial cost of monitoring || £37.2 || Average unit non-financial cost of monitoring= (non-financial cost min + non financial cost max)/2 = (£19.2+£55.2)/2=£37.2

The above parameters for companies’ compliance were transformed into costs per Member States via a conversion table (see values in the conversion table above under the methodology for company compliance costs).

It was assumed that time required to review a report submitted by companies was constant across Member States. However, the cost of the time varied by Member State based on variation in wages.[92]

It is evident that the cost of complying and monitoring compliance varies by policy option. Policy Option 2 has the lowest average administrative costs as it is only adopted by certain Member States, and within each Member State is only adopted by 50 per cent of listed companies. In comparison, binding measures in Policy Option 4, 5 and 6 apply to all Member States and all listed companies within Member States.

Administrative costs per Member State

Company level costs refer to costs incurred by listed companies. In comparison, monitoring costs are costs associated with public authorities. The EU-27 averages refer to the average Member State cost for each policy option and cost type.

It is evident that the cost of each policy option varies significantly. As stated before, the main cause of variation in costs across policy options is due to the population in which the policy option applies to. For example, Policy Option 2 is the least costly as it is a non-binding recommendation which will only have effect in certain Member States and a percentage of listed companies within each Member State. In comparison, Policy Option 6 is the most expensive as it is a binding instrument which applies to both executive and non-executive boards in all listed companies.

Table 19: Average Annual Administrative Burden in Present Value Terms by Member State – excluding SMEs (€, 2010 prices)

MS || PO2 || PO3 || PO4 || PO5

|| Report || Monitor || R || M || R || M || R || M

AT || N/A || N/A || € 3,409 || € 2,743 || € 3,409 || € 2,743 || € 3,409 || € 2,743

BE || || || € 0 || € 0 || € 0 || € 0 || € 0 || € 0

BG || || || € 180 || € 145 || € 180 || € 145 || € 180 || € 145

CY || || || € 2,842 || € 2,287 || € 2,842 || € 2,287 || € 2,842 || € 2,287

CZ || || || € 269 || € 217 || € 269 || € 217 || € 269 || € 217

DE || || || € 38,279 || € 30,807 || € 38,279 || € 30,807 || € 38,279 || € 30,807

DK || || || € 1,853 || € 1,491 || € 1,853 || € 1,491 || € 1,853 || € 1,491

EE || || || € 507 || € 408 || € 507 || € 408 || € 507 || € 408

EL || || || € 8,459 || € 6,808 || € 8,459 || € 6,808 || € 8,459 || € 6,808

ES || || || € 0 || € 0 || € 0 || € 0 || € 0 || € 0

FI || || || € 2,844 || € 2,289 || € 2,844 || € 2,289 || € 2,844 || € 2,289

FR || || || € 0 || € 0 || € 0 || € 0 || € 0 || € 0

HU || || || € 885 || € 712 || € 885 || € 712 || € 885 || € 712

IE || || || € 2,680 || € 2,157 || € 2,680 || € 2,157 || € 2,680 || € 2,157

IT || || || € 0 || € 0 || € 0 || € 0 || € 0 || € 0

LT || || || € 353 || € 284 || € 353 || € 284 || € 353 || € 284

LU || || || € 5,005 || € 4,028 || € 5,005 || € 4,028 || € 5,005 || € 4,028

LV || || || € 298 || € 240 || € 298 || € 240 || € 298 || € 240

MT || || || € 496 || € 400 || € 496 || € 400 || € 496 || € 400

NL || || || € 0 || € 0 || € 0 || € 0 || € 0 || € 0

PL || || || € 11,137 || € 8,963 || € 11,137 || € 8,963 || € 11,137 || € 8,963

PT || || || € 407 || € 328 || € 407 || € 328 || € 407 || € 328

RO || || || € 2,659 || € 2,140 || € 2,659 || € 2,140 || € 2,659 || € 2,140

SE || || || € 8,050 || € 6,478 || € 8,050 || € 6,478 || € 8,050 || € 6,478

SI || || || € 616 || € 496 || € 616 || € 496 || € 616 || € 496

SK || || || € 424 || € 341 || € 424 || € 341 || € 424 || € 341

UK || || || € 32,765 || € 26,369 || € 32,765 || € 26,369 || € 32,765 || € 26,369

9.           ANNEX 9: Background on the Norwegian case

While several EU Member States and EEA countries have introduced legislation on targets for achieving gender balance on company boards, Norway is the only one where the deadline for implementing gender quotas has already expired and where information and data on the implementation process and its impact are available. Although each country's policies have to be considered in their particular context, Norway's experience can be a useful source of information relevant for the decision on and the design of any EU-level measures in this context. The relevant law was adopted in December 2003 and set out the target of 40 % representation of both genders among the (supervisory) board members.[93] Initially the companies were given a chance to meet that target on a voluntary basis, but since the voluntary measures did not result in much progress, the requirements were made obligatory as of 1 January 2006.[94] The rules now apply to boards of all publicly limited companies, as well as a range of other companies, including state and municipality owned companies, and cooperative companies. Roughly 350-450 companies were concerned by the law with roughly 2400 seats in the boards. In publicly limited companies (mostly big companies) none of the members are personally liable for the companies' debts. There are also stricter rules applying to capital stock and board composition.

The rules regarding the composition of the board are enforced according to general enforcement rules of company legislation, on equal footing with other requirements such as those for bookkeeping or accounting and through the normal control procedures of the Register of Business Enterprises. A company that does not have a board that fulfils the statutory requirements may be dissolved by a court order.

In December 2003 the Norwegian Parliament passed an amendment to the Public Limited Liability Companies Act, requiring public limited companies (PLC – Allmennaksjeselskap / ASA) to achieve gender balance on their boards, i.e. that at least 40% of each sex should be represented. The legislation was voted by a large majority of the Parliament, including both the conservative-centre government coalition and centre-left and socialist opposition parties[95].

The following rules for the gender composition of boards were laid down[96]:

– In boards with two or three members, both genders must be represented.

– In boards with four or five members, both genders should be represented with at least two members each.

– In boards with six to eight members, both genders should be represented with at least three members each.

– In boards with nine or more members, each gender should be represented with at least 40 per cent each[97].

Moreover, there are special requirements for employee representatives: Where two or more board members are elected from among the employees, both sexes must be represented. However, this rule does not apply in companies where one of the sexes represents less than 20% of the total number of employees on the date of election.

Pursuant to an agreement of the government with the private business sector, the rules applying to private companies should not come into effect if the desired gender representation was achieved voluntarily by 1 July 2005. However, on that date only 13% of PLCs fulfilled the required targets and only 16% of their board members were women[98].

The rules for privately owned PLCs entered into force on 1 January 2006, giving already established companies two years to comply with the rules (i.e. by 1 January 2008), while PLCs registering as from 2006 had to appoint gender-balanced boards immediately.

The rules applying to state-owned companies had already entered into force on 1 January 2004. These have later been extended to include the boards of all municipal and also cooperative companies. Today all forms of publicly owned enterprises, independently of their legal form, are covered by similar rules under quota legislation – including limited liability companies, in which municipalities own two-thirds or more of the shares.

In the private sector, legislation only concerns public limited (liability) companies, which usually have many shareholders and which are governed by strict rules with regard to board composition and share capital. There are approximately 400 to 450 PLCs today in Norway (depending on the sources). Not all of them are listed on the Oslo stock exchange (about 260), but a company applying for listing has to adopt this legal form.

The other possible legal form for privately owned companies is the private limited (liability) company. About 215,000 such companies, most of them SMEs, exist in Norway. They are currently not covered by quota legislation, but the government is considering plans to cover the largest of them.

Sanctions

No new sanction procedures were introduced in Norway to enforce the provisions on quotas. These rules were simply inserted in the company law which contains other requirements regarding board members and specifies rules on monitoring and sanctions. The monitoring and enforcement occurs through routine controls. Norway has a central company registry (Brønnøysund Register Centre), where companies and their boards are registered.

When a company wants to register board members, the registry automatically identifies the board members by their national social security number (which also indicates their sex) and thereby checks if the board composition fulfils the statutory requirements. If that is not the case, the registry will refuse to register the board and send a warning to the company, inviting it to comply with the requirements within a deadline of four weeks.

After a second notice of four weeks is given, the case will be submitted to the court which may order to dissolve the company. However, there is a safety clause applicable to all company law requirements. If 'substantial public interests' are at stake, the Ministry of Trade and Industry may decide that a forced dissolution shall not be executed and impose a fine instead.

Board system

It is important to note that Norwegian PLCs have a single board. However, contrary to the unitary board system in many other countries, this board is not a management board with both executive and non-executive directors, but it has mainly supervisory functions. As of 2010, the CEO as the main executive director may no longer be a member of the board. The members of the board are not involved in the daily management of the company.

According to the Public Limited Liability Companies Act, the board shall govern and supervise the company, whereas the general manager (CEO) is responsible for the management on a daily basis. The board shall set out plans and budgets for the commercial activities, and may also decide on rules and regulations for the company’s activities. The board may also take some management decisions or instruct the general manager. This will vary from company to company. In some companies the board or its chairman are very active, whereas in others, the board mainly supervises the management without intervening in the daily activities.

The deadline for (privately owned) PLCs expired in January 2008. By that date 77 out of the roughly 450 companies concerned had failed to comply with the legislation on gender representation. These companies received a letter from the central company registry, giving them four weeks notice to comply with the rules. In February 2008, 12 PLCs received a second notice of four weeks with public announcement. In April 2008 it was clear that none of the PLCs would be dissolved.[99]

Figures on gender balance on company boards

As expected, the quota legislation led to major changes in the gender composition of company boards in Norway. According to figures by the Institute of Social Research in Oslo (ISF), the proportion of women on boards of PLCs gradually increased from 6% in 2002 to 18% in 2006, and finally reached 40% as from 2009[100] (see graph 1). According to the Commission database on women and men in decision-making[101], 42% of board members of the 19 largest Norwegian companies (constituents of the main blue-chip index of the Oslo stock exchange - OBX) were women in January 2012.

Graph 1: Proportion of women on boards of Norwegian PLCs between 2002 and 2011

Source: Institutt for samfunnsforskning (ISF)

By contrast, the number of women on boards of private limited companies – not covered by the quota legislation – has largely remained stable, rising only from 15% in 2004 to 17% in 2009 (ISF figures).

However, the quota legislation has not yet led to major changes regarding the hierarchy within the boards. The proportion of women chairing boards of PLCs has only slightly risen from 3% in 2002-2007 to 5% in 2009 (ISF figures). Within the 19 largest Norwegian companies, women represented 2 out of 19 chairpersons in January 2012 – i.e. 10.5% against an EU average of 3.2% (Commission database).

Moreover, the gender quotas for the (non-executive) boards have not had an immediate influence on reducing the male dominance of the executive management of companies. According to a survey at the end of 2008, in the more than 200 companies listed on the Oslo stock exchange, less than 2% of the CEOs and about 13.5% of the top management were women[102]. No more recent figures seem to be available, so that it is not possible to observe whether a trickle-down effect on the gender composition of the executive management has occurred since.

Characteristics of male and female board members

In autumn 2009, ISF conducted a representative survey of 900 board members of Norwegian PLCs, to enquire about the characteristics of male and female board members[103]. It found that female board members were on average younger than their male colleagues (72% of women under 51 years, compared with only 35% of men) and had a slightly better educational attainment (77% of women had at least 4 years of university or college education, compared with 69% of men). The type of education was quite similar, as about 50% of members of both genders had studied business management, 30% of men and 24% of women had studied scientific and technological subjects and 8% of men as well as 12% of women were law graduates.

When asked about their main occupation, 55% of women replied that they were also managers (compared to 43% of men), only 21% said they were owners (compared to 39% of men) and only 11% of women (15% of men) stated 'board member' as their main occupation. This is confirmed by the fact that more women (77%) than men (45%) report not having major ownership interests in the company.

Interestingly, companies did not seem to need external help to recruit women to board positions. There were no indications that head hunters or data bases were more commonly used than before the introduction of the quota legislation. The election committees obviously managed to recruit the necessary number of female board members by their own effort.

Similarly there are no indications that companies complied with the quota rule by recruiting family and friends as women board members. Only few women reported having family affiliation to major shareholders or being recruited through a social network of friends or family.

Multiple board memberships

The ISF survey also refuted predictions that the quota legislation would create a phenomenon of 'golden skirts', i.e. a few women holding a large number of seats in Norwegian company boards. In fact, according to the survey, 79% of female board members only hold one board position in public limited and private limited companies in Norway, compared to 62% of male board members, while 38% of men and only 21 of women sit on two boards or more. 2% of men are members of at least 10 boards, while none of the women responding are. Thus multiple board membership is still much more common among men than among women in Norway.

Consequences on companies

The ISF survey of Norwegian board members also examined whether the increased presence of women directors had led to changes in the functioning of the boards. While a majority of board members believed that nothing had changed (60% of men, 33% of women), a smaller share of board members (12% of men, 20% of women) had noticed improvements. When asked about the improvements, those board members noted new perspectives being brought to their work (57% of men, 66% of women), more discussions during meetings (33% of men, 59% of women) and the addition of new competences to the board that were lacking before (39% of men, 30% of women).

A recent survey of 201 Norwegian firms[104] confirmed these findings. It found the increased ratio of women directors was positively associated with the board's strategic control. The positive effects of women directors on board effectiveness could be explained through increased board development activities and through decreased levels of conflict.

Decrease in the number of public limited companies

When the quota legislation came into force, it was widely reported that many companies registered under a different legal form (notably as a private limited company) to escape the quota rules. Indeed the number of public limited companies (PLC) dropped from around 600 in 2002 to 505 in 2006 and to 414 in 2008 (ISF figures). However, this strong decrease was only partly due to the quota law, but also due to other legal changes, notably as regards legislation covering trade in securities in 2007.

ISF conducted a survey of CEOs and board leaders of 108 of the 126 companies which had changed their registration during 2007 and the first six months of 2008[105]. When asked about the reasons for re-registering, companies replied the following: it is more convenient / practical to be a private limited company (60%); change in laws on financial companies and requirements to their formal status (36%); restructuring (mergers, acquisitions) (36%); quota legislation (33%); company was taken off the stock exchange or not listed anyway due to a change of plans (32%). Only 7% of the companies reported the quota legislation as being the only reason for the change of legal form.

[1]               http://ec.europa.eu/justice/newsroom/gender-equality/opinion/120528_en.htm.

[2]               IP/12/213.

[3]               Due to limited space, not all individual opinions can be reflected here. This summary necessarily focuses on the views that could be found in a certain number of replies and tries to portrait general trends and interesting convergences in views among stakeholders.

[4]               Weil, Gotshal and Manges, 2002

[5]               Conchon, 2011

[6]               RiskMetrics Group et al., 2009

[7]               Higgs, 2003

[8]               RiskMetrics Group et al., 2009

[9]               Heidrick and Struggles, 2011

[10]             Heidrick and Struggles, 2011

[11]             Tse, 2009.

[12]             Jungmann, 2008.

[13]             Banginsky & Cohen, 2011.

[14]             Freshfields Bruckhaus Deringer, 2011.

[15]             Jungmann, 2008.

[16]             Governance Commission on the German Corporate Governance Code, 2010.

[17]             Heidrick and Struggles, 2011.

[18]             Since 2009, the Belgian corporate governance code advices a clear separation of the role of the chairman of the board of directors and the CEO.

[19]             Statutory provisions only allow for a unitary system but in practice the board usually appoints a management committee that effectively creates a two-tier system.

[20]             Joint stock companies are obliged to have a two-tier system but limited liability companies can use a one-tier system.

[21]             General shareholder meeting.

[22]             RiskMetrics Group et al., 2009.

[23]             Percentages based on a sample of 216 European companies. .

[24]             RiskMetrics Group et al., 2009.

[25]             Company Law Club, 2011?

[26]             Macarie and Moldovan (2012: 7) have suggested that women are excluded from formal and informal networks which could provide the necessary social capital for advancement into senior management position. This would suggest that selection procedures carried out exclusively by nomination committee, with no support from external head-hunters, could be particularly detrimental for women.

[27]             Businesslink, 2012.

[28]             Smith et al. (2006).

[29]             It is difficult to see what such implications should be since the target as such leaves it entirely to MS and companies what specific measures are to be undertaken to reach that target at company level.

[30]             In many countries legislative quotas have been introduced in 2011 and the deadline for compliance has not passed yet. Thus, at the time of conducting this impact assessment, there is no information available yet on the compliance rate of companies with the regulation.

[31]             All the averages in the table are weighted, i.e. they depend on the number of executive and non-executive directors in the company. As in general there are more non-executive directors in a company, the average-figure is more influenced by the figures for non-executive directors. Figures were estimated by Matrix based on data from EC Database for Women and Men in Decision-Making and Standard & Poor’s. Differences with other figures presented in the report are due to recalculation of raw data in order to provide sufficient breakdown of the figures for the purpose of the analysis.

[32]             For the purpose of this table State-owned Companies are companies where the state owns a controlling interest (>50%); Public Limited Companies are companies listed on the stock exchange; Private Limited Companies are companies not listed on the stock exchange and not owned by the state.

[33]             In DK, since 2012 there are is a law underway which will set targets for 1100 biggest firms. See further details below in the part on Denmark

[34]             Since March 2012, a ministerial decision recommended to have more women on boards.

[35]             Law modifying the law of 21 March 1991 on the reform of certain public economic enterprises, the Company Code and the law of 19 April 2002 concerning the rationalisation of functioning and management of the National Lottery aiming to guarantee the presence of women in the boards of autonomous public enterprises, listed companies and National Lottery, published in Moniteur Belge/Belgisch Staatsblad of 14 September 2011, p. 59600, original texts: Loi modifiant la loi du 21 mars 1991 portant réforme de certaines enterprises publiques économiques, le Code des sociétés et la loi du 19 avril 2002 relative à la rationalisation du fonctionnement et la gestion de la Loterie Nationale afin de garantir la présence des femmes dans le conseil d'administration des entreprises publiques autonomes, des sociétés cotées et la Loterie Nationale/ Wet tot wijziging van de wet van 21 maart 1991 betreffendede hervorming van sommige economische overheidsbedriven, het Wetboek van vennootschappen en de wet van 19 april 2002 tot rationalisering van de werking en het beheer van de Nationale Loterij teneinde te garanderen dat vouwen zitting hebben in de raad van bestuur van de autonome overheidsbedrijven, de genoteerde vennootschappen en de Nationale Loterij; Gesetz zur Änderung des Gesetzes vom 21. März 1991 zur Reform bestimmter Aktiengesellschaften, des Unternehmensgesetzes und des Gesetzes vom 19. April 2002 zur Rationalisierung der Funktion und des Managements der Nationallotterie mit dem Ziel, die Vertretung von Frauen in den höchsten Entscheidungsgremien eigenständiger Aktiengesellschaften, börsennotierter Unternehmen und der Nationalen Lotterie zu gewährleiste.

[36]             Loi n° 2011-103 du 27 janvier 2011 relative à la représentation équilibrée des femmes et des hommes au sein des conseils d'administration et de surveillance et à l'égalité professionnelle publiée au Journal Officiel du 28 janvier 2011.

[37]             Act No. 120 of 12 July 2011, published in Official Journal No. 174 of 28 July 2011 (Legge 12 luglio 2011, n. 120 Modifiche al testo unico delle disposizioni in materia di intermediazione finanziaria, di cui al decreto legislativo 24 febbraio 1998, n. 58, concernenti la parita' di accesso agli organi di amministrazione e di controllo delle societa' quotate in mercati regolamentati, GU n. 174 del 28-7-2011 ).

[38]             Law of 6 June 2011, published in the Staatsblad 2011, 275. (Wet van 6 juni 2011 tot wijziging van boek 2 van het Burgerlijk Wetboek in verband met de aanpassing van regels over bestuur en toezicht in naamloze en besloten vennootschappen).

[39]             See Art. 2:166 and Art. 2:276 Civil Code respectively. Only public limited companies (Naamloze Vennootschappen, NV) can be listed on the stock exchange.

[40]             See Articles 2:166 paragraph 2 and 2:276, paragraph 2 of the Civil Code read in conjunction with Art. 2:379 of the Civil Code. There are no specific additional requirements for public limited companies that are listed on the stock exchange.

[41]             See Art. 2:391 paragraph 7 Civil Code.

[42]             Law 3/2007 of 22 March 2007 on effective equality between men and women; Ley Orgánica 3/2007 de 22 de marzo, para la igualdad efectiva de mujeres y hombres.

[43]             Companies which are obliged to present the full accounts of losses and profits, i.e. which is determined by assets, turnover and number of employees.

[44]             Organic Law 3/2007 of effective equality between women and men contains also some other provisions related to women on company boards or in management jobs. Art. 37.2 states that the public enterprise of radio and television (Radio Televisión Española, RTVE) will promote women’s incorporation into management jobs. The equivalent requirement is set out in Art. 38.2 for the Spanish press agency EFE. Art. 54 states that the General State Administration and the public bodies connected with it will observe the principle of balance composition in the appointments for company boards on those companies in whose capital the Administration participates.

[45]             The Royal Decree 1615/2009 of 26 October regulating the grant and usage of the corporate “Equality label”, article 10.

[46]             Articles 33 and 34 of the Organic Law 3/2007. See also Article 102 Law 30/2007, of 30 October, regulating the Public Sector Contracts, in.

[47]             Including both Executives and Non-executives.

[48]             Such rules are set out in several statutes: Gesetz über die Mitbestimmung der Arbeitnehmer bei einer grenzüberschreitenden Verschmelzung [Law on the Participation of Employees in the event of a Cross-border Merger].of 21 December 2006, Official Journal (Bundesgesetzblatt BGBl), part I p. 3332; Gesetz über die Beteiligung der Arbeitnehmer in einer Europäischen Gesellschaft [Law on the Participation of Employees in a European Company] of 22 December 2004, Official Journal (Bundesgesetzblatt BGBl), part I p. 3675; Gesetz über die Drittelbeteiligung der Arbeitnehmer im Aufsichtsrat [Law on One-Third Participation of Employees on Supervisory Boards] of 18 May 2004, Official Journal (Bundesgesetzblatt BGBl), part I p. 974.

[49]             German Federal Ministry for Family, Senior Citizens, Women and Youth, http://www.bmfsfj.de/BMFSFJ/gleichstellung,did=172756.html.

[50]             Consolidation Act no. 1095 of 19 September 2007.

[51]             Leena Linnainmaa, Promoting board diversity in Finland, 2011, in: Aktionärinnen fordern Gleichberechtigung 2011, djb.

[52]             Law 2839/2000 of 12 September 2000.

[53]             Federal Chancellery/Federal Minister of Women’s Affairs and Public Service, 14.03.2011, No. GZ BKA-140.200/0048-II/1/2011, 93/23.

[54]             Uredba o o kriterijih za upoštevanje načela uravnotežene zastopanosti spolov (Uradni list RS, No 103/04).

[55]             These figures may be slightly different from those estimated by Matrix due to difference in calculation method and data-base for calculation.

[56]             Communication from the Commission Strategy on the effective implementation of the Charter, COM(2010) 573 final, available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0573:FIN:EN:PDF.

[57]             Article 52 of the Charter: "Any limitation on the exercise of the rights and freedoms recognised by this Charter must be provided for by law and respect the essence of those rights and freedoms. Subject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the Union or the need to protect the rights and freedoms of others".

[58]             Article 21(1) draws on Article 19 of the TFEU and Article 14 of the ECHR. There is no contradiction or incompatibility between Article 21(1) of the Charter and Article 19 of the TFEU which has a different scope and purpose: Article 19 confers power on the Union to adopt legislative acts, including harmonisation of the Member States' laws and regulations, to combat certain forms of discrimination, listed exhaustively in that Article. Such legislation may cover action of Member State authorities (as well as relations between private individuals) in any area within the limits of the Union's powers. In contrast, the provision in Article 21(1) does not create any power to enact anti-discrimination laws in these areas of Member State or private action, nor does it lay down a sweeping ban of discrimination in such wide-ranging areas. Instead, it only addresses discriminations by the institutions and bodies of the Union themselves, when exercising powers conferred under the Treaties, and by Member States only when they are implementing Union law. Article 21(1) therefore does not alter the extent of powers granted under Article 19 nor the interpretation given to that Article.

[59]             Including the Universal Declaration of Human Rights whose Article 1 provides that "all human beings are born free and equal in dignity and rights".

[60]             See, for instance, Article 2 (1) (a) of Directive 2006/54/EC (equal treatment of men and women in matters of employment and occupation – recast).

[61]             Case C-409/95 Marschall [1997] ECR I-6363, paragraph 35. See also case C-450/93 Kalanke [1995] ECR I-3051, paragraphs 22 to 24, case C-158/97 Badeck [2000] ECRI 2000 p. I-1875, as well as case C-407/98 Abrahamsson [2000] ECR I-5539.

[62]             Case C-476/99 Lommers, paragraph 39.

[63]             See judgments of 14 May 1974, Case 4/73 Nold [1974] ECR 491, paragraph 14, and of 27 September 1979, Case 230-78 SpA Eridiana and others [1979] ECR 2749, paragraphs 20 and 31.

[64]             See, inter alia, judgment of 16 January 1979, Case 151/78 Sukkerfabrikken Nykøbing [1979] ECR 1, paragraph 19, and judgment of 5 October 1999, Case C-240/97 Spain v Commission [1999] ECR I-6571, paragraph 99.

[65]             This differentiation between companies could in itself raise a question of unequal treatment on grounds of legal status or size and therefore possibly discrimination within the meaning of Article 21 of the Charter (as its list of possible discrimination grounds is not limited). However, company law in general applies different rules to different types of companies, and in particular to listed companies, which generally face more legal requirements in view of their level of responsibility towards shareholders and the economy in general. Moreover, the protection of SMEs from administrative and other burdens in order not to hinder their development is enshrined in EU law. There is therefore a broad margin in discretion in defining the precise scope of the instrument in view of both its effectiveness and proportionality.

[66]             See judgment of 24 November 2011, Case C-70/10, Scarlet v SABAM .

[67]             See judgment of 16 February 2012, Case C-360/10, SABAM v Netlog.

[68]             See, inter alia, judgments of 14 May 1974, C-4/73, Nold, and of 13 December 1979, C-44/79, Hauer.

[69]             Judgment of 15 December 1995, C-415/93, Bosman.

[70]             See footnote 11. The Court also stressed that it would be legitimate to set up certain  limits  to  these rights,  justified by goals of general interest pursued by the Union,  provided  that  the  substance  of these rights was not affected. The Court distinguished between measures of deprivation of property and measures of restriction on the use of property. Although the Union could not be prevented from a possibility to control or restrict the use of property in a context of common market regulation, the Court examined whether the restrictions corresponded to the general interest and were not a disproportionate interference in the rights of the owner.

[71]             Eur. Comm. H.R., Bramelid and Malmström v. Sweden, (dec.) 1982, DR 29.

[72]             See judgment of 15 May 1986, case 222/84 Johnston [1986] ECR 1651; see also judgment of 15 October 1987, case 222/86 Heylens [1987] ECR 4097 and judgment of 3 December 1992, case C-97/91 Borelli [1992] ECR I-6313.

[73]             See judgment of 15 May 1986, case C-222/84, Marguerite Johnston v Chief Constable of the Royal Ulster Constabulary; and judgment of 27 November 2001, case C-424/99, Commission v Austria.

[74]             Changes in Member States' situation have only been taken into account until December 2011

[75]             These include Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Romania, Slovakia and Slovenia

[76]             From 18 female executive directors to 20 female executive directors between 2010 and 2012 among FTSE 100 companies (Cranfield University 2012)

[77]             From 117 female non-executive directors to 143 female non-executive directors between 2010 and 2012 among FTSE 100 companies (Cranfield University 2012)

[78]             The effect extrapolated from the UK has been applied as a one-off in the other Member States. Applying it as an annual growth rate over a period of 8 years would in fact result in an overestimation of the effects (e.g. 80% women among non-executive directors by 2020). We have furthermore decided not to assume full compliance with the EC target (40%) under Policy Option 2 and 3 for two main reasons: (a) the target set in the UK Lord Davies report (25%) is different from the EC target (40%) and (b) the UK corporate governance framework is different from other countries’ and level of compliance might be higher than in other countries.

[79]             According to Egon Zehnder International (2010), there has been a declining trend in the average board size over the last decade. For this reason it is assumed that the companies will leave the board size unchanged as opposed to increasing it.

[80]             Female board members with audit specialisation

[81]             No answers were provided by other countries.

[82]             As discussed in the previous paragraphs, executive and non-executive board members play different roles and ultimately have various degrees of influence on the different indicators of non-financial performance. In some cases, dimensions of non-financial performance are related to either executive or non-executive directors only.

[83]             Catalyst, The Bottom Line,Connecting Corporate Performance and Gender Diversity, 2004.

[84]             http://ec.europa.eu/budget/contracts_grants/info_contracts/inforeuro/inforeuro_en.cfm

[85]             Binding quotas on gender quotas in the board of listed companies have been introduced in Belgium, France, Italy, Spain and the Netherlands. In these countries, the quota will come into effect before 2020. For this reason, these countries have been excluded from the costing of the policy options. Austria has also introduced binding quotas, but only covering the board of state-owned companies. In order to reflect this, Austria will be included in the costing.

[86]             Member States' situation is only taken into account until December 2011.

[87]             The authors tested for endogeneity to establish whether female boards hire female top managers or vice versa finding that changes in board composition precede changes in management.

[88]             From this perspective then, the analysis does not value the returns on formal education itself (as there is no further educational investment, expect for training and mentoring programmes) but the increase in private benefits generated by the policy options. The contribution of the policy options to increasing the incentives to invest in education on younger women are covered separately as one of the impacts resulting from the narrowing of the GPG. This analysis accounts for the benefits of education through higher participation in the labour market.

[89]             For individuals: (a) net benefits are calculated based on gross earnings, income tax, social contributions, transfers, unemployment benefits, and grants; and (b) costs are calculated based on direct costs and forgone earnings whilst in education. For public sector: (a) net benefits are calculated based on forgone taxes on earnings, income tax, social contributions, transfers, unemployment benefits, and grants; and (b) costs are calculated based on direct costs. 

[90]             It is likely that the difference with the rates reported in OECD report is not due to the different sample of countries, but to the fact that our estimations are based on a number of assumptions not transparent in the OECD calculation.

[91]             Binding quotas on gender quotas in the board of listed companies have been introduced in Belgium, France, Italy, Spain and the Netherlands. In these countries, the quota will come into effect before 2020. For this reason, these countries have been excluded from the costing of the policy options. Austria has also introduced binding quotas, but only covering the board of state-owned companies. In order to reflect this, Austria will be included in the costing.

[92]             Cost estimates have been derived from UK data on wages, these have then been extrapolated to EU 27. In order to extrapolate economic costs, ratios of GDP per capita in UK, for which   data was available, were calculated and applied to the other Member States. For instance, in order to calculate costs starting from UK estimates, we have (1) converted the amount into EUR based on current exchange rates) and (2) calculated the ratio of each Member State GDP per capita, over the UK GDP per capita.

[93]             The key provision of the Public Limited Liability Companies Act of 13 June 1997 No. 45 states: ‘§ 6-11a. Requirement of representation of both men and women on the company board (1) On the board of Public Limited Liability Companies both genders shall be represented in the following manner: 1. On boards consisting of two or three members, both men and women shall be represented. 2. On boards consisting of four or five members, both genders shall be represented with at least two members each. 3. On boards consisting of six to eight members, both genders shall be represented with at least three members each. 4. On boards consisting of nine members, both genders shall be represented by at least four members each, and if the board consists of more than nine members each gender shall be represented by at least 40 % each. 5. The rules as stated in no. 1 – no. 4 equally apply to the election of deputy members.' Paragraph 2 of the same articles sets specific rules concerning the workers' representatives on the boards.

[94]             See 'the resolution of enactment' no. 1429 of 9 December 2005.

[95]             Aagoth Storvik/Mari Teigen, Women on Board – The Norwegian Experience, June 2010, FES, available at: http://library.fes.de/pdf-files/id/ipa/07309.pdf

[96]             Public Limited Liability Companies Act of 13 June 1197, No. 45, §§ 6 – 11a (as amended in 2003)

[97]             These rules also apply to the election of deputy or alternate members.

[98]             Norwegian Ministry of Children, Equality and Social Inclusion, Representation of both sexes on company boards, available at: http://www.regjeringen.no/en/dep/bld/Topics/equality/rules-on-gender-representation-on-compan.html?id=416864

[99]             Information provided by the Norwegian Ministry of Children, Equality and Social Inclusion: http://www.regjeringen.no/en/dep/bld/Topics/equality/rules-on-gender-representation-on-compan.html?id=416864.

[100]            Mari Teigen/Aagoth Storvik/Vibeke Heidenreich, Institutt for samfunnsforskning (ISF), 2009/2011, presented in several publications and presentations. The figures may be slightly below 40% despite the quota, since in practice the quota is only 33% for boards with three members and the rules for employee representatives are not as ambitious and allow for exceptions.

[101]            http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/index_en.htm

[102]            Vibeke Heidenreich, Kjønn og makt i norsk næringsliv, 2009, in K. Niskanen and A. Nyberg (eds), Kön och makt i Norden. Del 1, Landsrapport, Tema Nord, 569: 219–249. København: Nordisk ministerråd.

[103]            Mari Teigen/Vibeke Heidenreich, ISF, 2009, presentation available at: http://www.boardimpact.com/PDF/MariTeigenogVibekeHeidenreich.pdf

[104]            Sabina Nielsen/Morten Huse, The Contribution of Women on Boards of Directors: Going Beyond the Surface, 2010, in: Corporate Governance: An International Review, 18(2): 136-148.

[105]            Mari Teigen / Vibeke Heidenreich, ISF, 2009, presentation (see above).

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT ON COSTS AND BENEFITS OF IMPROVING THE GENDER BALANCE IN THE BOARDS OF COMPANIES LISTED ON STOCK EXCHANGES

Accompanying the document

Proposal for a Directive of the European Parliament and of the Council

on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures

TABLE OF CONTENTS

1........... Procedural issues and consultation of interested parties.................................................... 3

1.1........ Identification, Organisation and timing.............................................................................. 3

1.2........ Consultations and expertise............................................................................................. 3

2........... Problem Definition.......................................................................................................... 4

2.1........ Female under-representation on boards and its effects..................................................... 4

2.1.1..... Introduction.................................................................................................................... 4

2.1.2..... Policy context................................................................................................................. 6

2.1.3..... Gender imbalances in company boards: scale of the problem........................................... 7

2.1.4..... Untapped long-term economic growth potential............................................................. 12

2.1.5..... Untapped potential for company performance............................................................... 13

2.2........ Problem driver: the significance of demand-side barriers................................................ 16

2.3........ Evolution of the problem in absence of further action (baseline scenario)......................... 21

2.4........ The EU's right to act and EU's added-value................................................................... 23

2.4.1..... Political foundations of the right to act: Europe 2020...................................................... 23

2.4.2..... Legal basis: Article 157(3) TFEU.................................................................................. 24

2.4.3..... Subsidiarity and proportionality..................................................................................... 24

2.4.4..... Compliance with the EU Charter of Fundamental Rights and CJEU case-law................. 29

3........... Policy Objectives.......................................................................................................... 30

4........... Policy Options.............................................................................................................. 31

4.1........ Discarded policy options............................................................................................... 32

4.1.1..... More self-regulation...................................................................................................... 32

4.1.2..... Increased transparency of the board selection processes as a stand-alone measure......... 33

4.1.3..... Increasing female participation in decision-making beyond the private sector.................. 34

4.2........ Framing the remaining policy options............................................................................. 35

4.2.1..... Scope of the options: which companies should be covered?........................................... 35

4.2.2..... Level of ambition.......................................................................................................... 37

4.2.3..... Deadline for compliance................................................................................................ 38

4.2.4..... Requirements of the CJEU case law.............................................................................. 39

4.3........ Retained policy options................................................................................................. 39

5........... Impact Analysis............................................................................................................ 40

5.1........ Methodology to assess the impacts............................................................................... 40

5.1.1..... Effectiveness................................................................................................................. 40

5.1.2..... Economic impacts......................................................................................................... 40

5.1.3..... Social impacts.............................................................................................................. 45

5.2........ Option 1: No new action at EU level (baseline scenario)................................................ 45

5.3........ Option 2: Recommendation........................................................................................... 46

5.3.1..... Effectiveness................................................................................................................. 46

5.3.2..... Economic impacts......................................................................................................... 47

5.3.3..... Social impacts.............................................................................................................. 48

5.4........ Option 3: Directive with a 40% target for non-executive board members........................ 48

5.4.1..... Effectiveness................................................................................................................. 50

5.4.2..... Economic impacts......................................................................................................... 50

5.4.3..... Social impacts.............................................................................................................. 52

5.5........ Option 4: Directive with a 40% target for non-executive board members and a flexible target for executive board members...................................................................................................................... 52

5.5.1..... Effectiveness................................................................................................................. 53

5.5.2..... Economic impacts......................................................................................................... 53

5.5.3..... Social impacts.............................................................................................................. 55

5.6........ Option 5: Directive with a 40% target for both non-executive and executive directors..... 55

5.6.1..... Effectiveness................................................................................................................. 56

5.6.2..... Economic impacts......................................................................................................... 56

5.6.3..... Social impacts.............................................................................................................. 57

6........... Comparison of policy options........................................................................................ 58

7........... Monitoring and evaluation arrangements........................................................................ 62

8........... List of Annexes............................................................................................................. 64

9........... List of Figures and Tables............................................................................................. 65

1.           Procedural issues and consultation of interested parties

 

1.1.        Identification, Organisation and timing

The Commission Work Programme 2012 (CWP) foresees a legislative measure in order to improve the gender balance in the boards of companies listed on stock exchanges. DG JUST is the lead DG who prepared this Impact Assessment (IA).

An Impact Assessment Steering Group (IASG) was set up in February 2012 and met twice. Of the Commission Directorates-Generals (DGs) that were invited, the following DGs participated in the IASG: the Legal Service, the Secretariat-General, DGs Internal Market, Employment, Enterprise, and Eurostat. The last IASG meeting took place on 7 June 2012.

The Impact Assessment Board (IAB) meeting took place on 18 July 2012. Following the IAB's recommendations, the following main changes were made to the IA: the problem definition has been reinforced, in the baseline scenario more details about Member State's individual situation and the situation in different sectors have been added, subsidiarity and proportionality issues have been assessed more extensively, the explanation of the choice of the policy options and the scope of potential measures has been expanded, the description of the methodology for the calculation of possible benefits has been substantiated, the feasibility of the different options has been analysed in greater detail, the impact analysis and the part on monitoring have been adapted. Following the IAB's second opinion issued on 28 August 2012, the assessment has further been refined, particularly in relation to the need for action at EU level, the choice and the content of the policy options with regard to some common parameters and the detailed reflection of the views of stakeholders as expressed in the public consultations.

A wide range of internal[1] and external studies were used to prepare this IA. A full list is in Annex 1. In August 2011, Matrix Insight Ltd was commissioned to carry out a study on possible EU measures on gender quotas in boardrooms, which was finalised in June 2012 (hereinafter: Matrix study). The methodology used in this IA to calculate the impacts and all the quantified data are based on this study.

1.2.        Consultations and expertise

A 2011 Eurobarometer survey[2] revealed that the overwhelming majority of Europeans think that women should be equally represented in company leadership positions (88%) and that the European business community is dominated by men who do not have sufficient confidence in women's abilities (78%). The survey found that when given the possibility to choose between three options to achieve gender balance on company boards, opinion is divided between self-regulation by companies (31%), binding legal measures (26%), and non-binding measures such as Corporate Governance Codes and Charters (20%). Nevertheless, 75% of Europeans are in favour of legislation on the condition that it takes into account qualification and does not automatically favour members of one sex.

In March 2012, the Commission organised a public consultation to gather stakeholders' views on whether and what kind of action should be taken to tackle the current gender imbalance on corporate boards. The consultation ran until 28 May 2012. The feedback received showed the considerable amount of interest and the significance of the issue for a large variety of stakeholders.

Of the total number of 485 replies, 161 were sent by individual citizens and 324 were sent by organisations. These included 13 Member States, 3 regional governments, 6 cities or municipalities, 79 companies (both large listed companies and SMEs), 56 business associations at EU and national level, 53 NGOs (most of them women's organisations), trade unions, professional associations, political parties, associations of investors and shareholders, actors involved in corporate governance and others.

There was a large consensus on the urgency to increase the share of women on company boards. The vast majority of respondents agreed that a gender-diverse workforce and board structure is a driver of innovation, creativity, good governance and market expansion for companies and that it would be short-sighted to leave untapped the economic potential of qualified women who constitute half of the talent pool. Views varied among stakeholders on the appropriate means to bring about change. While some, predominantly the business stakeholders, favoured continued self-regulation, corporate governance codes, recommendations or corporate initiatives, other stakeholders, including trade unions, other NGOs and a number of regional and municipal authorities, considered that non-binding measures and self-regulation had shown their limits and advocated a more ambitious approach in the form of binding objectives for the gender composition of corporate boards. Some stakeholders also expressed concerns about the often obscure and impenetrable recruitment processes within company boards. Further details on the replies to the public consultation are provided in Annex 2.

2.           Problem Definition

2.1.        Female under-representation on boards and its effects

2.1.1.     Introduction

Company boards in the EU are marked by persistent and manifest gender imbalances, as evidenced by the fact that only 13.7% of corporate seats in the largest listed companies are currently held by women. This means that men outnumber women by approximately 7 to 1. Compared to other areas of society, notably the public sector, the female under-representation in boards of publicly listed companies is particularly significant as follows from the table below. Therefore, this Impact Assessment focusses on the female under-representation in boards of listed companies.

Figure 1: Gender-Balance Across Key Institutions in Different Areas[3]

Source: Database: Women and Men in Decision Making based on data from 2011 and 2012

Given that women do not only possess the educational[4] and professional[5] credentials to participate in the highest economic decision-making bodies, but are also willing[6] and available in sufficient number[7] to do so, their under-representation suggests that the market fails to make full use of its highly skilled workforce.  

As an efficient use of human capital constitutes the most important determinant of an economy’s competitiveness, it is clear that underutilising the skills of highly qualified women is a loss of economic potential for individual companies as well as the economy as a whole. This view was also endorsed by the public consultation, which demonstrated consensus across stakeholder groups that the under-representation of women on company boards is a problem and that empowering women to take leadership positions is important for company performance. Fully exploiting human capital is also key for addressing the EU's demographic challenges,[8] for competing successfully in a globalised economy and for ensuring a comparative advantage vis-à-vis third countries.[9] In short, it is a necessary means to reignite economic growth as laid out in the Europe 2020 Strategy.

Furthermore, the systematic under-representation of women in economic decision-making positions is both a cause and an effect of persistent gender inequalities and is not in line with the EU's fundamental values enshrined in Article 3 TEU and Article 8 TFEU.

2.1.2.     Policy context

Promoting equality between women and men is one of the EU's main objectives, as reflected in its Treaties (Article 3(3) TEU, Article 8 TFEU, Article 157 TFEU) as well as in the Charter of Fundamental Rights (Article 23).

The EU institutions have undertaken various efforts over several decades to promote gender equality in economic decision-making, notably to enhance female presence in company boards, by Recommendations and by encouraging self-regulation.

The Council of the European Union has adopted two Recommendations (in 1984 and 1996) encouraging the private sector to increase the presence of women at all levels of decision-making, notably by positive action programs, and called upon the Commission to take steps to achieve a balanced gender participation in this regard.[10]

The Commission reaffirmed its support for an increased participation of women in positions of responsibility, both in its Women's Charter[11] and made in one of its priorities in the Strategy for Equality between Women and Men 2010-2015.[12] The Commission published several reports in order to take stock of the situation.[13] In March 2011, Commission Vice-President Reding launched the “Women on the Board Pledge for Europe”. The pledge called on companies to voluntarily increase women’s presence on corporate boards to 30% by 2015 and to 40% in 2020. However, only 24 companies have signed the pledge.

The European Parliament called upon the Member States to increase female representation of women in decision-making bodies and called upon the Commission to propose legislative quotas to increase female representation in corporate boards to 30% by 2015 and 40% by 2020.[14]  

In the recent past, the issue of enhancing female participation in economic decision-making has become increasingly prominent in the national, European and international[15] arena. A particular focus has been placed on the economic dimension of gender diversity and the contribution that more balanced boards could make to a more productive and innovative working environment, to improved company performance and thus ultimately to growth and to the attainment of the objectives of the Europe 2020 Strategy.

However, it should be noted from the outset that gender imbalances in corporate leadership positions are only the 'tip of the iceberg' of a more widespread situation on gender inequalities in our society stemming from traditional gender roles and division of labour, women's and men's educational choices, women's concentration in few occupational sectors, unbalanced care responsibilities etc. Furthermore, despite progress being made, gender inequalities also persist at political decision-making level. The EU has recognised this and has taken various measures to redress those inequalities. The current Impact Assessment should be seen in this wider policy context.

2.1.3.     Gender imbalances in company boards: scale of the problem

In the EU, listed companies have different board structures depending on the country in which they are located. They either belong to the single board system (also called monistic or unitary board system), to the two-tier (or dual board) system or to some form of mixed system. In this impact assessment, reference to the functional distinction between the two categories of executive directors and non-executive directors should be understood as including respectively members of the management board and members of the supervisory board. Annex 5 gives an overview of different board structures and appointment practices in the EU. An average board of a publicly listed company in the EU has 7.8 members, or 8.3, excluding SMEs.

The figure below presents the distribution of females and males across levels. The probability for a man to be a manager is twice as high as the probability for a woman to be at that level (60% versus 27%). Significantly, the probability for a man to be sitting on a corporate board eight times the probability for a woman to be in that position (0.8% versus 0.1%).

Figure 2: Career Progression for Women and Men in Listed Companies (2011)

Source: Matrix own calculations based on data from EC Database for Women and Men in Decision-Making, S&P’s and Eurostat.

As the charts below show, both the share of women on company boards and the changes in this share in the recent past differ greatly between Member States. In some Member States, such as Finland, Latvia and Sweden, women occupy a quarter of the seats on boards of large companies, whereas in others, such as Ireland, Greece, Estonia, Italy, Portugal, Luxembourg, Hungary, Cyprus and Malta, less than one in ten board members are women. In some cases, this figure even falls to less than one in twenty. In nearly a third of Member States (Malta, Estonia, Luxembourg, Cyprus, Hungary, Lithuania, Bulgaria and Slovakia) more than half of the largest companies have no women on their boards at all.

Figure 3: Share of Women among Members on Boards for Listed Companies in EU Member States and some other countries (Iceland, Norway, Australia, Canada and the US) , January 2012 [16]

Source: European Commission. Database: women & men in decision making, [Online] Available from: http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/business-finance/quoted-companies/index_en.htm and Catalyst, Women on Boards, Quick takes, [Online] Available from: http://www.catalyst.org/publication/433/women-on-boards

Unsurprisingly, female board participation tends to be particularly low in traditionally male-dominated sectors. As demonstrated by the figure below the sectors with the highest percentage of women directors are retail and media whereas the lowest representation can be found in the automobile sector.

Figure 4: Female Board Participation by Sector

Source: Governance Metrics International (2011), 2011 Women on Boards Report, March 8, 2011

In recent years, an increasing number of Member States (11 up to the end of 2011) have adopted laws establishing quotas or targets for gender representation on company boards.[17] France, Italy and Belgium have adopted legislation setting quotas for company boards, including sanctions for non-compliance. Spain and the Netherlands have adopted quota laws without sanctions,[18] while Denmark, Finland, Greece, Austria and Slovenia have enacted rules covering only the boards of state-controlled companies; Germany’s existing legislation affects the gender balance on boards via rules governing workers' representation on boards. The deadlines for compliance, the scope and the concrete obligations however differ widely. In France, for instance, all listed companies and companies with more than 500 employees are covered. In the Netherlands and Spain the law applies to listed and non-listed companies with more than 250 employees. In Italy and Belgium, the scope comprises listed and state-owned companies. In Spain and France, 40% female presence is required (like in Iceland and Norway), whereas in the Netherlands 30% and in Belgium and Italy 33% are required. In Italy, the measure is temporary (three board renewals). In view of these differences the effectiveness of legislative measures varies significantly across Member States.  Unsurprisingly, progress has been much faster in Member States where stronger sanctions, more transparent monitoring systems and shorter compliance periods are in place.

Austria, Belgium, Denmark,[19] Finland, France, the Netherlands, and Spain have developed – either on top of legislative measures or as stand-alone measures – voluntary initiatives such as corporate governance codes or charters that companies can sign. The United Kingdom, Germany, Poland, Sweden and Luxembourg have developed voluntary initiatives. The remaining 15 Member States have taken no action.[20]

The figure below shows the percentage point change in female presence on company boards between 2004 and January 2012, thereby grouping countries[21] into categories which correspond to the different types of measures taken[22].

Figure 5: Percentage Point Change in Female Presence in Corporate Boards between 2004 and January 2012

Source: European Commission. Database: women & men in decision making. Available from: http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/business-finance/quoted-companies/index_en.htm

Despite some improvements where governments have recently introduced measures, the pace of change remains very slow. In all Member States that have introduced legally binding gender quotas for listed company boardrooms, female presence in company boards has significantly increased. For the most recent period from 2010 to the beginning of 2012, the largest increase has been registered in France (+10 percentage points). In Belgium, Italy and Spain the effects of legislative quotas have been smaller. In Spain, where the quota has been introduced in 2007, female presence in boardrooms has increased by less than 2 percentage points in the same period. This might be related to the fact that the Spanish measure comes closer to the character of a recommendation since no sanctions are foreseen. In Belgium and Italy instead, the measures have been introduced only very recently (June and July 2011 respectively) which explains the limited progress to date. The share of women in corporate boardrooms also increased in Member States that have introduced non-binding measures to improve gender equality in business leadership positions. However, compared to Member States that have introduced binding quotas, the positive change has generally been more limited. In Member States, where no action has been taken to support female presence on company boards, the trends differ. In some countries female participation on company boards has increased; in others it has declined. Overall, between 2003 and 2012, the share of women in boardrooms in the EU27 has risen from 8.5% to 13.7%, an increase of 5.2 p.p. over eight years at an average rate of 0.6 p.p. per year (see chart below). The percentage of women among non-executive directors in January 2012 was 15%.

Figure 6: Women and men on corporate boards in the EU, 2003-2012[23]

Source: European Commission, Database on women and men in decision-making. Note: Data cover all 27 EU Member States except in 2003 when data for CZ, LT, MT & PL are not available. Small discrepancies between the percentage shown in consecutive years and the change in percentage points derive from rounding. Data are normally collected in the final quarter of the year but the data for 2012 was collected in January, just 3 months after the 2011 data, and should therefore not be treated as part of the annual time series.

Progress in the number of women on boards of the largest companies picked up slightly in 2011, but this can be attributed to the new quota laws in France (which contributed to almost half the increase), Belgium and Italy, as well as the threat of legislation and the enhanced level of debate and interest in other Member States (mainly the UK and Germany). This recent development is, however, limited to a few Member States, and cannot be considered as sustainable in the long run.

2.1.4.     Untapped long-term economic growth potential

As an efficient use of human capital constitutes the most important determinant of an economy’s competitiveness, it is clear that underutilising the skills of highly qualified women is a loss of economic potential.  This is underpinned by several national and international studies. According to the OECD (2008), the increase in women’s participation in the labour market has accounted for a quarter of economic growth since 1995. Research commissioned by the Swedish presidency of the EU (2009)[24] concluded that labour market equality – meaning equal levels of employment, equal pay, and equal shares of part-time work and self-employment – could in an optimistic scenario boost the GDP of Member States by an average of 27%, particularly if women reach the same rate of labour market participation as men. In the same vein, the Global Gender Gap Index 2011[25] shows the relation between more gender equality in general and a higher GDP in specific countries, thereby showing that countries with more gender equality in general have higher GDP per capita. By failing to offer women more attractive career prospects, EU economies are limiting their growth potential. According to the Lord Davies report[26] for instance, to compete globally the UK would need an additional 2 million highly qualified workers within the next 10 years, a target that could only be achieved by increased incentives for female labour force participation.

Increased female participation in company boards will have positive spill-over effects on all levels of female employment within a company and to the wider economy, which in the current situation are missed out on.

Increasing the share of women on company boards is expected to have “pull” and “push” effects on the numbers of women employed in listed companies at all levels of responsibility. The “pull” effect should emerge as more balanced boards are expected to lead to greater numbers of women being appointed to senior management positions below board level: the presence of greater numbers of women on boards will help to change male perceptions about women’s ability to exercise senior positions, while the additional female board members should be inherently less likely to have such preconceptions. An increased share of women in senior positions should in turn lead to a greater share of middle and junior management positions being filled by women, and so on, through all levels of the organisation. By providing role models, the presence of greater numbers of women on boards and in senior positions in general should have a “push” effect on women in junior positions by helping to break down their perceptions of the qualities required by those who occupy more senior positions. This will help to increase the potential pool of future senior female managers.

In this way, the “vicious circle” explained below, will be transformed into a virtuous circle, in which greater numbers of women on boards will lead to an increase in the number of women appointed to senior positions, which will in turn encourage more women to seek management positions and help to increase the supply of potential future senior managers and board members.

Matsa and Miller data (2011) analysed the effect of increases in the number of female board members on the subsequent recruitment of senior female managers in a company. They estimated on the basis of the existing available data that a 10% increase in female non-executive board members increases the average female top management share by 4% and a 10% increase in female executive and non-executive board members increases the average number of female top managers by 7%.

Increasing the share of women on company boards will also have a positive impact on female salaries. When promoted to the board, women will earn more. Increase female board members and their increased pay levels will also impact female salaries throughout the whole company. Matsa and Miller (2011) concluded that a 10% increase in female non-executive board members increases the average female top management pay by 6% and a 10% increase in female executive and non-executive board members increases the average number of female top managers by 14%.  Matrix also found wider societal impacts linked to the increase in female salaries due to the fact that women who would have been inactive would decide to participate in the labour force, part-time female employees would be incentivised to work longer hours, women would reduce the amount of time they take out of employment to have children, and women would be motivated to stay longer in education, thus increasing their chances on employment.  In addition, higher rates of female labour force participation and pay entail a higher return on education for both individuals and the public sector.[27]

2.1.5.     Untapped potential for company performance

Gender imbalance in the boards of publicly listed companies in the EU is also a missed opportunity at company level both in terms of corporate governance and financial company performance.

Corporate governance

Numerous indicators of the quality of corporate governance point to the benefits of more gender-diverse company boards. Academic studies and business research have confirmed that the presence of women contributes to improving corporate governance, team performance and the quality of decision-making. A more diverse team is likely to consider a wider range of perspectives and therefore to reach more balanced and better decisions. The value added of a gender-diverse board can also be traced back to traits of leadership behaviour which are observed more frequently in female decision-makers and among well-performing companies and directly affect key indicators of good corporate governance and organisational performance.

These observations are shared by the vast majority of stakeholders which responded to the public consultation, including the business community and its European and national umbrella organisations. Diversity in boards, including gender, is seen as a 'synonym for innovation, creativity, good governance and can reflect a company's customer base more accurately' (BUSINESSEUROPE). Most stakeholders agree that 'it would indeed be short-sighted to limit recruitment to 50% of the available talent pool and not tap into the full potential of women' (UEAPME).

Financial company performance

 Furthermore, there is a growing body of literature showing that companies with more gender-diverse boards not only have better corporate governance but also are more profitable, and that the differences are statistically significant, provided that the level of representation of women reaches a sufficiently high level in order to influence the behavioural patterns in decision-making.[28]  Many stakeholders who responded to the public consultation see 'better business results' as an outcome of greater gender diversity on corporate boards (e.g. European Round Table of Industrialists). Few organisations (e.g. Confederation of Danish Industry) reject the idea that there is a 'business case' for more women on boards.

McKinsey (2007), Catalyst (2004) and Credit Suisse (2012) came to the result that there is a positive correlation between the share of women on boards and financial company performance. The McKinsey series of “Women Matter” reports focus on women’s contribution to companies’ performance. Their “Women Matter 3” study reported that companies that scored in the top quartile of organisational performance – which were the companies with more women in top management – tended to have an operating margin at least twice as high as those in the bottom quartile. In their 2010 study, “Women at the top of corporations: Making it happen”, they report a 41% higher return on equity (ROE) for companies with the highest share of women on their boards compared to companies with no women on their boards. 

Catalyst designed the “Bottom Line” report series to establish whether an empirical link exists between gender diversity in corporate leadership and financial performance. They found that the ROE of companies with higher gender diversity on their board or among top management is higher than the ROE of companies with lower gender diversity. More specifically, Catalyst ranked 353 companies from the Fortune 500 index according to women in top management (bottom quartile: 0% to 5.1% women in top management; top quartile: 14.3% to 38.3% women in top management) and then compared their ROE. Companies in the top quartile had a ROE that is 34.1% (or 4.6 percentage points) higher than companies in the bottom quartile.

In a very recent study (August 2012), Credit Suisse[29] compiled a database on the number of women – since 2005 – sitting on the boards of the 2,360 companies constituting the MSCI AC World index. The outcome shows that, over the past six years, companies with at least one female board member outperformed those with no women on the board in terms of share price performance. This rate of outperformance was 26% for companies with a market capitalisation greater than USD 10 billion, and 17% for small-to-mid cap stocks. Interestingly this performance pattern is particularly noticeable since the onset of the global financial crises in the second half of 2008. The study has also shown a positive correlation on a number of other indicators: The average return on equity (ROE) with at least one woman on the board over the past six years is 16% - 4 percentage points higher than the average ROE of companies with no female board representation (12%). The aggregate price/book value (P/BV) for companies with women on the board is on average a third higher than the ratio for those with no women on the board. And net income growth for companies with women on the board has averaged 14% over the last six years compared to 10% for those without female board representation.

Already in 2001 Adler[30] started scoring companies according to the number of women in executive positions and then evaluated the profitability of 31 companies that scored the highest. These firms outperformed the corresponding industry medians by 69% in terms of ROE (26.5% versus 15.7%). A consistent statistically significant correlation between ROE and companies with female directors was also found by Lückerath-Rovers (2010), who relied on a regression analysis of 116 companies listed on the Dutch stock exchange. Adams and Ferreira (2009) found that diversity has a positive impact on companies' performance. Carter et. al. (2003), examined the relationship between board diversity and firm value for Fortune 1000 firms, found that Tobin's Q (the ratio of the market value of a firm divided by the replacement cost of its assets) is positively related to the percentage of female directors. Research carried out by Smith et al (2005) on 200 of the largest Danish firms confirmed that there is a positive relation between women on boards and company performance. Ernst&Young (2012) showed that companies with higher female presence have better financial performance indicators. Knorbel and Evans (2012) confirmed the positive impact of female directors on performance and corporate governance among Fortune 500 companies.[31] The existence of a "business case" is also supported by Lord Davies Report[32] assessing the situation in UK and Deutsche Bank Research.[33]

Despite increasing acceptance of the 'business case' for gender diversity among scholars, major stakeholders and a broader public, empirical evidence on the issue also points to other results: other studies have found the opposite or no significant relationship between gender diversity and better performance.[34] For instance, in 2009, Adams and Ferreira studied a sample of firms from 1996-2003 and found a negative relationship between gender diversity and two indicators for financial performance. A 2011 study of 400 leading U.S. corporations between 1997 and 2005 by Dobbin and Jung[35] found that increases in board gender diversity had no effect on subsequent profitability but were followed by marginally significant decreases in stock value.[36]

The different results can be explained by difference of methodology, the different time periods, countries, economic environments, types of companies, and measures of diversity and financial performance selected. The relationship between board characteristics and firm performance varies by country because of the different regulatory and governance structures, economic climate and culture, and size of capital markets.

However, as shown above, the overwhelming majority of studies find a positive correlation between increased female presence on boards and better performance, even if a causal link between more female presence in boards and better performance has not been established. The studies particularly by Catalyst and McKinsey which have been conducted over the years have again and again found similar positive results if more women are on the boards which leads to the conclusion that positive performance results are to be expected if the share of women on boards will increase.

In sum, although there is research coming to different conclusions, there is a high plausibility of a direct correlation evidenced by a wealth of research. This result is further strengthened by the unequivocal positive outcome of the research on more female presence and better corporate governance, since better corporate governance performance in relation to a number of crucial aspects for a company's success is likely to be ultimately reflected in the financial results. Finally, this correlation is further underscored by the replies to the public consultation from which a broad consensus emerged about the positive impact of improved gender balance on company performance, including replies by Member States and in particular also by business stakeholders.[37]

As to the share of women which is necessary to make a substantive change, it has to be noted, that one or two women are easily marginalised when their presence in a larger group is modest and they are viewed as a token. Only if the size of the female group increases to the point that it is no longer a token minority this can this cause a fundamental and sustainable change in the boardroom and enhance corporate governance. Only then are women no longer seen as outsiders and are able to influence the content and process of board discussion more substantially. Studies have shown that only after a 'critical mass' of about 30% women has been reached – or where the board size permits where at least three board members are female -, gender diversity can produce significant effects in terms of catalysing board activities and better corporate governance and performance. [38] The research on the 'critical mass' suggests that there are two elements to the critical mass, first the percentage share of directors of the under-represented sex and second the absolute number of persons from the under-represented sex holding a director's post. There is a high degree of consensus among scholars that for the benefits of gender diversity to fully materialise it is preferable to reach the critical mass in both respects where the board size so permits.

2.2.        Problem driver: the significance of demand-side barriers

According to the findings of a 2012 Eurobarometer report, ‘the majority (69%) of Europeans believe that women are just as interested as men in positions of responsibility’ (Eurobarometer 2012, p. 11). Despite this and although women account for 60% of new university graduates, existing research highlights multiple barriers women face on their way to the top positions of corporations. Those barriers can be divided into so-called "supply-side" and "demand-side" explanations.

'Supply-side' barriers are linked to potential female candidates. They explain for example that women may shy away from competition for promotions (Niederle and Vesterlund 2009) or choose to avoid the stress and work-life imbalance associated with company board positions. Career interruption due to childbearing may also limit women's ultimate advancement (Miller (2010), Bertrand, Goldin and Katz (2010). Reconciliation of work and private life, insufficient childcare and segregation of the labour market are general problems which women have to master when they want to stay in the labour market, have children and make progress in their career.

Statistics reveal that the supply side has undergone considerable changes since women have been increasingly outnumbering men among those qualifying from tertiary education. From 1998 to 2002 the proportion of women graduates compared to their male counterparts in the majority of Member States increased over 10 percentage points.  The latest available figures show that between 2002 and 2006 the proportion of women graduates was stable, representing approximately three women graduates for every two men. In spite of the fact that considerably more qualified women than men have been entering the labour market and that in the last ten years 50% more highly qualified women than men are available this has not translated into more equal representation of women at higher levels of responsibility. This is underscored by the fact that the rate of women with tertiary education who work in roles below management level for which they are over-qualified is considerably higher than that of men. This culminates in the current situation in company boards where women hold only 13.7% of the seats (an increase of 5.2 percentage points in a little over 8 years) and progress over recent years has not remotely corresponded to the long-standing availability of higher numbers of qualified women.

In spite of the continued existence of supply-side barriers blocking the career advancement of highly qualified women as set out above, particularly in relation to the reconciliation of professional and private life[39] which still represents a challenge predominantly for women (the so-called "double-burden syndrome")[40], it is also evident that there are enough women out there having the professional skills for a board position and wanting to move up. The European Business School initiative to promote women on boards has quickly identified more than 7000 'boardable' women who are highly qualified, professionally experienced and ready to take over a board position[41] thus indicating that there is no general shortage of supply that could explain the current levels of female under-representation of women on company boards. For these women who are just one step below board positions, supply-side barriers play no significant role any more. Women who have made their way up to the management level of companies have overcome these problems; otherwise they would not have been able to achieve these positions. These women do not make it to board positions because companies do not consider them as potential candidates and not because of lacking childcare, for instance. This is illustrated by the Norwegian example: Norway has very good reconciliation and childcare facilities which allow women to stay in the labour market while having children and there is generally a high level of gender equality. However, the policies successfully tackling supply-side barriers did not translate into higher levels of female board representation. On the contrary, a persistent striking problem of female under-representation in board rooms finally led to the adoption of a quota law in Norway. This shows that measures tackling supply-side barriers, while remaining essential, are not sufficient in and of themselves to solve the problem of female under-representation at the highest levels of economic decision-making.

The combination of factors explaining the fact that the existing female talent pool is not exploited can be referred to as the 'demand-side' barriers concerning the readiness of companies to appoint available qualified female candidates to board positions, which are evidenced by ample research.[42] This research shows that women have significantly more difficulties than men to make it to top leading positions even where their career developed just as well before they reached the threshold of selection for a board position. At this watershed, regardless of their willingness to advance and their academic and professional qualifications, women are prevented from realising their full professional potential. The "demand-side" barriers are illustrated by a 'glass ceiling' blocking women to advance to company board positions and manifest themselves

for instance through gender stereotypes barriers, a male-dominated business culture[43] and recruitment processes barriers.[44] Such obstacles to women's career progression to the top and their causes have been highlighted by a considerable number of contributions to the stakeholder consultation. Tackling this dimension of demand-side barriers appears to be indispensable to bring about more gender balance on company boards as well as complementary and mutually reinforcing in relation to other gender equality policies aiming to overcome supply-side obstacles.

An important element of these demand-side barriers lies in the current recruitment and promotion practices which prevents the labour market for top management from working properly. EU and national provisions in the field of company law and corporate governance tend to leave companies a very broad margin of discretion concerning the board recruitment process and at the most only require the disclosure of some general information relating to boards.[45] There is currently a lack of transparency in the process leading to the appointment of new board members. The procedure tends to rely heavily on personal and professional contacts of current board members, which some stakeholders in the public consultation have argued to be one of the reasons for the persistent under-representation of women in boards. A UK survey on non-executive board members confirmed that a high level of informality surround the appointment process. Almost half of the non-executive directors surveyed were recruited to their role through personal contacts and friendships. Only 4% had had a formal interview, and 1% had obtained their job through answering an advertisement.[46]  Companies and head-hunters are not required currently to prepare shortlists that go beyond the 'usual suspects'.[47] Moreover, the relatively dispersed ownership of the shares of many listed companies makes it difficult for shareholders to effectively monitor the nomination processes that precede the appointment of board members.

Monitoring progress in complying with the recommendations of the Lord Davies report,[48] the UK Equality and Human Rights Commission reached the conclusion that the board appointment process remains "opaque and subjective, and typically driven by a corporate elite of predominantly male chairmen who tend to favour those with similar characteristics to themselves".[49] The lack of transparency of appointments for board positions was also highlighted by stakeholders responding to the consultation, with some suggesting that companies could contribute to a better gender balance on boards by developing clear job descriptions, profile criteria and transparent selection procedures.

The current lack of women in boardrooms implies a high likelihood of perpetuating the “vicious circle”. The current board composition affects the attitude of a company towards gender equality and negatively influences the readiness to appoint more female board members. Women’s under-representation at board level contributes to a repeated unequal screening at every promotion level,[50] based on perceptions that women are either not interested or incapable of performing these functions.[51] For example, Eurochambres interviewed women entrepreneurs (41%) and managers (59%) in six EU Member States and concluded that the perception remains that women should primarily be homemakers, and that this would undermine their capacity to adequately pursue a career, especially at senior management level.[52]

The lack of female board members also implies a lack of adequate mentors, sponsors and role models. Research shows that mentoring and sponsorship confers a statistical benefit for men of up to 30% in terms of promotion and increased remuneration.[53] Thus the lack of female role models, mentors and sponsors undermines women's’ career progression and reduces the number of potential female board members.[54]  

Figure 7: The Vicious Circle: How the current under-representation of women on company boards contributes to their future under-representation

The demand-side or institutional barriers also explain the failure of the market to make full use of its human capital and the failure to profit from better performance: systematic female under-representation in company boards is a cause of labour market failure and a source of inequality in the distribution of income and wealth also in other respects. Market failure occurs for instance, if the market is "monopolised" or a small group of businesses hold significant market power without adequate competition. For the company boards this means that only a narrow circle of candidates is taken into consideration whereas boards would worker better with more gender diversity.

There are models to explain such a market failure, namely by the 'Taste-Model' (employers and workers have a distaste for working with people from different backgrounds or gender i.e. people prefer to associate with others from their own group) or the 'Ignorance-Model' (people are unable to directly observe the productive ability of individuals and therefore rely on other easily observable characteristics such as gender).[55] Although decision-makers in companies should be driven exclusively by the objective of maximising company performance these models explain why in spite of the benefits of gender diversity in that respect which is generally acknowledged in principle, the still almost exclusively male company boards tend to reproduce themselves in terms of gender composition. In recent years, some Member States have taken action and the share of women on boards in these Member States is increasing (see below under point 2.4.). This trend shows that the market corrects its stance generally not of its own initiative but as a reaction to policy measures.

The comparison with other sectors of society with a significantly less manifest gender balance in decision-making positions, notably in the public sector (administration, judiciary, parliaments) illustrates the particular strength and persistence of demand-side barriers in the private sector and specifically in listed companies. Apart from other structural differences the public sector is more receptive to the increasing demand from civil society and the media to ensure improved gender balance in decision-making positions. Member States that have actively participated in the adoption of recommendations or have encouraged self-regulation at EU as well as at national level are by definition under greater pressure to set an example. The public sector is also in a fundamentally different position concerning the transparency of recruitment processes since, unlike in the private sector (in particular for board positions), all vacant posts including at the highest level generally have to be published including a job description and the qualification requirements.

It also needs to be taken into consideration that in spite of these factors weakening the demand-side barriers at least in relative terms, many Member States, even many of those currently opposed to binding targets in the private sector, have introduced a wide range of measures, often including positive action similar to what is contemplated under the binding options of this impact assessment, to ensure accelerated progress in approaching gender balance. It is instructive in that respect that all the cases referred to the CJUE to clarify the requirements for positive action measures concerned binding measures in the public sector applicable in particular to higher management positions.[56] The better representation of women in the public sector is explained by the entirety of these factors notably including a different attitude on the part of Member States to positive action measures in this area and the effects of such measures.

2.3.        Evolution of the problem in absence of further action (baseline scenario)

The extent and the direction of changes in female presence in board differ across Member States and have been influenced by national level policies. In particular, it is possible to distinguish trends in Member States where there is no regulation, trends in Member States with non-binding regulation or self-regulation and trends in Member States with legislative quotas which are set out in more detail above under point 2.1.3.

On the basis of these past trends and taking into consideration the recent introduction of national measures, it can be estimated how female presence on company boards will evolve in the future. As far as the effects of self-regulation are concerned this estimate includes the experience with previous and existing self-regulation and corporate governance codes in place in Member States. The table below presents the estimates of the level of female presence on company boards, distinguishing between executive and non-executive positions. The methodology for the calculation of the baseline is outlined in more details in Annex 6.

Table 1: Estimated Percentage of Women in Board by 2020[57]

MS || 2004 (Estimated) || 2011 (Estimated) || 2020 (Predicted)

ED || NED || Average || ED || NED || Average || ED || NED || Average

AT || 1% || 6% || 6% || 2% || 12% || 11% || 3% || 15% || 15%

BE || 3% || 8% || 7% || 4% || 13% || 11% || 9% || 29% || 25%

BG || 55% || 0% || 18% || 47% || 0% || 15% || 37% || 0% || 12%

CY || 12% || 5% || 7% || 8% || 3% || 5% || 4% || 1% || 2%

CZ || 4% || 14% || 11% || 6% || 20% || 16% || 8% || 25% || 20%

DE || 4% || 15% || 12% || 5% || 19% || 15% || 6% || 23% || 18%

DK || 8% || 12% || 11% || 12% || 17% || 16% || 20% || 30% || 28%

EE || 28% || 14% || 15% || 13% || 6% || 7% || 11% || 5% || 6%

EL || 6% || 8% || 7% || 5% || 7% || 6% || 3% || 4% || 4%

ES || 1% || 5% || 4% || 3% || 13% || 11% || 7% || 35% || 29%

FI || 9% || 17% || 16% || 15% || 28% || 26% || 22% || 40% || 38%

FR || 1% || 7% || 6% || 4% || 27% || 22% || 7% || 40% || 40%

HU || 3% || 11% || 9% || 2% || 6% || 5% || 3% || 14% || 12%

IE || 5% || 7% || 6% || 7% || 10% || 9% || 10% || 14% || 13%

IT || 0% || 2% || 2% || 1% || 7% || 6% || 3% || 26% || 23%

LT || 9% || 12% || 11% || 11% || 15% || 14% || 15% || 20% || 18%

LU || 0% || 5% || 4% || 0% || 7% || 6% || 0% || 8% || 7%

LV || 8% || 10% || 10% || 22% || 27% || 27% || 31% || 37% || 37%

MT || 5% || 1% || 2% || 6% || 1% || 2% || 7% || 2% || 3%

NL || 3% || 5% || 5% || 9% || 19% || 18% || 16% || 34% || 31%

PL || 6% || 9% || 9% || 9% || 12% || 12% || 10% || 15% || 14%

PT || 5% || 4% || 4% || 7% || 5% || 6% || 6% || 4% || 5%

RO || 33% || 11% || 17% || 20% || 7% || 10% || 24% || 8% || 12%

SE || 3% || 23% || 21% || 4% || 27% || 25% || 5% || 35% || 32%

SI || 23% || 19% || 19% || 17% || 14% || 14% || 12% || 10% || 10%

SK || 9% || 9% || 9% || 15% || 15% || 15% || 33% || 33% || 33%

UK || 6% || 17% || 13% || 7% || 21% || 16% || 8% || 22% || 17%

EU || 9% || 9% || 9% || 7% || 17% || 15% || 8% || 24% || 20%

 Average = overall presence of women in corporate boards; the average is weighted, i.e. it depends on the number of executive and non-executive directors; ED = Executive Directors; NED = Non-executive Directors

Source: 2004 and 2011 figures were estimated by Matrix based on data from EC Database for Women and Men in Decision-Making and Standard & Poor’s; 2020 data have been extrapolated by Matrix on the basis

Under this baseline scenario – despite projecting an increase in female representation on company boards until the year 2020 that is somewhat higher than the increase measured over the past 8 years[58] – the female representation in boards of publicly listed companies is expected to evolve from 13.7% in 2012 to 20.4% (20.84% excluding SMEs) in 2020 for the EU. The female representation among non-executive directors will evolve from around 15% in 2012 to around 24% in 2020, which is still below the critical mass of 30%.

Thus, in the absence of EU action, progress in achieving more equitable gender representation in company boards will remain very slow, both as regards executive and non-executive director positions. It will depend on self-regulation and regulatory initiatives taken at national level. In some Member States there will be more progress than in others, in others there will be no progress at all or the even a decline in the representation of women on boards. This has been the case for Hungary, Slovakia and Romania in the time period from 2010 to 2012. But even in Member States, where the issue is currently under intensive discussion, like in Germany, and where DAX30 companies have decided in March 2011 to increase the female share in leading positions, progress remains slow. For instance, of all 34 executive board members of the DAX30 companies appointed between January 2011 and February 2012, 27 are men and 7 are women.[59]

Only one Member State (France) will have achieved a 40% female representation in boards by 2020. Only 7 more Member States - Finland, Latvia, the Netherlands, Slovakia, Spain, Denmark and Sweden - are estimated to reach 40% before 2035. This would not be sufficient to bring about the “critical mass” of women on boards that the research referred to in section 2.1.5 shows is needed to generate positive effects on company performance.[60] Based on this scenario, the EU as a whole is not expected to even achieve 40% of women on boards by 2040.

2.4.        The EU's right to act and EU's added-value

2.4.1.     Political foundations of the right to act: Europe 2020

The Europe 2020 Strategy for Smart, Sustainable and Inclusive Growth[61] established that an "increased female labour force participation is a precondition for boosting growth and for tackling demographic challenges in Europe". As a result of demographic change, such as the ageing of the workforce and the EU's low average birth rates, Europe’s workforce is shrinking and a smaller number of workers are supporting a growing number of inactive people. The economic crisis has exacerbated this precarious situation, as it has brought forth high youth unemployment rates of over 21%,[62] which effectively reduces the number of those entering the workforce and reinforces the demographic challenges ahead.

Improving gender equality is essential for the EU’s response to the current economic crisis, which has magnified Europe’s ever-growing need to rely on knowledge, competence and innovation. With an employment rate reaching 75.1% for men and 62.1% for women, it has become mainstream thinking that the EU can only reach the Europe 2020 headline target (75% of the population aged 20-64 should be employed by 2020) if there is a clear commitment to gender equality.

The Commission had already strengthened its political commitment to the need to enhance the balance between women and men in economic decision-making positions with the adoption of the Strategy for Equality between Women and Men (2010-2015) in 2010, in which the Commission announced that it was considering using "targeted initiatives to get more women into top jobs in decision-making". The Strategy builds on the priorities of the Women's Charter,[63] signed by President Barroso, which reaffirms the Commission's commitment to ensure the full realisation of women’s potential and the full use of their skills, to facilitate a better gender distribution on the labour market and more quality jobs for women.

In June 2012, in the context of the Europe 2020 Strategy, the Commission proposed country-specific recommendations to the Council, highlighting the need to enhance female labour market participation rates to make full use of the pool of available talent. Enhancing female participation in economic decision-making, notably in company boards, is expected to have a positive spill-over effect on female employment in the companies concerned and throughout the whole economy. The need to act for a better balance between women and men in economic decision-making is thus fully endorsed by the current political agenda.   

2.4.2.     Legal basis: Article 157(3) TFEU

The EU's right to act in issues of gender equality in employment and occupation follows from Article 157 (3) TFEU.[64] This provision is the specific legal basis for any binding measures aiming at ensuring the application of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation. If a measure took the form of a Recommendation, the legal basis could also be Article 292 TFEU. 

Article 50(1) TFEU is the legal basis for adopting EU measures aimed at achieving an Internal Market in company law. Minimum harmonisation measures on selection procedures for non-executive members of boards of listed companies with a persistent under-representation of one sex concern the internal organisation of companies and therefore company law. This provision could be an additional legal basis, completing Article 157 (3) TFEU.

2.4.3.     Subsidiarity and proportionality

The principle of subsidiarity requires that the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States (necessity test), but can rather, either by reason of the scale or effects of the proposed action, be better achieved at Union level (test of EU value added). 

The baseline scenario, taking into account current trends in Member States, shows that the objectives of achieving a higher percentage of women in boards of listed companies and the inherent gender equality and economic and business benefits will not be attained if this issue is dealt with at Member State level only. Based on these observations, the baseline scenario projects an increase in female representation on company boards until the year 2020 that is higher than the increase measured over the past 8 years. Yet these projected further improvements will not lead to a sustainable gender balance on boards in the foreseeable future.

The projections in this report based on comprehensive information on existing or planned legislative and self-regulatory initiatives in this area in all Member States show that without EU action the female representation in boards of publicly listed companies is expected to evolve from 13.7% in 2012 to 20.4% (20.84% excluding SMEs) in 2020 for the EU and from around 15% in 2012 to around 24% in 2020 for non-executive directors. Only one Member State (France) will have achieved a 40% female representation in boards by 2020 as the result of national binding quota legislation. Only 7 more Member States - Finland, Latvia, the Netherlands, Slovakia, Spain, Denmark and Sweden - are estimated to reach 40% before 2035. This would not be sufficient to bring about the “critical mass” of women on boards across the Union that research shows is needed to generate positive effects on company performance. Based on this scenario, the EU as a whole is not expected to even achieve 40% of women on boards by 2040. Irrespective of the general possibility for Member States to act efficiently, the concrete indications of Member States as to their intentions, including in their replies to the public consultation, and the projections based on all available information, clearly demonstrate that action by Member States individually will not achieve sufficiently significant progress towards a more balanced gender representation on company boards by 2020 or at any point in the foreseeable future.   

As described above, the measures introduced by some Member States vary broadly, and 15 Member States have not taken any action in this area. The level of debate on the issue is rather unbalanced across Europe, as demonstrated by the results of the stakeholder consultation: half of the 485 contributions came from only two Member States (DE and UK), whereas no or less than five replies were received from 14 Member States (BE, BG, CY, EE, EL, HU, LU, LT, LV, MT, PL, RO, SI, SK). Among these are 6 of the 8 Member States where the share of women on company boards is at an extremely low level, at 7% or less.

The lack of debate on this issue in many Member States suggests that no action to increase gender balance on company boards is likely to be taken there and that the discrepancies between Member States already apparent today will widen further. The conflicting situation in Member States are illustrated by the changes in the share of women on corporate boards from October 2010 to January 2012: while the share in France grew by 10 percentage points (p.p.), it dropped by 11 p.p. in Romania and roughly 8 p.p. in Hungary and Slovakia (see table below).

Figure 8: Change in the share of women on corporate boards in the EU, October 2010-January 2012

Source: European Commission, Database on women and men in decision-making.

Some stakeholders, mainly from the business community and including some Member States, argue that different non-legislative approaches have also been successful in achieving a better gender balance on company boards, including voluntary initiatives e.g. in Finland and Sweden, and no action at all in Latvia. They conclude that the decision on the approach to achieve more gender-balanced company boards should entirely be left to the national level.

However, first of all, the three Member States mentioned as examples have so far only achieved a female share of about a quarter of all board seats (while three quarters are still occupied by men), and their recent progress is not remarkable or even negative (see figure 8 above). The relatively good performance of the two Nordic countries with an exceptionally good record and tradition of gender equality measures can be explained by a real debate on the issue and a credible 'threat' to legislate in case of failure of voluntary action. This 'threat' is, however, difficult to maintain over a longer period of time, and the level of current efforts cannot be realistically expected to be maintained at company level if such a credible 'threat' no longer exists. Moreover, in both countries the legal or de facto obligation to ensure gender parity on boards of state-owned companies also contributed to the good figures. Finally, the case of Latvia must be regarded as an 'outlier', to be explained by the Member State's specific socio-economic situation, in particular the high level of female entrepreneurs (36.5%) and the exceptional long-term predominance of women among higher education graduates (around 70%)[65] – figures against which the share of 26% of female board members does not appear to be outstanding.

These examples confirm that Member States can sometimes improve the gender balance on corporate boards through their own non-legislative means – albeit under rather exceptional circumstances. There they cannot serve as models which other Member States can easily reproduce. Moreover, many Member States have not shown any interest so far to take action, neglecting the business and economic benefits a greater presence of women can bring to their companies and economy.

While Member States have the legal possibility to act in order to counter the under-representation of women in economic decision-making, many of them do not show any willingness or face resistance from the business community to act at their own initiative[66], in particular those where the share of women among non-executive and executive directors and managers in general is particularly low..

This situation entails a certain number of risks for the attainment of the fundamental objective of gender equality across the Union. Although the Treaty objective of equality between women and men in the EU is not directly related to the establishment of an internal market (as demonstrated by the wording of Article 3(3) TEU) and does not require any transnational or cross-border problem to establish the EU's right to act[67], the current situation denotes at the same time important internal market aspects that call for the EU intervention and justify the use of minimum harmonisation measures for the promotion of the internal market.

The Founding Treaties intended to create a competitive level-playing field between Member States by enshrining the principle of equal pay and of gender equality on the labour market, to avoid any downward competition between Member States in labour and equal treatment matters. Member States may indeed hesitate to regulate in this area on their own, as they could perceive a risk of putting their own companies at a disadvantage with companies from other Member States[68]. This perception, reinforced by pressure from the business community, represents a major obstacle preventing Member States from taking adequate action. An EU-level initiative in this area is needed to ensure a comparable level of promotion of gender equality throughout the Union, as required by the EU Treaties.

Furthermore, the economic repercussions in terms of the quality of corporate governance and its impact on company performance as well as the other economic indicators analysed in this report will vary considerably and even to an increasing extent. The potential for competitiveness and growth inherent in fully exploiting the talent pool of the best qualified women for board positions can better be realised, by reasons of scale, if all Member States engage in that direction, in particular those where figures are currently low and no action has been taken or even envisaged. Similarly to the objective of raising employment rates where Member States start from different positions, a common effort by all Member States will be the best guarantee to reach the objective of more balanced decision-making on company boards across the entire Union within a reasonable period of time.

At the same time, discrepancies in terms of numbers of women on boards are growing in Member States, with the key indicator ranging from 3% to 27% (from 2.7% to 27.9% as regards non-executive directors). Scattered and divergent regulation at national level is bound to create practical problems in the functioning of the internal market, as different company law rules and sanctions for not complying with a binding quota, such as exclusion from public procurement, could lead to complications in business life and have a deterrent effect on companies' cross-border investments and the establishment of subsidiaries in other Member States.

Similarly, the specific objectives of reducing the "demand side" barriers women face when aiming for board positions and improving corporate governance cannot be sufficiently achieved by Member States and could be better achieved through EU action. 

An important element of these demand side barriers lies in the current selection procedures for board members which often lack transparency. A binding EU level initiative would need to comply with the CJEU's positive action case-law, which requires that preference can only be given to a candidate of the under-represented sex in case of equally qualified candidates and that all candidacies are subject to individual assessment taking account of all criteria specific to individual candidates. In order to establish whether two candidates are equally qualified the selection processes needs to be made transparent, e.g. by the definition of qualification criteria. Binding EU measures would thus as a minimum need to be accompanied by an obligation for companies without gender-balanced representation among non-executive directors to make selection procedures more transparent, notably by making appointments to these posts on the basis of a comparative analysis of the qualifications of candidates and applying pre-established clear, neutrally formulated and unambiguous criteria.  

In the absence of EU action, the current divergent situation will continue and further deteriorate. Some Member States may impose transparency and other requirements on companies for their selection procedure, whilst others would not. Even though the costs of rendering selection procedures transparent (and consistent with the CJEU's case law on positive action) are estimated to be minimal, different requirements on the transparency, criteria and conduct of selection procedures (i.e. comparative assessment of qualifications) could lead to potential distortions of competition.

The current lack of transparency of the selection procedures and qualification criteria for board positions in most Member States represents an important barrier to more gender diversity of board members and negatively affects both board candidates' careers and freedom of movement, as well as investor decisions. Such lack of transparency prevents potential candidates for board positions from applying to boards where their qualifications would be most required and from challenging gender-biased appointment decisions, thus restricting their freedom of movement within the internal market.

The lack of transparent selection procedures may make it even more difficult for "boardable" women to find a place in the board of a company in another Member State. Egon Zehnder International Board Diversity Analysis[69] looked at the nationality background of directors.  In the sample of companies they surveyed, the average board in Europe includes 27.8% non-national directors. There were, however, great disparities among European countries. Non-national women directors account for a higher proportion of the female total than is the case for their male counterparts: 32.1% or almost every third woman on a European board is a non-national, compared to 27.8% for all directors. But again great disparities among Member States were found.

On the other hand, investors have different investment strategies that require information linked also to the expertise and competence of the board members. More transparency on qualification criteria and the selection procedure for board members enables investors to better assess the company's business strategy and to take informed decisions. Obliging companies to make their selection procedures transparent could therefore have a positive impact on the internal market.

To conclude, the objective of reducing demand side barriers can be better achieved at EU level, since the EU has the competence to harmonise the requirements for the selection procedures for companies across the EU, including (and in the current case limited to) companies characterised by the gender imbalance among their non-executive directors. In addition, such a minimum harmonisation at EU level of certain requirements relating to selection procedures would avoid potential distortions of competition and make it easier for companies to reap the benefits of the internal market in their search for the most qualified candidate.

It can therefore be concluded that the objectives can be better achieved through coordinated action at EU level rather than through national initiatives of varying scope, ambition and effectiveness.

However, the rationale for EU action in this area only exists as long as the maintenance of EU measures is necessary and indispensable to redress continuing female under-representation. EU action would no longer be justified if the participation of female board members in publicly listed companies across the EU has reached a sufficiently high level and has changed business culture and recruitment patterns to such degree that the withdrawal of the measure would not lead to a reconstruction of the glass ceiling and that the economic potential resulting from gender balance in company boards would be exploited in a sustainable way without further regulatory intervention. Features ensuring, from the outset, the temporary nature of the instrument and its expiry or repeal therefore could underpin its compliance with the principle of subsidiarity. 

Under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties. In particular, this principle requires that the considerable differences among Member States and sectors with respect to the current level of female participation be taken into account in the design of any EU-level measure aiming at a higher degree of gender balance among company directors.

As demonstrated by the problem definition and the baseline scenario above, the current and envisaged measures, which include EU-level recommendations and calls for self-regulation as well as a patchwork of national regulatory, non-regulatory and company initiatives, have not achieved and cannot be expected to achieve the objective of improving gender equality in economic decision-making throughout the EU.

Further-reaching action to be taken at EU-level is therefore necessary to attain those aims. It should, however, not go beyond what is strictly required to achieve sustainable progress in the share of women on company boards and its scope should be restricted as far as possible in order not to impinge on the functioning of private companies and the market economy.

In particular, Member States' different starting points require that any EU measure be limited to setting common objectives and general rules – in line with the approach of minimum harmonisation – thereby giving Member States sufficient freedom to determine how these common objectives should be best achieved at national level, taking into account national, regional or local circumstances including national company law and company board recruitment practices. Such EU-level measures should therefore not require undue changes to national company law and should in particular respect the different board structures across Member States. They should further not require companies to appoint less qualified board members and should not cover small and medium-sized enterprises (SMEs), for which such measures could represent a disproportionate burden in relation to their size and resources.

Moreover, Member States with currently low levels of female board participation need to be given a realistic timeframe to be able to achieve the common objectives, taking into account the usual cycles of board elections and renewal. In Norway, it was possible to increase the share of women non-executive directors from 18% to 40% within two years; however, that short deadline was criticised for being too short. A longer time horizon of at least five years would seem more proportionate and realistic even for the least advanced Member States[70].

The availability of highly qualified female managers differs among sectors of industry, and some sectors might face more difficulties in filling board positions with women – even within a long timeframe. The likelihood of such problems depends on the precise content of a measure and generally appears to be significantly lower for non-executive than for executive members.[71] Any binding EU measure should therefore not establish rigid quotas, but should allow companies to justify the non-compliance with the objectives where it has not been possible to find a suitable person of the under-represented sex for a board position, in order to guarantee that the best qualified persons are selected. Such binding measures would thus fully respect the requirements of the relevant positive action case-law of the Court of Justice of the European Union (CJEU), the specific purpose of which is to ensure compliance with the principle of proportionality, as set out in the next section.

All policy options will therefore be assessed on their compliance with the proportionality principle and options that would not be in line with this principle will be discarded (see below).

2.4.4.     Compliance with the EU Charter of Fundamental Rights and CJEU case-law

The EU's right to act also needs to be examined in the light of the Charter of Fundamental Rights of the European Union ('Charter'). It would help to promote some fundamental rights, particularly those related to equality between women and men (Article 23) and to the freedom to choose an occupation (Article 15). On the other hand it would imply a restriction on the freedom to conduct a business (Article 16) and on the right to property (Article 17).

First, any positive action measure is characterised by the tension between the purpose to promote de facto gender equality and the need to prevent preferential treatment given to members of the under-represented sex from turning into a prohibited discrimination against members of the other sex. This tension is reflected in the Charter, which in principle prohibits any discrimination based on sex in its Article 21(1), but also recognises in Article 23 that the principle of equality does not prevent the adoption of measures providing for specific advantages in favour of the under-represented sex. The CJEU has established the criteria that need to be met in order to reconcile the two concepts of formal equality of treatment and de facto equality, both of which are recognised in the Charter as well as in Article 157 TFEU and in Article 3 of Directive 2006/54.[72] Any EU initiative in this field would have to be in compliance with these requirements.

These requirements are:

(1) The measures must concern a sector in which women are under-represented.

(2) Priority to a female candidate can only be given in case this female candidate is at least equally qualified as the male candidate.

(3) They must not give automatic and unconditional priority to equally qualified candidates, but must guarantee that the individual situation, notably the personal situation of each candidate, is taken into account.

In order to enable companies to make an objective assessment as required according to CJEU jurisprudence, companies would have to establish objective selection criteria for the specific post before starting the procedure. As these criteria are shaped according to the area of business and the specific skills needed for the respective board position, these criteria cannot be specified by an EU measure. However, in order to comply with the case-law it would be sufficient that an EU measure requires such criteria to be defined before the selection procedure starts.

In addition, an EU initiative restricting the rights of shareholders to freely choose board members would have an impact on some other fundamental rights of shareholders and candidates for board positions, most notably the freedom to conduct a business pursuant to Article 16 of the Charter. Such a restriction can be justified, particularly with a view to promoting other fundamental rights, but the justification requires compliance with the principle of proportionality. The assessment of proportionality is influenced by a range of elements, most notably the degree of interference (binding or non-binding measure, coverage of non-executive or also of executive board members, guarantee of the maintenance of qualification as the key criterion for the selection), the scope of the measure in terms of the companies that have to observe the quota (including or excluding SMEs) and further individual features of the measure such as the time allowed for reaching the objective, the possibility of derogations in sufficiently justified cases and the temporary or indeterminate nature of the restriction.

A detailed analysis of the impact of the different policy options on the affected fundamental rights is carried out in the assessment of the impact of the policy options and in more detail in Annex 7.

3.           Policy Objectives

The policy response to the persistent gender imbalance in corporate board rooms needs to meet certain general objectives:

1.           To promote gender equality in economic decision-making, specifically in the boardrooms of listed companies, in line with Article 3 (3) TEU;

2.           To fully exploit the existing talent pool for more equal gender representation on company boards thereby contributing to the proper functioning of the internal market and to the Europe 2020 objectives.

In order to meet these general objectives, the following specific objectives have been identified:

(1) To reduce the "demand side" barriers women face when aiming for board positions ;

(2) To improve corporate governance and enhance company performance;

The operational objective would be to introduce a common (non-binding or binding) objective for the share of each sex in boards of publicly listed companies in the EU.

4.           Policy Options

This section gives an overview of the policy options which have been discarded and those which have been considered and retained for addressing the problem and meeting the objectives outlined above.

The results of the stakeholder consultation demonstrate highly divergent views of stakeholders with regard to the most suitable policy options. The majority of the business community and some Member States (CZ, HU, NL, SE) advocate a voluntary approach, notably through corporate governance codes and industry or individual corporate initiatives – which would be consistent with the scenario of no further EU action. They argue that change will be led by the market, as the business case argument will convince more and more companies that diversity pays off. Some also argue that developing a talent pool of sufficiently qualified women for board positions is a matter of time, and the composition of company boards will change naturally.

Other stakeholders, including in the business community, acknowledge that public authorities, including at EU level, have a role to play in triggering a change of mentality and can support that change through soft measures, such as recommendations, 'comply-or-explain' rules and awareness-raising. Some actors, including Member States (FI, LV), specifically mention the possibility of an EU-level Recommendation.

Finally, a substantive share of contributors, including shareholders associations (e.g. Euroshareholders/EuroFinuse), women organisations (including of women managers and lawyers), trade unions as well as some Member States (AT, FR) consider that the current gender imbalance on boards can at least partly be explained by the male-dominated business culture, where many appointment decisions are taken informally and through personal networks. In their view, binding legal targets at EU level are necessary to break the glass ceiling that many women in middle-management of companies currently face.

As regards the type of board members to be covered, there was no clear trend in the replies to the public consultation. Many stakeholders argued that both management and supervisory boards (in the dual board system) or both executive and non-executive directors (in the unitary board system) should be covered by an EU-level initiative, while others favoured covering only one or the other group. Many contributions underlined the need to take into account the diversity of board systems across Member States, when designing an initiative. Several German organisations (including women NGOs) argued that the initiative should focus on supervisory boards only, and also some Finnish organisations argued that only the non-executive boards should be covered. Some stakeholders suggested starting an initiative with non-executive board members, as it would constitute a less significant interference with the daily management of companies and could be done faster, while executive board members should follow later.

4.1.        Discarded policy options

Several policy options have been discarded at an early stage of the impact assessment process, as being either unrealistic, unable to meet the objectives or disproportionate.

4.1.1.     More self-regulation

As regards the form of the measure, various types of self-regulation[73] could be contemplated to increase the female representation on company boards, either at European or at national level.

In the stakeholder consultation, the majority of the business community, i.e. companies and industry associations, and some Member States (CZ, HU, NL, PL) saw self-regulation (by which they often understand voluntary initiatives by individual companies) as the most appropriate approach, as it allows taking into account the starting point of different companies and sectors and provides for tailor-made solutions. In their view, the self-regulatory method ensures ownership and a substantial change in corporate culture, through a bottom-up approach and realistic targets, without undue interferences into the freedom of business. Several stakeholders in the UK highlighted the change brought about by the self-regulatory approach suggested by the Lord Davies Report.

Other stakeholders, including some Member States (AT, FR) consider that self-regulation may be a first step, but has not (yet) delivered. The disappointment about the failure of the approach to produce satisfactory results is strongest among women NGOs and trade unions. They consider that only the recent threat of legislation (such as in the UK and in Germany) to impose a higher share of women business leaders has triggered some change, but this change is not sustainable and not fast enough, as it would still take decades at the current pace to achieve a sufficient level of gender balance on company boards. These stakeholders often point to disappointing experiences with self-regulation in their own Member States (e.g. DE, PT, IE, NL).

Self-regulation, i.e. agreements, common guidelines or codes of practice adopted by the business community, is theoretically possible at EU level. However, none of the stakeholders who would be able to spearhead such an initiative (e.g. BUSINESSEUROPE, ERT, EUROCHAMBRES) called for a self-regulatory approach at European level, but rather advocated voluntary measures mainly by companies. In addition, experience at the national level appears to show that where self-regulatory initiatives only produce noteworthy results, as for example in Finland or currently to some extent in the UK, if they are tied to constant monitoring combined with a credible threat of legally binding measures if no significant progress is made. At EU level, various attempts have been made to encourage self-regulation, most recently in Vice-President Reding's call for businesses to pledge to increase the share of women on their boards combined with the announcement that in case of insufficient improvements legislative action would be considered. Judging by the meagre response to this initiative and by business stakeholders' responses to the public consultation, the prospects for success of such an initiative removing the threat of legally binding measures remain very low in the light of past experiences. Therefore, further self-regulation initiatives at EU level were not regarded as likely to come into being and to achieve the policy objectives.

As regards the national level, the effectiveness of self-regulation by business associations or companies, possibly supported by awareness-raising campaigns, has proven to be very limited. Several such initiatives have been taken in Member States[74] for an extended period of time, particularly since the 1996 Council Recommendation. In Germany, for example, the commitment of the business community in 2001 to enhance the share of women in decision-making positions has not been followed by significant improvements: from 2004 to 2012 female presence has increased from 12% to 16%. In Norway, the government had tried to improve the gender balance on company boards through a self-regulatory approach for several years without any success, before finally turning to regulatory measures in 2002.

Similarly, corporate governance initiatives for more gender diversity on boards in a number of Member States have not led to noticeable changes in the figures where they were not combined with a threat of legislation. In Denmark, for instance, a corporate governance code of 2008 recommending gender equality in boardrooms and a 'Charter for More Women in Management' (2010) recommending gender diversity in boards exist for some years already. However, in Denmark the female presence in boards of big companies has decreased by 2% between October 2010 and January 2012. 

Therefore recommending, by an EU measure, more self-regulation in Member States is not considered appropriate to achieve the policy objectives either.

4.1.2.     Increased transparency of the board selection processes as a stand-alone measure

Some contributions to the stakeholder consultation suggested that the share of women on company boards could be raised by regulating and improving the transparency of selection procedures for board positions. It has been argued that the gender imbalance on corporate boards is mainly due to intransparent selection and appointment of candidates, not necessarily on the basis of objective qualification criteria, but rather through personal networks of key shareholders and current board members. Measures to increase the transparency and competition of such appointments have been proposed either as stand-alone initiatives or flanking measures.

In most Member States, the procedure for nominating and electing the board members is largely left for the company to regulate in its company statutes or articles of association. Even where such rules exist in national company law, they are either default rules that come into play only where a company has not addressed these matters in its articles of association or they are dispositive and can be departed from by the statutes of the company. This lack of regulation can be explained by the fundamental, although not absolute, freedom to conduct a business. Any attempt to regulate the procedures for recruiting board members at EU level in more detail than necessary to achieve the aim of improving the gender balance in decision making could therefore be a considerable interference in the freedom granted by national company law and would have to be well justified.

It is questionable whether a stand-alone measure on the appointment process could lead to a sufficient increase of women on boards of publicly listed companies in order to bring about a change in business culture and would lead to more gender equality and whether it would be suitable to achieve the objectives. For example, measures simply obliging companies to define in advance the qualification criteria for individual board positions would not per se imply any enhanced necessity for companies to pro-actively look for candidates, notably including female candidates, meeting those requirements outside the usual circles and thus not be suitable to achieve the objectives. Measures with a clear focus on producing an impact on gender balance indirectly through more transparent recruitment processes without setting gender targets for the composition would thus have to regulate these processes by binding rules in much greater detail[75] and in ways that are likely to be disproportionate in view of a number of the very different settings of companies that require a certain flexibility and justify the discretion left to undertakings by company law in that respect[76] and may even be equally or even more intrusive than a gender balance objective as such. If such measures are not related to specific targets for the representation of both sexes transparency measures alone also imply a considerable risk that in spite of intense interference the results of the process will not significantly change.[77] Therefore, as a measure regulating selection procedures for board members risks to disproportionately interfere with a company’s individual recruitment processes and with national company law it has been excluded as a stand-alone option.   

However, it should be underlined that whilst as stand-alone measure, this option has been discarded, greater transparency in recruitment processes is included in the binding policy options (numbers 3 -5). In fact, any binding measure should comply with the CJEU’s positive action case law requirements from which it follows that preference can only be given to a woman in case of equally qualified candidates. In order to establish whether two candidates are equally qualified the recruitment processes need to be made transparent, e.g. by the definition of qualification criteria[78]. If in the future a requirement will oblige companies to achieve a certain target of female presence in the board, the process will thus have to become more open and transparent automatically. At the same time, a very detailed binding regulation of the different steps of that process would not appear to be necessary and the exact shape and form of the transparency of that process can be determined by companies themselves in the light of their specific circumstances in line with the general approach taken in company law.

4.1.3.     Increasing female participation in decision-making beyond the private sector

Since the under-representation of women is not only a phenomenon of the private economy, but also in other areas of public life, an option would be measures to improve the gender balance in decision-making in a wide variety of sectors, ranging from companies, to the public administration, the judiciary, NGOs, associations, social partners etc.

However, several arguments plead against such a wide-ranging measure. First, as shown by the figures presented in the problem definition, the female under-representation in decision-making positions is a less acute problem in other sectors such as public administration, the judiciary and NGOs. These sectors seem to have a better ability of promoting highly qualified women to top management positions. Second, the management structure of many of these sectors is different from companies, as many of them are not governed by collective bodies such as management and supervisory boards, but often by a more hierarchical structure, making it more difficult to define gender objectives without violating the restrictions of CJEU case-law regarding positive action. Finally, due to the organisational autonomy of Member States, the competence for the EU to intervene in matters of management appointments in the public sector will be heavily contested, even if it can be argued that these positions are covered by the legal basis for equal treatment in the labour market (Article 157(3) TFEU). This is supported by the results of the public consultation, as none of the stakeholders identified the public sector as a problem area that requires action. For these reasons this option has been discarded.

4.2.        Framing the remaining policy options

Having discarded a number of policy options, measures aiming at a minimum harmonisation of measures to improve gender diversity in company boards across the EU appear to be the most appropriate way to tackle the identified problems. It will, however, be necessary to further focus and narrow down the remaining policy options, taking into account the principles of subsidiarity and proportionality, as well as consistency with the EU Charter of Fundamental Rights and other Commission policies. This initial screening examines which companies should be covered by the retained options, the degree of ambition of the retained options, and the timeframe for achieving the objective in the retained options.

4.2.1.     Scope of the options: which companies should be covered?

In response to the public consultation, stakeholders favouring more far-reaching – in particular binding – measures argued that the target group should be restricted, both for reasons of feasibility and the possibility to control compliance. Many contributors thought that such an initiative should focus on companies listed on stock exchanges, where the public interest rationale for external intervention is greatest, due to these companies' visibility in the public domain. Others preferred targeting the companies with the highest market capitalisation, as they did not consider the criterion of listing as relevant. The size in terms of employees was often cited as a relevant criterion, with different thresholds suggested, such as 250 or 500 employees – which would exclude small and medium-sized enterprises (SME) from the scope. Finally some stakeholders thought that state-owned or publicly owned companies should be covered, irrespective of their legal form or size. Quite a number of stakeholders pleaded in favour of a gradual or differentiated approach, namely by starting an initiative with listed and/or state-owned companies and then extending it to a wider target group, or by having different requirements for different sizes of companies.

In order to adequately respond to the policy objectives as defined above, in line with the principles of subsidiarity and consistent with other EU policies, policy options under consideration should focus on publicly listed companies[79] with the exception of SMEs.

The turnover of publicly listed companies is equivalent to 68% of EU GDP.[80] In addition to their economic importance, listed companies are also highly visible. Important developments in relation to board composition are communicated and discussed in the media and are likely to have an impact by setting standards for the private sector at large. Listed companies can be described as the heart of national business. Their importance and the fact that the female representation on boards is one of the lowest compared to other areas have been the decisive criteria to choose listed companies for an EU measure.

Out of the 7424 publicly listed companies in the EU in 2011, 33% or 2415 companies are small and medium-sized enterprises (SMEs).[81] These companies generally have less staff, a smaller turnover and smaller boards. SMEs, even when publicly listed, are often family-owned and rely on family members to serve as board directors, thereby reducing flexibility in the recruitment of board members.[82] After consulting relevant stakeholders, therefore, the inclusion of SMEs was considered to represent a disproportionate interference with the right of freedom to conduct a business as enshrined in Article 16 of the EU Charter of Fundamental Rights. In line with the Council Conclusions of June 2011[83] recommending that SMEs should be exempted from certain regulations, the Commission's Review, in 2011, of the "Small Business Act" for Europe,[84] and the Commission's 2011 report on minimizing regulatory burden for SMEs,[85] it is important to allow SMEs to pursue their business goals without imposing any disproportionate compliance costs.[86] As SMEs frequently have no own human resources department and would have to rely on the assistance of executive search firms, it would be inconsistent with Commission policies to oblige SMEs to incur additional costs to find new directors an expansion of their recruitment pool, particularly at a time of economic distress. However, it has to be noted that an EU measure would not 'exclude' SMEs. Of course SMEs are encouraged to apply the targets required by any EU measure - but they will not be obliged to do so.

In a similar vein, any policy option targeting large companies which are not listed on the stock exchange would also be difficult to justify in terms of subsidiarity and proportionality and would have an increased impact on the freedom to conduct a business. Like SMEs, unlisted companies tend to be owned by single individuals or families who play a crucial direct role in the management of the company. The diversity of company types and the multiplicity of various different legal regimes for unlisted companies within and across Member States, furthermore, would make it a complex exercise to determine the appropriate decision-making body or level of management where the objective for more gender diversity would have to be observed. In addition, unlisted companies are not necessarily bound by the reporting obligations that already exist for listed companies throughout the EU, as a result of which their inclusion would subject these companies to a newly established reporting regime which could significantly increase red tape. Also, in general non-listed companies are less important economically, receive less media attention and measures for non-listed companies are less likely to have the broader economic effect for the society as a whole. However, Member States could consider extending a measure to big unlisted companies in the light of the specific national circumstances.

It is nevertheless anticipated that enhanced female participation in the boards of the remaining approximately 5000 publicly listed companies could generate a spill-over effect on other companies, including SMEs and companies which are not listed on the stock exchange, owing to listed companies’ visibility in the economy and their influence in terms of setting standards for industry.

4.2.2.     Level of ambition

Initiatives to increase female representation on boards of publicly listed companies in the EU should be able to bring about a sustainable change in business culture and truly break the glass ceiling with lasting effect. This raises the questions which objectives for female participation on company boards should be set, taking into account the need for sufficient flexibility to select board members. In the stakeholder consultation, proponents of a more ambitious approach supported binding objectives for company boards at levels generally ranging from 30% to 50%.

For the purpose of this impact assessment, the level of the objective in the retained policy options is assumed to be 40%. This working assumption is in line with the targets currently under discussion and with the demands made by the European Parliament. It lies between the minimum that has been found (see below) necessary to have a sustainable impact on board performance (30% women, which roughly corresponds on average to 3 women given the average size of listed company boards) and full gender parity (50%).

As indicated above under point 2.1.5, several studies have identified the need to create a "critical mass" of women on individual company boards in order to break the glass ceiling and significantly affect company performance. Women are easily marginalised when their presence in a larger group is modest and due to their under-representation they are viewed as a token. Only if the size of the female group increases to the point that it is no longer a token minority, a fundamental and sustainable change in the boardroom can be brought about. As a result, a "critical mass" of women would enhance corporate governance, as women would no longer be seen as outsiders and would able to influence the content and process of board discussion more substantially. These studies have concluded that the critical mass of women directors is reached when boards of directors have at least 30% women and also have pointed out that where possible the threshold in terms of absolute numbers of at least three persons should be reached.[87] Several Member States and EEA countries in their national legislation have also applied the target of 40% (FI, FR, IS, and NO).[88]

The average size of company boards varies significantly between Member States (from 5.9 to 14.4). As the average number of non-executive board members is 6.39,[89] a target of 30% would mean a share of roughly 2 women which would lead to female presence below the 'critical mass'-level as identified in relation to the preferable absolute number of at least three persons of the under-represented sex where the size of the board so permits. Setting a working assumption of 40% will, on the basis of the average size of boards and thus in the majority of cases, correspond to having at least three women on boards and thus meet the critical mass both in relation to the percentage (more than 30%) and the absolute number (at least three) of women on company boards. However, any working assumption above 40% approaches full parity and would be too rigid and disproportionate with respect to the objectives.

A lower ambition level, for instance 35% or 30% would reduce proportionately the effects shown below for the different options. While for the reasons mentioned above an objective of 40% has been chosen as a working assumption, the appropriate target level achieving the objectives identified and reaching at least the critical mass level of 30% is left to political judgment in view of these proportionately varying impacts.[90]

4.2.3.     Deadline for compliance

For the purpose of this impact assessment, compliance by 2020 is taken as a working assumption.[91] 2020 is a date also taken into account for the Europe 2020 Strategy. The positive effects of the initiative will strengthen growth and thus support the Europe 2020 Strategy. Furthermore, in addition to the fact that this timeline corresponds to the one currently discussed at EU level and called for by the European Parliament, this deadline appears to be ambitious yet realistic and in line with the request by a majority of the public consultation respondents that companies should be given sufficient time to identify, train and select the most qualified women to be promoted to their boards. In the public consultation, the proposed timeframe varied in most cases from 3 to 8 years, most stakeholders acknowledging that a sufficient time span is required to achieve substantial progress, without putting companies in difficulty, in particular since board elections in some Member States take place only every 3 years.

Considering the divergent situations across Member States, with levels of female representation ranging from 3% to 27%, a compliance period until 2020 would enable a harmonised effort to increase the number of women on company boards throughout the EU duly taking account of the different points of departure of each Member State.[92] However, by setting the date for compliance at 2020, it was assumed that a (binding) instrument will be adopted at EU level by 2013 and transposed by the Member States by 2015, so that companies would have 5 years from the transposition deadline until the end of 2020 to comply. It also has to be taken into consideration, however, that the determination of a (binding) objective at EU level from which Member States could not derogate would already provide companies with full legal certainty that they will have to reach this objective by 2020 irrespective of the details of national transposition and would incentivise them to take the necessary preparatory measures. Therefore the effective period for companies to make the required adjustments would be 7 rather than 5 years. This is close to the upper end of the range of timeframes suggested by stakeholders in the public consultation (8 years) and should therefore allow compliance across Member States and sectors, even where female participation in boards, top management or the workforce at large is currently below average.

This is illustrated by the fact that an individual company, in order to reach the targets of policy options 3 and 4, would only have to replace one or two men by women in the non-executive board. Given that on average there are 8.31 directors on boards (1.91 executive and 6.39 non-executive directors) and that the recommended mandate of a board directorship lasts 3.1 years, the requested dimension of change seems achievable without serious problems over a period of 5 (or effectively 7) years. Even for option 5, only four Member States would be required to replace between three and four men by women in boards. In those four Member States the total number of directors exceeds the average, meaning that there is more fluctuation in general.

Against this background compliance within the given timeframe is considered feasible even in Member States or sectors with a particularly low current level of female representation. The plausibility of this assumption is further corroborated by the fact that all the Member States which have taken the most ambitious (binding) measures in this field have set deadlines that are tighter even where these Member States start from a very low level of female presence on boards[93]. The instrument would not impose an objective in those cases where an individual company can show that it is unable to reach the target for reasons beyond that company's control. Based on the expectation that such cases will be rather exceptional this solution appears to be more suitable than a more generous deadline for all companies hampering the effectiveness of the measure in achieving its policy objectives and going beyond the upper end of the range considered reasonable by most stakeholders[94].    

Delays in the adoption process could have an impact on the deadlines with a view to guaranteeing a comparable period for companies to adapt to the measure. For the reasons set out above, it has been excluded to set a longer compliance period.

4.2.4.     Requirements of the CJEU case law

In line with the requirements of the CJEU's case law, priority can only be given to a female candidate if she is at least equally qualified as the male candidate. In order to meet the objective and establish whether two candidates are equally qualified, companies not having gender-balance among their non-executive directors will need to define the qualification criteria and look for candidates of both sexes who meet the qualification profile thus making the recruitment processes more open and transparent.

Furthermore, the retained policy options cannot impose rigid quotas but should respect the CJEU case-law on positive action and the principle of proportionality, allowing for companies to justify under special conditions why they could not comply with the target, in particular in cases of a lack of equally qualified female candidates for board positions or the under-representation of women among the workforce.

Finally, also in line with the case-law and the principle of proportionality, it was also assumed that the retained policy options will only be taken on a temporary basis until sustainable change has been achieved. This would imply that the legal instrument would be automatically repealed after the expiration of a defined period of time, unless the legislator votes to prolong the measure after a thorough review by the Commission.

4.3.        Retained policy options

The following 5 policy options have been retained for further impact analysis:

Option 1: No further action at EU level (baseline scenario).

Option 2: A Commission Recommendation encouraging Member States to achieve an objective of at least 40% of board members of each gender by 2020 for both executive and non-executive directors of publicly listed companies in the EU.

Option 3: A Directive introducing an objective of at least 40% of each gender by 2020 for non-executive directors of publicly listed companies in the EU.

Option 4: A Directive introducing an objective of at least 40% of board members of each gender by 2020 for non-executive directors of publicly listed companies in the EU and, in addition to option 3, also a flexible objective for executive directors which would be set by the publicly listed companies themselves in the light of their specific circumstances.

Option 5: A Directive introducing an objective of at least 40% of board members of each gender by 2020 for both executive and non-executive directors of publicly listed companies in the EU.

5.           Impact Analysis

Each retained policy option has been assessed in terms of its social, economic and environmental[95] impacts compared to the baseline and the extent to which it meets both the policy objectives and the broader EU objectives. Further details on the methodology for all the impacts as outlined below are provided in Annex 8.

5.1.        Methodology to assess the impacts

5.1.1.     Effectiveness

              Impact on female representation on company boards

Most straightforwardly, the effects in terms of the percentage of board seats held by women are projected on the basis of full compliance in the case of fixed binding objectives and additional assumptions for non-binding or flexible targets which are explained in the assessment of the different options. If in individual cases companies are not able to achieve full compliance upon the deadline, the benefits for them and for the national economy would fully show only some time later when compliance is achieved.

As indicated above[96] studies have shown that only after a 'critical mass' of about 30% women has been reached – and where the board size permits where at least three board members are female - gender diversity can produce significant effects, notably in terms of  corporate governance and performance. It has not been possible to estimate exactly how benefits will develop in options which do not lead to a 'critical mass' level of women on boards. As a general statement it can be said that the full potential of benefits identified can only be exploited if the critical mass is reached and that benefits will be smaller than calculated if results stay below this critical mass. This effect is mentioned in the evaluation of the different options. The question only arises for option 2, the Recommendation, as in all other options the 'critical mass' level will be reached.

5.1.2.     Economic impacts

              Impacts on company performance

The impacts on company performance are further sub-divided into (i) impacts on corporate governance, and (ii) impacts on financial performance.

Corporate governance

As stated above, companies with more women on their boards have better corporate governance. A methodology was developed to score qualitatively the impact of the different policy options on corporate governance. Two factors have been taken into consideration to establish this scoring: (i) the effect each policy option has on the increase of female presence in board rooms and (ii) the impact female board members have on selected corporate governance indicators.

To score the effect of each policy option on the presence of women on boards, it is assumed that the impact of the policy options on corporate governance indicators increases in direct proportionality with the increase of female presence. The following “effect size” score is used: policy options that do not increase female presence on boards have "no impact" (score 0), policy options that increase female presence of women on boards receive a score which corresponds to the extent of the percentage point change, as follows: score 1: 0-5 percentage point increase; score 2: 5-10 percentage point increase; score 3: 10-15 percentage point increase, score 4: 15-20 percentage point increase, score 5: 20-25 percentage point increase, score 6: 25-30 percentage point increase and score 7: 30-35 percentage point increase.

The following nine corporate governance indicators, which have been developed by governance rating firms, have been selected. Evidence on the link between the selected indicator and the presence of female board members is detailed for each indicator in Annex 8. Based on a model developed by McKinsey (2008), each indicator has received a score to indicate the strength of the relationship between increased female presence in company boards and corporate governance (“indicator score”). As executive and non-executive board members play different roles and ultimately have various degrees of influence, some indicators are only relevant for either executive or non-executive directors.

Table 2: Overview of corporate governance indicators

Accountability, Risk & Audit: to evaluate individual and company performance and to ensure accountability and responsibility for business results. This indicator only applies to non-executive directors. The indicator score is 1.

Monitoring & Control: to measure and evaluate business performance and risk. This indicator only applies to non-executive directors. The indicator score is 2.

Innovation and Creativity: to generate flow of ideas that the company adopts and to identify new market perspectives). This indicator only applies to executive directors The indicator score is 1.

Work Environment & Values: to shape interactions between employees, generate discussions through team work and foster a shared understanding of organizational values. This indicator only applies to executive directors and the indicator score is 3.

Direction & Leadership: to ensure leaders shape and inspire the actions of others to drive better performance. This indicator applies to both non-executive and executive directors. The indicator score is 2.

Pay Policies: to ensure board members’ earnings reflect company’s performance and personal achievements. This indicator only applies to non-executive directors. The indicator score is 2.

Corporate Reputation and Corporate Social Responsibility (CSR). This indicator applies to both non-executive and executive directors and the indicator score is 2.

Understanding of the Market: to engage in constant two way interactions with customers, suppliers and other partners and to understand needs, requirements and demand trends. This indicator only applies to executive directors. The indicator score is 3.

Board Dynamics: to manage and run a company, to determine its direction, leadership, goals and market position. To ensure that board roles and responsibilities are clearly defined. This indicator applies to both non-executive and executive directors and the indicator score is 3.

The total scoring of the impact of the policy options on each of the corporate governance indicators has been obtained by multiplying the “effect size” score by the “indicator” score. This combined score gives an indication of the relative qualitative ranking of each of the options in terms of improved corporate governance; it should not be interpreted as measuring their impact on the quality of corporate governance on some absolute scale. It has been decided to refrain from such a quantitative estimate of the impact on corporate governance because of the lack of evidence that would link each of the indicators described above to company performance directly and separately and to avoid double-counting of the positive impact of female presence on company financial performance.

Financial performance

Notwithstanding the large amount of research (see section 2.1 and Annex 3) showing that companies with more gender-diverse boards outperform companies with less gender-diverse boards, these studies do not give precise estimates of the scale of the impact on company performance that is directly due to increasing the gender-diversity of the company board.

To nevertheless provide an indication of the potential scale of such impact, the results of the 2004 Catalyst study[97] already referred to have been used as a starting point. Catalyst designed the 'Bottom Line' report series to establish whether an empirical link exists between gender diversity in corporate leadership and financial performance. Based on 353 Fortune 500 companies, this study provides the broadest sample[98] and the most complete information to quantify the impact that an increased presence of female board members in publicly listed companies could have on financial performance as measured in terms of return on equity (ROE) – i.e. the profit on every Euro invested by the company’s shareholders. In 2011,[99] based on the same model, Catalyst found that the ROE[100] in companies with three or more women was 46% higher compared to companies with no women on boards. This is similar to the result in the 2010 McKinsey “Women Matter” report,[101]  which found a 41% higher ROE for companies with the highest share of women on board compared to companies with no women on board. These results are confirmed by numerous other studies.[102]

The Catalyst results suggest that a 1 percentage point increase in the female share of a company's board members is associated with a 0.25 percentage point increase in its ROE on average. This provides a way of illustrating the potential improvement in company performance that could result from the various policy options.[103] However, many factors determine company financial performance, and it is likely that the difference in performance that was demonstrated in numerous studies is only partly due to a greater share of women on the board. In this impact assessment, for the purposes of enabling a comparison of the relative impact of the different policy options, it has been assumed that one-tenth of the difference in ROE found in the Catalyst survey between firms in the top and bottom quartiles in terms of the gender-diversity of their boards is directly due to these differences in gender diversity. That is, every 1 percentage point increase in the share of a company’s board members who are female is assumed to lead to a 0.025 percentage point increase in its ROE. In the light of the difficulty to quantify the exact influence of a multiplicity of factors on company results this approach represents an estimate demonstrating the potential effects of enhanced gender balance on boards for company performance. However, given the magnitude of the correlation found in numerous studies and the resulting plausibility of a link this estimate appears to represent a rather conservative assumption even in the absence of an empirically proven causality.

As the Catalyst results are based on a comparison between firms with the most gender-diverse boards and those firms that have fewest women on their boards, the differences in performance they report can be interpreted as reflecting the “critical mass” effect. In the calculations below, no adjustment of this effect is made for policy options that do not achieve a “critical mass” in terms of gender diversity. Accordingly, the impact on company performance of options that fail to achieve a critical mass of women on company boards is likely to be overstated relative to those options that do achieve this critical mass, and this should be kept in mind when interpreting the results.

              Impacts on long-term economic growth

An increase in female board members of publicly listed companies will have a spill-over effect on (i) the numbers of women in senior and middle management positions, with consequences for, (ii) female earnings and (iii) the return on education (see section 2).

Therefore, each policy option would have a positive impact on reducing the gender employment gap and the gender pay gap.

A methodology has been developed to score the impact of the policy options on the spill-over effect on the gender employment gap and the gender pay gap.  The quantitative evidence on the impact of the number of female board members on the number of female employees at other management levels of the company and on the female earnings is based on the US study (Matsa Miller, 2011) providing the best available quality of evidence. However, no evidence has been found to quantify the spill-over effect on female employment at junior level.  Furthermore it has not been possible to quantify the positive feedback impact that a larger pool of female top management would have on the gender composition of the board.  Due to those limitations, it has been decided to only qualitatively score the policy options' spill-over effect in this impact assessment report. A quantitative score is provided in Annex 8.

Each policy option would also have an impact on the return to education. Given that approximately 60% of the university graduates in Europe are women and substantial investments are made publicly and privately to educate these female students, the current GEG and GPG also generate limited returns on education. The concept of the rate of return on investment in education is very similar to that of any other investment: it is a summary of the costs and benefits of the investment incurred at different points in time, and it is expressed in an annual (percentage) yield, similar to that quoted for savings accounts or government bonds. For the purpose of this IA, it has been assumed that women who will be brought to board and managerial level have already invested in formal education and that they have achieved tertiary education.

If more women were to occupy positions of economic decision-making, the reasoning goes, it is expected that investment in education would yield a higher return at both an individual and societal level.[104] In line with OECD indicators, the degree to which the costs of attaining higher levels of education translate into higher levels of earnings is estimated on the basis of the average increase in female salaries across levels. The impact on return on education is interpreted as the contribution of the policy options to increasing the individual and public sector benefits of education. A quantitative estimate is provided in Annex 8.

Investment costs

In order to comply with a target, companies are expected to invest in mechanisms to ensure that the most qualified women are identified, selected and trained, for instance through (in)formal mentoring or training programmes for internal candidates or through the use of executive search firms to find external candidates, to fully reap the associated micro-economic benefits. Investment costs will also cover costs for more transparency in selection procedures. The costs related to such mechanisms ('investment costs') are analysed for each option, based on their financial (monetary) costs and non-financial costs (value of time spent by an individual attending such a programme). It was assumed that companies will face annual investment costs between 2017 – 2020 (from 2017, as the year when it is assumed that companies will begin to invest in meeting the target until 2020, the year it is assumed the target will have to be met) as well as annual investment costs from 2021 to 2030 in order to maintain the target. It is also assumed that the time required to provide each programme was constant across Member States.

The total amount of investment costs incurred in each Member State will depend on the current level of female participation in corporate boards in each Member State, the existing provisions already introduced in each Member State and the policy option in place.

              Administrative burden

Following the introduction of any of the policy options other than the baseline, companies that are obliged to implement a binding measure or choose to implement a non-binding measure will have to provide information on compliance, for example in their annual reports.[105] It is assumed that those information obligations would occur annually as of 2020 and would roughly be equivalent for each company concerned on average so that differences between the policy options are explained by the number of companies concerned. Data from case studies indicate that the administrative burden would be minimal as the only additional information requirement that companies would face would be to report the percentage of women on their boards. They could do this in the annual reports that listed companies in all Member States have to make available to their shareholders and to the public. Indeed, Article 46 (a) of the Accounting Directive 78/660/EEC[106] already requires companies to include in their annual report a corporate governance statement which contains in particular information on the composition of their boards. 

Member States' review of such reports was also not regarded as very time-consuming. In addition, it is assumed that the time required to produce (by a company) and assess (by a Member State) a report was constant across Member States and would remain the same for all binding options. However, the costs in time varied by Member States based on variation in salary levels. 

5.1.3.     Social impacts

Measures to increase female representation on boards of publicly listed companies in the EU will have a positive effect on society as a whole in terms of enhanced gender equality, and it will bring specific benefits on associated elements such as company reputation, the development of role models, changes in recruitment policies and employees' identification with a company. Beyond the immediate impact of the policy measures on board representation as result of a Recommendation or even a legal obligation it is the entirety of these factors that ensure the demand side barriers are not only moderately reduced while measures last but bring about a sustainable change in business culture and significantly reduce the demand side barriers with a lasting effect.    

Depending on the policy options it can be expected, to different degrees, that companies' representatives will make less use of stereotypes and preconceptions when it comes to identifying candidates for posts on boards. Companies will have to engage more in a serious all-encompassing search for the best qualified candidates including the female talent pool and organise the selection process accordingly. Companies will build up and train their own female staff better in order to establish their own recruitment pool. Companies will also enhance the number of role-models,[107] mentors and sponsors for other women. All this will lead to more well-performing women on boards which again will lead to stereotypes diminishing and ultimately to a different business culture thus sustainably tackling the problem drivers underlying the current under-representation of women.

To qualify these social benefits, it is assumed that the social impacts proportionally increase with the effect that the policy option has on female presence among both executive and non-executive board members. The effects of the options are scored as follows: score 1: 0-5 percentage point increase; score 2: 5-10 percentage point increase; score 3: 10-15 percentage point increase, score 4: 15-20 percentage point increase, score 5: 20-25 percentage point increase, score 6: 25-30 percentage point increase and score 7: 30-35 percentage point increase.

5.2.        Option 1: No new action at EU level (baseline scenario)[108]

Since this policy option is identical with the baseline scenario it can obviously not produce any impacts compared to the baseline.

The developments of female presence on company boards, estimated under the baseline scenario to increase to 20.84% in 2020, were fed into the economic models in order to calculate the following benchmarks against which the other policy options are assessed:

· On average, 20.84% female board members and 34.84% female managers.

· The ROE is on average 10.78% for listed companies in the EU-27. Based on data from Bloomberg and Capital IQ (Standard and Poors) and 2011 values, this is equivalent very roughly to net income of about €600 billion, or an average of €125 million per listed company.

· The gender employment gap at board level in 2020 is 343% at board level and 118% at managerial level.[109] This means that men are more than four times as likely as women to occupy a board position, and more than twice as likely to be managers.

· The unadjusted gender pay gap[110] in listed companies is 23.72% on average.

· The average return on education for individuals is 18.20% and 22.11% for the public sector.

This is the policy option favoured by a majority of business stakeholders as well as a number of Member States (CZ, HU, NL and SE). They consider that the choice whether to take measures to increase the female presence on boards and what kind of measures should be entirely left to individual companies, and that no EU measures are needed. These stakeholders are optimistic that, due to the business and image benefits to be expected, companies will indeed take action and appoint more women to their boards. Other stakeholders (e.g. women associations, shareholder associations, trade unions) hold, on the contrary, that this approach of self-regulation and voluntary measures – which has been pursued over more than 10 years now – has failed and that strong action at EU level is now needed.

This policy option would obviously have the smallest impact on the fundamental rights enshrined in the Charter, or even no impact at least as far as the EU level is concerned. There would neither be a beneficial impact on equality between women and men (Article 23) and the freedom to choose an occupation and right to engage in work (Article 15), nor would there be any negative impact on the freedom to conduct a business (Article 16) and the right to property (Article 17). Binding measures or soft regulation in Member States do have an impact on those fundamental rights, but as they would not be implementing Union law, the Charter would not be applicable pursuant to its Article 51(1).

5.3.        Option 2: Recommendation

The impact of option 2 depends on whether and how Member States will take action. This option could lead to additional – more focussed – soft-law measures and self-regulation at national level, additional binding measures at national level, or have no effect at national level. In case of non-binding measures, the effect will also depend on companies' compliance.

Two Member States (FI and LV) expressed their preference for an EU-level Recommendation. Some companies and business-related stakeholders stated that they would also accept a recommendation or some form of 'soft' targets to be set by an EU-level initiative. The effectiveness of such 'soft' measures is, however, put into question by a number of stakeholders advocating stronger measures.

5.3.1.     Effectiveness

A Recommendation, due to its non-binding nature and in the light of past experience (Recommendations have been used in this field since 1984),[111] is assumed to be limited in its effects and to have a potential impact mainly by tipping the balance in favour of non-binding/ binding action only in those Member States where such measures are currently under considerable discussion but have not yet received the necessary support[112].

Accordingly, under this option, by 2020 the presence of females on boards of publicly listed companies increases to 23.57% (8.47% executive and 28.09% non-executive board members), which is a 2.73% point increase at board level compared to the baseline scenario. As the 'critical mass' is not reached for board members, the effects as described below might be slightly lower.

5.3.2.     Economic impacts

              Impact on company performance

As option 2 covers both executive and non-executive directors, it has an impact on all 9 corporate governance indicators.

Option 2 leads to an increase in female presence among both executive and non-executive directors of 0.66 percentage points and 3.35 percentage points respectively, leading to an effect size of 1 for both executive and non-executive directors. Multiplying the “effect size” score with the “indicator score” for each indicator leads to the following score:

Table 3: Corporate governance score for policy option 2

Indicator || Target group & Indicator score || Effect size score || Score

Accountability Risk & audit || Non-executive Directors: 1 || Executive Directors: 1 Non-executive Directors: 1 || 1

Monitoring & control || Non-executive Directors: 2 || Executive Directors: 1 Non-executive Directors: 1 || 2

Innovation & creativity || Executive Directors: 1 || Executive Directors: 1 Non-executive Directors: 1 || 1

Work environment & values || Executive Directors: 3 || Executive Directors: 1 Non-executive Directors: 1 || 3

Direction & Leadership || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 1 Non-executive Directors: 1 || 4

Pay Policies || Non-executive Directors: 2 || Executive Directors: 1 Non-executive Directors: 1 || 2

Corporate Reputation & CSR || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 1 Non-executive Directors: 1 || 4

Understanding of the Market || Executive Directors: 3 || Executive Directors: 1 Non-executive Directors: 1 || 3

Board Dynamics || Executive Directors: 3 Non-Executive Directors: 3 || Executive Directors: 1 Non-executive Directors: 1 || 6

Total score || || || 26

Option 2 thus has a moderate impact on improving all aspects of corporate governance. Due to the expected slight increase in the number of female executive and non-executive directors, in particular the board dynamics and corporate reputation and CSR will be slightly positively affected.

Under option 2, the illustrative calculation described in section 5.1.2 shows an increase in average return on equity by 0.07 percentage points or 0.67% compared to the baseline. Following the approximate calculations shown for the baseline, these percentage changes would be equivalent to an increase in the net income of listed companies of about €4 billion.

This increase would be concentrated in those Member States and firms that take action following the recommendation.

Investment costs

Investment costs arise only in Member States following a Recommendation and, in the case of non-binding national measures, only for companies that respond. On that basis, the total annual investment costs in the EU will be €3.7 million for the period 2017 – 2020 and €651,800 for the period 2021 – 2030. 

              Impact on long-term economic growth

Compared to the baseline, the increased female presence at board level will also imply a higher representation at the managerial level. Therefore, the gender employment gap and the gender pay gap in listed companies in option 2 will be moderately reduced compared to the baseline scenario.

Option 2 will also have a moderate impact on the return on education for employment in listed companies both for individuals and for the public sector.

Administrative burden

Under the assumption that all Member States taking measures - also those that only take non-binding options - will monitor progress, the total annual average annual administrative burden for the costs of monitoring in the EU-27 is estimated at €93,005. The total costs of reporting for all companies affected will be €115,563.

5.3.3.     Social impacts

Since option 2 leads to a roughly 3 percentage point increase of women on company boards compared to the baseline, this option will have a fairly small impact on gender equality and the associated elements (score: 1). Consequently, this option is expected to only have a limited impact on reducing the influence of the demand side barriers.

To the extent that the Recommendation will achieve its objective of increasing the proportion of women on company boards and in managerial positions in the economy and thereby reducing gender gaps, it will positively contribute to the promotion of the right to equality between women and men in the labour market (Article 23) and of women's freedom to choose an occupation and right to engage in work (Article 15).

Inasmuch as action by Member States following up to the Recommendation has to be considered as implementing EU law within the meaning of Article 51(1) of the Charter, Member States would have to ensure that the negative impact on the freedom to conduct a business (Article 16) and the right to property (Article 17) is minimised as far as possible in order to respect the essence of these fundamental rights. The proportionality of these limitations can be ensured.

5.4.        Option 3: Directive with a 40% target for non-executive board members

This policy option is binding on listed companies across the EU, which will have to take necessary measures to ensure that, by 2020, at least 40% of their non-executive board members will be female while executive members would not be covered.

This kind of binding option is favoured by a large group of stakeholders, ranging from women organisations, shareholder associations, NGOs, a few business stakeholders to some Member States (AT and FR), even though some of these organisations suggest a lower (30%) or higher (50%) threshold, a shorter timeframe or the inclusion of all (i.e. also executive) board members (and sometimes also higher and middle management). The majority of business associations and companies are opposed to any binding measures.  

As to the feasibility of this option, even if there are considerable differences among Member States and sectors with respect to the current level of female participation on boards and in the workforce at large, a timeframe of 5 (or effectively 7[113]) years seems sufficient to comply.

As can be seen from table 8 in Annex 8, the highest replacement obligation exists in two Member States where on average 2.7 additional women are required. In 11 Member States  on average less than 1 woman is required to replace a male board member, in 9 Member States on average between 1 and 2 women have to replace male board members and in 6 Member States between 2 and 3 women are required. As far as sectoral differences are concerned, it has to be taken into account that for most positions non-executive directors do not have to have specific knowledge of the sector the company is working in. A non-executive director has a supervisory task requiring general knowledge and experience and an overview of market developments or for example financial and accounting skills that are not related to one specific sector. Therefore, it should be possible in general to find qualified female persons with these qualifications within the timeframe.

As far as differences between Member States are concerned the long timeframe should put even the companies in those with a currently very low female board representation in a position to comply. In that context it needs to be taken into account that most of the listed companies in question operate internationally and that even in the event of a limited pool of candidates in the same Member State they could consider recruiting non-executive directors from abroad.

A binding objective would oblige companies to pro-actively look for qualified female candidates, to expand beyond the usual and often opaque recruitment procedures and thus automatically bring about an improvement to the transparency of these processes[114]. Transparency obligations imposed under such an instrument would not have to regulate the selection and appointment process in detail. They could essentially be limited to a requirement to pre-define the qualification standards for the board positions in order to ensure that choices between candidates can be measured against these standards. Companies would then have to make a sincere effort to find a sufficient number of female candidates with the required profiles. At the same time, this rather non-intrusive requirement would enable the application of the case-law of the CJEU on positive action ensuring full compliance with the principle of proportionality[115].

Finally, any binding option would allow derogations for companies that could not find qualified female candidates, in order to ensure that sectors in Member States where it has not been possible to identify at least equally qualified women for board positions are not penalised (although it is expected that this possibility will be less relied on for non-executive director positions, where sector-specific experience is often not indispensable). Therefore compliance with this option seems feasible[116].

5.4.1.     Effectiveness

Based on the assumption that all companies comply with the target due to the existence of sufficiently deterrent sanctions,[117] option 3 generates by 2020 an increase to 32.58% of women on boards, an increase by 11.74% points compared to the baseline scenario (20.84%). This is due to the fact that that female non-executive directors' presence will increase to 40%. The critical mass level is reached by this option; therefore the predicted benefits are expected to fully materialise.

5.4.2.     Economic impacts

              Impact on company performance

As option 3 only covers non-executive directors, it has an impact on 6 corporate governance indicators.

Option 3 leads to an increase in female presence among non-executive directors of 15.25 percentage points, leading to an effect size of 4 for non-executive directors. Multiplying the “effect size” score with the “indicator” score, leads to the following score:

Table 4: Corporate governance score for policy option 3

Indicator || Target group & Indicator score || Effect size score || Score

Accountability Risk & audit || Non-executive Directors: 1 || Non-executive Directors: 4 || 4

Monitoring & control || Non-executive Directors: 2 || Non-executive Directors: 4 || 8

Innovation & creativity || Executive Directors: 1 || Non-executive Directors: 4 || -

Work environment & values || Executive Directors: 3 || Non-executive Directors: 4 || -

Direction & Leadership || Executive Directors: 2 Non-executive Directors: 2 || Non-executive Directors: 4 || 8

Pay Policies || Non-executive Directors: 2 || Non-executive Directors: 4 || 8

Corporate Reputation & CSR || Executive Directors: 2 Non-executive Directors: 2 || Non-executive Directors: 4 || 8

Understanding of the Market || Executive Directors: 3 || Non-executive Directors: 4 || -

Board Dynamics || Executive Directors: 3 Non-Executive Directors: 3 || Non-executive Directors: 4 || 12

Total score || || || 48

Option 3 thus has a visible impact on improving corporate governance. Due to the expected increase in female non-executive directors, in particular the board dynamics will be positively affected.

Under option 3, the illustrative calculation described in section 5.1.2 shows an increase in average return on equity by 0.28 percentage points or 2.61% compared to the baseline. Following the approximate calculations shown for the baseline, these percentage changes would be equivalent to an increase in the net income of listed companies of about €15.7 billion. For an average company this would mean an increase in net income of about €3.1 million compared to the baseline.

While the potential for improved financial company performance in general has been estimated on the basis of experience gained with company performance in cases of higher female representation achieved without binding obligations imposed by law there is a discussion as to whether the same results could be expected following the introduction of a binding quota or whether one would even have to reckon with a lower positive or even a  short-term negative impact on company results due to the imposition by law. Several studies analysing the effect of the Norwegian legislation as the only precedent until 2011 have looked into its impact on financial company performance and come to diverging results concluding that there was either a positive, a neutral or a negative short-term impact on company performance. The evidence on this point is by no means conclusive. One of them (Ahern and Dittmar)[118] identified a short-term risk of negative impact on financial performance while others (e.g. Nygaard) came to more positive results as regards investor's anticipation.[119] Ahern and Dittmar looked into reactions of shareholders of 166 Norwegian companies after the announcement that binding quotas were introduced in Norway and found that companies saw their market value decline around the time of the announcement of the law and they found a drop in Tobin's Q in the following years. They stressed that the loss of value was not caused by the sex of the new board members but rather by their lack of high level work experience and lack of the necessary competencies and skills. However, there is ample evidence acknowledging a positive effect on company performance of more gender balance on boards.

It should be noted that in Norway the situation was very different from a binding measure which could be adopted in the EU.[120] In Norway, the 40% objective had to be met in a short deadline of two years and companies had not enough time to prepare. The Norwegian law does not provide for any justification for companies that do not comply with the objective and are therefore threatened with dissolution, even in the event of a lack of qualified female candidates. Therefore any risk, should it exist, could be mitigated or excluded in an EU measure by ensuring that priority to a female candidate can only be given in case of better of equal qualification, and giving enough time for compliance. In addition, the investment costs assessed in this report estimate the expenses that would be necessary to train or identify candidates for board positions with sufficient qualifications to mitigate or eliminate any such risk. 

Furthermore, it should be underlined that in option 3, the potential risk would in any case already be limited from the outset since this option only applies to non-executive directors. Due to their tasks of a supervisory nature, they need general skills more than specialised professional experience in the particular domain where the company is active. Executive members in comparison tend to need more experience and expertise in the specific sector concerned since they have to run the day-to-day management. 

It has not been possible to quantify any potential short term risk for option 3 but on the basis of the above considerations it can be assumed to be very limited at the most.

Investment costs

In option 3 all the covered listed companies in all Member States have to ensure the constant availability of (female) candidates to comply with a binding target. For this option, the total annual investment costs in the EU for the period 2017-2020 will amount to roughly €16.6 million and roughly €3 million for the period 2021-2030.[121] These investment costs are not negligible but they are very modest in relation to the benefits at company level presented above, even leaving aside the macroeconomic considerations.

              Impacts on long-term economic growth

Compared to the baseline, the impact on gender employment gap and gender pay gap in option 3 will be good.  The impact on the return on education of the option 3 for both individuals and for the public sector will be moderate compared to the baseline

              Administrative burden

Based on the model described above, policy option 3 leads to a total annual burden of monitoring for all Member States of €100,000 and a total annual cost of reporting for all companies in the EU of €124,000.

5.4.3.     Social impacts

Since policy option 3 leads to a 11.74% points increase of women on company boards of women on board, this option will have a quite good impact on gender equality and the associated elements (score: 3). Consequently, this option is only expected to have a moderate impact on reducing the influence of the demand-side barriers.

As far as impacts on fundamental rights are concerned, Option 3 would have a clear beneficial impact on equality between women and men (Article 23) and on women's freedom to choose an occupation and right to engage in work (Article 15).  It clearly also represents a limitation to the freedom to conduct a business (Article 16) and the right to property (Article 17) of owners and shareholders of companies in that it restricts their right to determine by whom the company is managed and supervised. However, such limitation still respects the principle of proportionality and safeguards the essence of those rights since it leaves a sufficiently wide margin of choice for selecting board members. Companies do not face restrictions in defining qualification requirements and in the appointment of the best qualified candidates and the instrument only affects the overall gender composition of the body. Moreover, the limitation is much lighter if the binding objective only covers non-executive directors who are not involved in day-to-day management tasks.

5.5.        Option 4: Directive with a 40% target for non-executive board members and a flexible target for executive board members

With respect to non-executive boards, option 4 does not differ from option 3. With respect to executive boards or board members, option 4 introduces a "flexi-quota", which means that listed companies will be required to set their own individual targets for female presence in the executive board. Once the target has been communicated to the relevant national authority, should the company not comply with it, sanctions will apply. As companies set their own targets for the 'flexi-quota' and otherwise there is no change compared to option 3, as regards feasibility of compliance. The explanations given for option 3 in relation to non-executive directors apply accordingly.

Stakeholder views are obviously very similar to those for option 3. The flexible target[122] for executive directors would be favoured by a number of stakeholders that advocate an initiative starting with non-executive board members, to be followed later by executive directors.

5.5.1.     Effectiveness

It is assumed that in order for companies to do the minimum to signal compliance and ambition, amongst others for reputational reasons under a flexi quota, each company would replace one man with one woman (leaving the average board size unchanged). This represents an increase of 85% (nearly doubling the number of executive female board members from 1.1 to 2.1). As there has been a declining trend in the average board size over the last decade, it is assumed that the companies will leave the board size unchanged as opposed to increasing it.

Based on these assumptions, option 4 generates 34.11% of women on boards by 2020, an increase of 13.27% points compared to baseline scenario. This is due to the fact that on top of a 40% target for non-executive directors, female presence among executive directors will change to 14.44% (an increase of 6.63 % points compared to the baseline scenario). This option achieves the 'critical mass' level and it can thus be expected that the predicted benefits will fully materialise.

5.5.2.     Economic impacts

              Impact on company performance

As option 4 covers both executive and non-executive directors, it has an impact on all 9 corporate governance indicators.

Option 4 leads to an increase in female presence among non-executive directors of 15.25% points and to an increase in female executive directors or 6.63% points, leading to an effect size of 4 for non-executive directors and of 2 for executive directors. Multiplying the “effect size” score with the “indicator” score, leads to the following score:

Table 5: Corporate governance score for policy option 4

Indicator || Target group & Indicator score || Effect size score || Score

Accountability Risk & audit || Non-executive Directors: 1 || Executive Directors: 2 Non-executive Directors: 4 || 8

Monitoring & control || Non-executive Directors: 2 || Executive Directors: 2 Non-executive Directors: 4 || 8

Innovation & creativity || Executive Directors: 1 || Executive Directors: 2 Non-executive Directors: 4 || 2

Work environment & values || Executive Directors: 3 || Executive Directors: 2 Non-executive Directors: 4 || 6

Direction & Leadership || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 2 Non-executive Directors: 4 || 12

Pay Policies || Non-executive Directors: 2 || Executive Directors: 2 Non-executive Directors: 4 || 8

Corporate Reputation & CSR || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 2 Non-executive Directors: 4 || 12

Understanding of the Market || Executive Directors: 3 || Executive Directors: 2 Non-executive Directors: 4 || 6

Board Dynamics || Executive Directors: 3 Non-Executive Directors: 3 || Executive Directors: 2 Non-executive Directors: 4 || 18

Total score || || || 80

Option 4 thus has a large impact on improving all aspects of corporate governance. Due to the expected increase in both female executive and non-executive directors, in particular, the board dynamics, corporate reputation & CSR and direction & leadership will be positively affected.

Under option 4, the illustrative calculation described in section 5.1.2 shows an increase in average return on equity by 0.32 percentage points or 2.92% compared to the baseline. Following the approximate calculations shown for the baseline, these percentage changes would be equivalent to an increase in the net income of listed companies of about €17.5 billion. For an average company this would mean an increase in net income of about €3.5 million compared to the baseline.

As regards a potential short-term risk for company performance due to the binding nature of the measure, in principle the considerations set out for option 3 apply here as well. While the same general safeguards as under option 3 apply here it has to be taken into account that option 4 also covers executive directors. The flexible nature of the binding objective for those directors enables companies to avoid any negative impact through the setting of a self-imposed target. Therefore any possible additional short-term risks for this option have to be considered very limited. This limited risk could not be quantified.

Investment costs

For option 4, the total annual investment costs in the EU for the period 2017-2020 will amount to roughly €18.3 million and roughly €3.5 million for the period 2021-2030.[123] These investment costs are not negligible but they are very modest in relation to the benefits at company level presented above, even leaving aside the macroeconomic considerations.

              Impacts on long-term economic growth

Compared to the baseline, the impacts on the gender employment gap and the gender pay gap of option 4 will be significant.

The impact on average return on education in the option 4 both for individuals and for the public sector compared to the baseline scenario is quite good as well. 

              Administrative burden

Based on the model described above, policy option 4 leads to a total annual burden of monitoring for all Member States of €100,000 and a total annual cost of reporting for all companies in the EU of €124,000. The burden is not assumed to change significantly as compared to option 3 since in both options all listed companies are obliged to provide short information.

5.5.3.     Social impacts

Since policy option 4 leads to a 13.27% points increase of women on company boards, this option will have a quite good impact on gender equality and the associated elements (score: 3). Consequently, this option is expected to have a positive impact on reducing the influence of the demand-side barriers.

As far as impacts on fundamental rights are concerned, Option 4 would have a clear beneficial impact on equality between women and men (Article 23 Charter) and on women's freedom to choose an occupation and right to engage in work (Article 15).  It clearly also represents a limitation to the freedom to conduct a business (Article 16) and the right to property (Article 17) of owners and shareholders of companies in that it restricts their right to determine by whom the company is managed and supervised. However, such limitation still respects the principle of proportionality since it leaves a sufficiently wide margin of choice for selecting board members and does not go beyond what is necessary to achieve the intended objective. Companies do not face restrictions in defining qualification requirements and in the appointment of the best qualified candidates and the instrument only affects the overall gender composition of the body. Moreover, the limitation is much lighter if the binding objective only covers non-executive directors who are not involved in day-to-day management tasks.

5.6.        Option 5: Directive with a 40% target for both non-executive and executive directors

Option 5 would oblige Member States to introduce a binding target of 40% for executive and non-executive board members.

As the farthest reaching option covering also executive directors, it would be considered by the vast majority business stakeholders as an unacceptable interference in the daily management of companies. The coverage and the level of the target correspond, however, to the requirements of the French Law of 27 January 2011 (with a deadline already in 2017). On the other side of the spectrum, a number of stakeholders hold that, only by including the executive level of management, can real follow-on effects through the lower ranks of management and the entire workforce be expected. However, even some women's organisations[124] consider that only the supervisory positions should be covered by a binding objective – at least in a first stage.  

As to the feasibility of the measure, this option is the most difficult for the companies to comply with. In four Member States companies will on average have to change from 3.2 to 3.8 persons in their boards. In these Member States, the average size of boards of listed companies (SMEs excluded) is between 8.73 and 13.45 directors, meaning that in these Member States companies will have to make a big effort to replace significant parts of their male board members by qualified women. In 9 Member States companies will have to change more than 2 directors on boards; in 8 Member States companies will have to change more than one director on boards and in 4 Member States the mathematical 40% level would be achieved with a change of less than one person.[125] These figures cover the total number of executive and non-executive directors, which on average in EU27 stands at 8.31 directors (SMEs excluded).

In the light of a bigger need for sector-specific knowledge and experience for executive directors in charge of the day-to-day management of a company difficulties to comply with the objective for these directors may arise in areas where the female talent pool is particularly restricted. In sectors such as the mining, metal or automobile industries, qualified female staff and managers may sometimes be in short supply. However, given that a binding instrument would allow for derogations for companies that could not find a qualified female candidate in particular for executive positions, compliance with this option still seems feasible.

5.6.1.     Effectiveness

Based on the assumption of full compliance, option 6 generates by 2020 a 40% female presence among both executive and non-executive directors, an increase of 19.16% points at board level compared to the baseline scenario.

5.6.2.     Economic impacts

              Impact on company performance

As option 5 covers both executive and non-executive directors, it has an impact on all 9 corporate governance indicators.

Option 5 leads to an increase in female presence among non-executive directors of 15.25% points and to an increase in female executive directors of 32.19% points, leading to an effect size of 4 for non-executive directors and of 7 for executive directors. Multiplying the “effect size” score with the “indicator” score, leads to the following score:

Table 6: Corporate governance score for policy option 5

Indicator || Target group & Indicator score || Effect size score || Score

Accountability Risk & audit || Non-executive Directors: 1 || Executive Directors: 7 Non-executive Directors: 4 || 4

Monitoring & control || Non-executive Directors: 2 || Executive Directors: 7 Non-executive Directors: 4 || 8

Innovation & creativity || Executive Directors: 1 || Executive Directors: 7 Non-executive Directors: 4 || 7

Work environment & values || Executive Directors: 3 || Executive Directors: 7 Non-executive Directors: 4 || 21

Direction & Leadership || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 7 Non-executive Directors: 4 || 22

Pay Policies || Non-executive Directors: 2 || Executive Directors: 7 Non-executive Directors: 4 || 8

Corporate Reputation & CSR || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 7 Non-executive Directors: 4 || 22

Understanding of the Market || Executive Directors: 3 || Executive Directors: 7 Non-executive Directors: 4 || 21

Board Dynamics || Executive Directors: 3 Non-Executive Directors: 3 || Executive Directors: 7 Non-executive Directors: 4 || 33

Total score || || || 146

Option 5 thus has a significant impact on corporate governance. Due to the expected increase in both female executive and non-executive directors, in particular direction and leadership, corporate reputation & CSR and board dynamics will be positively affected.

Under option 5, the illustrative calculation described in section 5.1.2 shows an increase in average return on equity by 0.43 percentage points or 3.95% compared to the baseline. Following the approximate calculations shown for the baseline, these percentage changes would be equivalent to an increase in the net income of listed companies of about €23.7 billion. For an average company this would mean an increase in net income of about €4.7 million compared to the baseline.

Investment costs

Under option 5 it is expected that total annual investment costs in the EU for the period 2017-2020 will amount to roughly €26.5 million and roughly €5 million for the period 2021-2030.[126] These investment costs are not negligible but they are very modest in relation to the benefits at company level presented above, even leaving aside the macroeconomic considerations. 

As regards a potential short-term risk for company performance due to the binding nature of the measure, in principle the considerations set out for option 3 apply here as well. While the same general safeguards as under option 3 apply here, it has to be taken into account that option 5 also covers executive directors who are in charge of day-to-day management and therefore might be required to have experience in the specific sector in which the company operates. Candidates of the under-represented sex might be more difficult to find in some circumstances, particularly where there is severe under-representation in the workforce throughout that whole sector. A potential risk should be manageable in view of the safeguards set out under option 3 but is appreciably higher than in any other policy option. However, it is very difficult to quantify as it will depend to a large extend on previous preparations of companies, on the general share of women in high management positions and human resource policy but also on the number of companies making use of the flexibility afforded under the safeguard measures aimed at containing or eliminating such risks.

Impacts on long-term economic growth

Compared to the baseline, the gender employment gap and gender pay gap in option 5 will be very significantly reduced. The impact on the average return on education in option 5 for individuals and the public sector compared to the baseline scenario is also significant.

              Administrative burden

Based on the model described above, policy option 5 leads to a total annual burden of monitoring for all Member States of €100,000 and a total annual cost of reporting for all companies in the EU of €124,000.

5.6.3.     Social impacts

Since policy option 5 leads to a 19.16% points increase of women on company boards and thus to 40% share of women on boards, this option will have a quite good impact on gender equality and the associated elements (score: 4). Consequently, this option is expected to have a very significant impact reducing the influence of the demand-side barriers.

The positive impact on gender equality (Article 23) and on women's freedom to choose an occupation and right to engage in work (Article 15) would undoubtedly be strongest for this option. It would achieve the furthest-reaching and most sustainable change in management and business culture, with the strongest positive effects for the position of women on the labour market. The limitation to the fundamental freedom to conduct a business (Article 16) and the fundamental right to property (Article 17) of owners and shareholders of companies would be more significant if gender equality considerations would limit the choice of those persons who run the enterprise on a daily basis and decide on important business transactions.

Nevertheless, other restrictions of these fundamental rights in areas such as company law, labour law and environmental law would not make this limitation appear disproportionate, especially given the importance of the intended aim of gender equality which is recognised both in the Charter and the Treaties. It can, however, be argued that such limitation needs in any case to be mitigated by a 'saving clause' which allows departing from the binding gender objective where equally qualified candidates of the under-represented sex cannot be found, e.g. in sectors where female participation in the workforce and management is particularly low and for executive positions which require specific expertise and experience in that sector.  Policy makers would have to consciously take into consideration the extent of the restricting shareholders' fundamental rights when choosing this option.

6.           Comparison of policy options

All policy options are expected to address the main drivers of the problem and would help to reduce the importance or even to break the "vicious circle" explaining and maintaining female under-representation in corporate board rooms. The demand-side barriers that "boardable" women are facing will be reduced due to an increase of female representation on board of listed companies.

The comparison of the consequences of the different policy options yields the result that (i) binding measures are more effective in meeting the policy objectives than non-binding measures, (ii) measures that target both executive and non-executive board members are more effective than measures only targeting one group and (iii) binding measures will generate more societal and economic benefits than non-binding measures.

At the same time, binding measures will entail comparatively larger costs and administrative burdens. Furthermore, the degree of effectiveness of the different policy options is directly linked to the extent of interference with the rights of the companies and the shareholders as their owners. Compared to a non-binding measure with a tangible yet limited effect a substantial increase of the impact in terms of the policy objectives would require an instrument with binding force prescribing minimum requirements for the composition of company boards. While the consequences of all the different policy options on fundamental rights are justifiable and in line with the principle of proportionality in view of the legitimacy of the policy objectives and the in-built safeguards, those that establish binding targets for executive board members, the persons directly responsible for the operative day-to-day management of a company produce the most beneficial effects but also represent the most significant interference.

The choice of the preferred option will therefore require a political judgement to be made as to whether the increased cost of binding measures and their greater degree of interference with fundamental rights of binding measures can be justified by their wider socio-economic benefits, or whether, on the contrary, non-binding measures are to be preferred because, although they generate less significant socio-economic benefits, and are less effective in terms of meeting the policy objectives, they also entail fewer constraints on the exercise of fundamental rights. Should preference be given to a legally binding option, the envisaged features of such an option (such as the length of the implementation period or a "saving clause" allowing derogations on certain conditions) should be sufficient to effectively eliminate or mitigate any possible short-term risks for company performance, considering that this potential risk is more likely to occur in case of legally binding measures also targeting executive board members.

The administrative burden linked to all policy options assessed is expected to be minimal, and identical per company and Member State for all retained policy options. These options would cover only publicly listed companies which are expected to be able to use existing reporting mechanisms to provide the necessary information on their compliance to the Member States. During the preliminary screening exercise of policy options, the policy options which were likely to entail higher administrative burden were discarded at an early stage.

As can be concluded from the overview table below, the policy options differ in terms of their impact on the objectives.

The baseline scenario means continuing at a very slow pace towards a better gender balance in board rooms. In light of the fundamental values of gender equality in the EU and the missed opportunity in terms of micro- and macro-economic benefits, "business as usual" is a scenario the EU cannot afford. The impact analysis of options 2-5 confirms the added value of EU action.

Option 2 is estimated to only slightly increase the participation of women in company boards by 2.73 percentage points compared to option 1 (baseline). Although the investment costs and administrative burden are estimated to be higher compared to the baseline scenario, the illustrative calculation in section 5.3 indicates that ROE could increase by up to 0.07 percentage points to 10.85%. For all EU listed companies, therefore administrative burden costs of €12,000 and the investment costs of €3,7 million and €651,800 for the periods 2017-2020 and 2021-2030 respectively can be considered negligible compared to a possible benefit of about €4 billion in increased net income.  The benefits of this option translate into a slight reduction of the gender employment gap and the gender pay gap compared to baseline.

Option 3 is estimated to further increase the participation of women in company boards by 11.74 percentage points. This increase will have a visible positive influence on corporate governance of companies, too. Although the investment costs and the administrative burden for the total EU are estimated to be higher compared to option 2, the illustrative calculation in section 5.4 indicates that ROE could increase to 11.06%. For all EU listed companies, therefore administrative burden costs of €124,000 and the investment costs of €16.6 million and €3 million for the periods 2017-2020 and 2021-2030 respectively can be considered negligible compared to an increase in net income of about €15.7 billion. The benefits of this option translate into a further reduction of the gender employment gap and the gender pay gap compared to baseline and option 2.

Option 4 is estimated to further increase the participation of women in company boards by 13.27 percentage points compared to baseline. The investment costs of roughly €5,000 are estimated to be higher compared to option 3. However, administrative burden for average companies and Member States stays the same compared to option 3. The illustrative calculation in section 5.5 indicates that ROE could increase to 11.10%. For all EU listed companies, therefore administrative burden costs of €124,000 and the investment costs of €18.3 million and €3.5 million for the periods 2017-2020 and 2021-2030 respectively can be considered negligible compared to an increase in net income of about €17.5 billion. The benefits of this option translate into a further reduction of the gender employment gap and the gender pay gap compared to the baseline and to option 3.

Option 5 is estimated to further increase the participation of women on company boards by 19.16 percentage points. The investment costs of roughly €5,300 are estimated to be higher compared to option 4 (administrative burden for companies and Member States stay the same as under option 5). However, the illustrative calculation in section 5.6 indicates that ROE could increase to 11.21%. For all EU listed companies, therefore administrative burden costs of €124,000 and the investment costs of €26.5 million and €5 million for the periods 2017-2020 and 2021-2030 respectively can be considered negligible compared to an increase in net income of about €23.7 billion. In addition, the possible short term risks on a company's financial performance might be higher compared to options 3 and 4. The benefits of this option translate into a further reduction of the gender employment gap and the gender pay gap compared to baseline and option 4.  However, option 5 would arguably be more difficult for companies to implement, as executive directors have to be chosen from people with specialised professional experience in the field.  It can therefore be more difficult to find a suitable person if a gender target is imposed. Such a measure could change the internal company structure and could therefore create additional burden for companies.

Table 7: Overview of the impact of policy options

|| Effectiveness || Micro-economic impact || Macro-economic impact || Social impacts || Admin burden

|| Change from baseline in p.p. of female board members on average for EU-27 || Corporate performance (qualitative score) || Financial performance expressed in % change in return on equity compared to the baseline || Total EU annual investment costs over the period 2017 – 2020 and the  period 2021-2030 || Impact on reducing gender employment gap and gender pay gap compared to baseline (qualitative score) || Return on education: change compared to baseline (qualitative score) || Impact on gender equality (quantitative score) || Annual average reporting  and monitoring costs  in total EU

PO1 (Baseline) || (20.84%) || - || (10.78%) || || || || ||

PO2 || +2.73% || + || 0.67% || €3.7 million/€651,800 || + || + || 1 || €115,000/ €93,000

PO3 || +11.74% || ++ || 2.61% || €16.6 million/ €3 million || ++ || + || 3 || €124,000/ €100,000

PO4 || +13.27% || +++ || 2.92% || €18.3 million/ €3.5 million || +++ || ++ || 3 || €124,000/ €100,000

PO5 || +19.16% || ++++ || 3.95% || €26.5 million/€5million || ++++ || +++ || 4 || €124,000/ €100,000

The impacts under the different policy options as compared above lead to the assessment of the suitability of these options to achieve the policy objectives indicated under point 3 as shown by the table below:

Table 8: Correlation between objective and options

      Options Objectives || Option 1 Baseline || Option 2 Recommendation || Option 3 Directive (40% for non-executive directors) || Option 4 Directive (40% for non-executive directors  and flexi-quota for executive directors) || Option 5 Directive (40% for both executive and non-executive directors)

Gender equality in boards || No direct encouragement || Moderate link as not binding || Good effect on more female non- executive directors || Significant effect on more female non-executive directors and moderate effect on executive directors || Very significant effect on both non-executive and executive directors

Exploit female talent pool || No direct influence || Moderate link as not binding || Good effect on exploiting  pool for female non-executive directors by internal training and talent pool || Significant effect on exploiting  pool for female directors by internal training and talent pool || Very significant effect on exploiting  pool for female directors by internal training and talent pool

Reduce barriers for women aiming at board positions || No direct effect || Moderate link as not binding || More women in board positions would reduce barriers || More women on boards would reduce barriers || High reduction of barriers

Improve corporate governance || No direct influence || Moderate link as not binding || Direct effect on many indicators || Direct effect on all indicators || Very significant effect on all indicators

Operational  objective || Not achieved || Not achieved throughout the EU || Achieved for non-executive directors || Achieved for non-executive directors || Achieved for both executive and non-executive directors

7.           Monitoring and evaluation arrangements

In case of any policy option based on a legally binding measure at EU level (options 3-5), Member States will have to monitor whether listed companies comply with the targets and report to the Commission on the state of implementation at national level. In compliance with the principle of subsidiarity, the relevant information should be gathered primarily by Member States through relevant agencies.

The Commission will, in turn, monitor whether the legally binding instrument has been correctly transposed and implemented at national level. The Commission will report to the European Parliament and the Council on the progress made in practice at regular intervals. Monitoring activity should involve sample reviews of statements or reports, to ensure compliance with a binding instrument. During the transposition and implementation period, implementation workshops can be organised by the Commission to deal with questions/issues that might arise in the course of the implementation period. Where questions are common, guidance on how to deal with the issue may be issued by the Commission. The evaluation of effects of the preferred policy option shall be carried out to see to what extent the anticipated impacts materialise.  In terms of possible downsides it will be necessary to assess whether companies have chosen to de-list from EU regulated stock exchanges as a consequence of the policy. Such an evaluation will be carried out by the Commission services.  Data collection should be possible at limited cost at EU level, as it would be made broad use of existing structures and this would not require the setting up of new instruments. The existing network of legal experts will, upon the expiration of the implementation deadline, provide a study on the implementation and effects of the obligation. The results of this study would be made public.

DG MARKT’s initiatives on the disclosure of non-financial information and on gender diversity policies will contribute to increasing board diversity in general and will also offer better information on board diversity policy to investors and civil society. [127]   Therefore, it is complementary to any of the retained policy options: better disclosure can help in monitoring the application of a requirement on female participation in boards of listed companies.

It is expected that a legally binding EU measure will be limited in time, meaning that it will be repealed after a number of years, when sufficient progress has been made and it is expected that the trends will sustain even when the EU measure will be discontinued.

In case of a non-legally binding measure at EU level, Member States are free to decide whether and if so, what type of action they will take at national level. The Commission will monitor the situation to assess process made and regularly report to the European Parliament and the Council. If, on the basis of those progress reports, not enough progress is made, the Commission may propose legally binding measures at EU level at a later stage.

The main indicator to monitor and evaluate progress towards to the policy objectives would be the number of female board members in publicly listed companies in the EU.

8.           List of Annexes

1. List of consulted studies

2.           Results of the stakeholder consultation

3.           Business case literature review

4.           Background to the problem definition

5.           Background on the board structure and the appointment of board members in practice

6.           Background on the baseline scenario

7.           Fundamental rights

8.           Background on methodology of calculation of all impacts

9.           Background on the Norwegian case

2. List of consulted studies

9.           List of Figures and Tables

Figure 1 Gender-Balance Across Key Institutions in Different Areas

Figure 2: Career Progression for Women and Men in Listed Companies (2011)

Figure 3: Share of Women among Members on Boards for Listed Companies in EU Member States and some other countries (Iceland, Norway, Australia, Canada and the US), January 2012

Figure 4: Female Board Participation by Sector

Figure 5: Percentage Point Change in Female Presence in Corporate Boards between 2004 and January 2012

Figure 6: Women and men on corporate boards in the EU, 2003-201

Figure 7: The Vicious Circle: How the current under-representation of women on company                         boards contributes to their future under-representation

Figure 8: Change in the share of women on corporate boards in the EU, October 2010-January 2012

Table 1: Estimated Percentage of Women in Board by 2

Table 2: Overview of corporate governance indicators

Table 3: Corporate governance score for policy option 2

Table 4: Corporate governance score for policy option 3

Table 5: Corporate governance score for policy option 4

Table 6: Corporate governance score for policy option 5

Table 7: Overview of the impact of policy options

Table 8: Correlation between objective and options

[1]               Notably DG MARKT’s impact assessment on an initiative on disclosure of non-financial information by listed companies which assesses the costs and benefits of disclosure of information on diversity on boards.

[2]               Special Eurobarometer 376 (2011), Women in decision making, see: http://ec.europa.eu/public_opinion/archives/eb_special_379_360_en.htm#376.

[3]               Institutions included: European Financial Institutions/Central Banks: European Central Bank, European Investment Bank, European Investment Fund; European Social Partners: Employer Organisations, Employee Organisations; Politics (National Level): National Parliaments, National Governments; Judiciary (National Level/European Level): European Court of First Instance, European Court of Human Rights, European Court of Justice, European Union Civil Service Tribunal, Supreme Courts: Politics European Level: EP, Commission, Committee of the Regions, Economic, Social Committee

[4]               Almost 60% of EU university graduates are women. See Eurostat, Tertiary students (ISCED 5-6) by field of education and sex [educ_enrl5], 2009.

[5]               Women account for around 45% of the people employed across the EU. See Eurostat, Employment by sex, age groups and nationality [lfsq_egan], 3rd quarter of 2011.

[6]               Studies show that 83% of mid-level career women have expressed a strong desire to move up the company ladder. See http://www.mckinsey.com/Client_Service/Organization/Latest_thinking/Unlocking_the_full_potential.

[7]               Contrary to the commonly articulated belief that there is a lack of qualified women to take up a corporate seat in an EU company board, a database established by European business schools in 2012 has demonstrated the suitability and availability of over 7000 'boardable' women for seats in boards of listed companies – the number of women listed is quickly growing without claiming to be exhaustive.

See  http://gallery.mailchimp.com/3ad8134be288a95831cc013aa/files/2012_5_Commissioner_Reding_Initiative.pdf .

[8]               As a result of demographic change, such as the ageing of the workforce, Europe’s workforce is shrinking and a smaller number of workers are supporting a growing number of inactive people. While demand for workers remains stable, low birth rates mean that European population is falling. For a regional overview of these demographic challenges, see the background document to the Commission Staff Working Document SEC (2008)2868 Final.

[9]               A recent study by Catalyst (2012) shows that the EU Member States are on average lagging behind the United States of America (16.1%), South Africa (15.8%) and Israel (15%). The results are higher than for other countries such as China (8.5%), Russia (5.9%), India (5.3%) and Brazil (5.1%). These latter differences, which have to be seen in the context of different present demographic structures and rates of educational achievement, constitute a competitive advantage of the EU at least in the medium or longer term. See http://www.catalyst.org/publication/433/women-on-boards.

[10]             O. J. of 19/12/1984, L 331/34 and O. J. of 10/12/1996, L 319/11.

[11]             COM(2010)78 final.

[12]             COM(2010)491 final.

[13]             See Commission report 'More women in senior positions' (2010), Staff Working Document "The Gender Balance in Business Leadership", Commission report 'Public service, justice, business and politics –Top jobs for men but where are the women?' (2011) and Commission 'Report on Progress on equality between Women and Men in 2010'.

[14]             See e.g. Resolution of 9 June 2011 on women and business leadership, Resolution of 11 May 2011 on corporate governance in financial institutions and Resolution of 8 March 2011 on equality between women and men in the European Union.

[15]             See, for instance, the recent UN Women's Empowerment Principles: Equality Means Business. Available from: http://unglobalcompact.org/Issues/human_rights/equality_means_business.html. 

[16]             These figures may be slightly different from those estimated by Matrix due to difference in calculation method. The EC database does not report figures for Australia, Canada and the US. Catalyst instead reports figures only for some EU countries and Anglo-Saxon countries. Since the EU figures reported by Catalyst are in line with those reported by the EC database figures, we believe that the two databases are comparable.

[17]             In general, the impact assessment takes into account the developments until the end of 2011.

[18]             Apart from the need to explain non-compliance ("comply or explain" method) in the Netherlands.

[19]             In May 2012 Denmark announced the intention to adopt legislation that would oblige the largest 1100 (listed and non-listed) companies to set targets at company level without attaching sanctions to the failure to meet these self-imposed targets. Companies will have to report on their progress in the annual report.

[20]             In March 2012, Portugal has issued a governmental Decision encouraging companies which are state-owned to increase female presence on board. However, neither targets nor sanctions are set.

[21]             Norway and Iceland have been included in this table for comparative purposes in order to examine the degree of attainment of gender balance in corporate boards. These two countries are comparable to EU Member States in terms of their overall socio-economic setting and are, as members of the EEA, also legally bound by the EU acquis in the field of gender equality. In view of these circumstances and given their experience with legally binding targets which is considerably longer than in EU Member States, the results achieved in these countries are particularly valuable to enrich the evidence base concerning the impacts of such measures.

[22]             For the purpose of this figure the category "legislative quotas" does not include countries with legally binding quotas only for state-controlled companies.

[23]             See a detailed table on Member States' individual progress in the Annex 6.

[24]             Asa Lofstrom: Gender equality, economic growth and employment, a report which measures relations between gender equality and growth rates,  see:                 http://www.eurosfaire.prd.fr/7pc/doc/1261581381_eu_studie_gender_growth_sidvis.pdf.

[25]             World Economic Forum, R. Hausmann et al, The Global Gender Gap Report 2011, page 28, available at: .http://www3.weforum.org/docs/WEF_GenderGap_Report_2011.pdf

[26]             Department for Business Innovation & Skills. 2011. Women on Boards. Available at: http://www.bis.gov.uk/Consultations/women-on-boards.

[27]             Following the OECD (2011), return on education can be defined as the internal rate of return for an individual which is given by the rate that makes the financial benefits equal the costs.

[28]             See for instance: McKinsey, Women Matter: Gender diversity, a corporate performance driver (2007).

[29]             Credit Suisse Research Institute, August 2012, Gender diversity and corporate performance

[30]             Details for this report and the following research can be found in Annex 3 – Business case literature review

[31]             Pam Watson Knorbel and Donna Evans, Women on boards=Peak performance in organisations, 2012, Women's Leadership Foundation.

[32]             Lord Davies report, Women on boards 2011.

[33]             Deutsche Bank,  Research, 2010, Towards gender-balanced leadership.

[34]             See detailed review in Annex 3; a good overview can be found in : Deborah L. Rhode and Amanda K. Packel, Diversity on Corporate Boards, How much difference does difference make?, 2010

[35]             Corporate board gender diversity and stock performance: the competence gap or institutional investor bias?

[36]             It has to be taken into account that that these studies are based exclusively on data prior to the onset of the financial crisis. Especially in relation to the evaluation of company performance by investors and the resulting stock value before the crisis it appears to be appropriate to exercise a certain caution. 

[37]             Annex 3 gives a complete overview of the business case literature, including the more critical reviews and Annex 4 provides background information on the problem definition, including a problem tree.

[38]             The boards have better attendance rates, more communication, more initiatives to take supervisory action, See M. Schwartz- Ziv, Do the Gender of Directors and Critical Masses of Genders Matter? 2012, available here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1868033&http://www.google.com/url?sa=t&rct=j&q=M.+Schwartz+Ziv%2C+Do+the+Gender+of+Directors+and+Critical+Masses+of+Genders+Matter%3F+2012&source=web&cd=1&ved=0CEgQFjAA&url=http%3A%2F%2Fpapers.ssrn.com%2Fsol3%2FDelivery.cfm%3Fabstractid%3D1868033&ei=31UOUIeKD8fU0QXjrYGwBg&usg=AFQjCNGrXgUAWjGMl7dHVjlxjr6sV20Cog, Joecks, J. et al (2012). 'Women on Boards and Firm Performance: What Exactly Constitutes a 'Critical Mass'?' Available at SSRN: http://ssrn.com/abstract=2009234; Kramer, V. et al (2007). 'Critical Mass on Corporate Boards: Why Three or More Women Enhance Governance'. Available from http://vkramerassociates.com/writings/NACD%20article.pdf. Konrad, M. and Kramer, V. (2006). 'How many women do boards need?'. Harvard Business Review, Forethought Gender edition December 2006.;Kramer, V. et al (2007). 'Critical Mass on Corporate Boards: Why Three or More Women Enhance Governance.

[39]             The Commission and Union legislator have been actively striving to improve the framework for reconciliation, e.g. through the recently amended Parental leave Directive 2010/18/EU, bearing in mind that most reconciliation measures (such those related to the Barcelona targets for childcare) fall within Member State competence.

[40]             Some stakeholders, mainly from the business community, consider this double-burden as one of the main reasons for the persistent under-representation of women in top management and on company boards.

[41]             See section 2.1.1 above.

[42]             See Ridgeway, C. L. (2001), Gender, Status, and Leadership. Journal of Social Issues, 57: 637–655,  Kumra, S. and Vinnicombe, S. (2008). A Study of the Promotion to Partner Process in a Professional Services Firm: How Women Are Disadvantaged. SSRN eLibrary. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id, Sinus Institute (2010). Women in leading positions – barriers and bridges and Center for Work Life Balance. The Sponsor Effect: Breaking Through the Last Glass Ceiling. Harvard Business Review. Key Findings 2011 [cited 2011 Sep 23]. Available at: http://www.worklifepolicy.org/documents/CWLP%20Sponsor%20Effect%20Press%20Release.pdf. See Annex 4 (background to the problem definition) for a non-exhaustive list of studies used for this IA related to the glass ceiling.

[43]             The US Glass Ceiling Commission found that the reasons for the glass ceiling are stereotypes, erroneous beliefs and 'plain old fear'. It was found that without the glass ceiling business would develop stronger. 

[44]             The term "glass ceiling" probably has been used first in this context to refer to invisible barriers that impede the career advancement of women in the American workforce in an article by Carol Hymowitz and Timothy Schellhardt in the March 24, 1986 edition of the Wall Street Journal.

[45]             Directive 2009/101/EC (currently under review) requires Member States to take measures to ensure compulsory disclosure by companies of information about the appointment, termination of office and particulars of the persons who either as a body constituted pursuant to law or as members of any such body which take part in the administration, supervision or control of the company. Directive 78/660/EEC requires listed companies to include in their corporate governance statement information on the composition and operation of the administrative, management and supervisory bodies and their committees.

[46]             Derek Higgs, 2003, Review of the role and effectiveness of non-executive directors, available at: http://www.berr.gov.uk/files/file23012.pdf, page 39

[47]             Vince Cable, 16 July 2012, The Evening Standard, available at: http://www.standard.co.uk/comment/vince-cable-city-passivity-and-prejudice-is-still-sidelining-women-7946158.html?origin=internalSearch

[48]             Davies, M (2011), Women on Boards, available at http://www.bis.gov.uk/assets/noscpre/business-law/docs/w/11-745-women -on-boards.

[49]             Doldor, S, Vinnicombe, S and Gaughan, M (2012). Gender Diversity on Boards: The Appointment Process and the Role of Executive Search Firms, p. iv. Available at http://www.equalityhumanrights.com/uploaded_files/research/rr85_final.pdf

[50]             Ferree, M.M. and Purkayastha, B. 2000. Review: Equality and Cumulative Disadvantage: Response to Baxter and Wright. Gender and Society, 14(6): 809-813. Singh, V, Kumra, S and Vinnicombe (2002). Gender and Impression Management: Playing the Promotion Game’. Journal of Business Ethics, 37, 1: p. 77-89.

[51]             The rich evidence confirming these findings includes Kumra, S. and Vinnicombe, S. (2008) and Sansonetti (2004).

[52]             http://www.eurochambres.be/Content/Default.asp?PageID=216

[53]             Center for Work Life Balance. The Sponsor Effect: Breaking Through the Last Glass Ceiling. Harvard Business Review. Key Findings 2011 [cited 2011 Sep 23]. Available at: http://www.worklifepolicy.org/documents/CWLP%20Sponsor%20Effect%20Press%20Release.pdf 

[54]             Singh, V, Kumra, S and Vinnicombe (2002). Gender and Impression Management: Playing the Promotion Game’. Journal of Business Ethics, 37, 1: p. 77-89. Association of British Insurers, Report on Board Effectiveness, Highlighting best practice: encouraging progress, page 17; see also Review of the role and effectiveness of non-executive directors (“Higgs review”), 2003, p. 39.

[55]             G. Riley, 2006, Labour Market Discrimination, available at: http://tutor2u.net/economics/revision-notes/a2-micro-labour-market-discrimination.html

[56]             For details on the case-law and the cases see point 2.4.4 below and Annex 7; the main CJEU rulings are quoted in footnote 61 of Annex 7.  As far as the political sphere is concerned, quotas exist in many Member States, in particular quotas used by political parties in the process of nominating candidates. 

[57]             All the averages in the table are weighted, i.e. they depend on the number of executive and non-executive directors in the company. As in general there are more non-executive directors in a company, the average-figure is closer to the figures for non-executive directors. Figures were estimated by Matrix based on data from EC Database for Women and Men in Decision-Making and Standard & Poor’s. Differences with other figures presented in the report are due to recalculation of raw data in order to provide sufficient breakdown of the figures for the purpose of the analysis.

[58]             Drawing on the pace of change observed over the past 8 years, it is estimated that it would take more than 40 years to arrive at a level of representation of at least 40% on boards for both sexes

[59]             T. Sattelberger, Executive board member of German Telecom, Öffnet das System!, djbZ 2/2012

[60]             Research concludes that a 'critical mass' of 30% women on boards is needed to bring about positive effects; see below under section 4.1.3.

[61]             COM (2010)0193).

[62]             In the third quarter of 2011 the youth unemployment rate in the EU-27 stood at 21.6% Eurostat, available at: http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics#Youth_unemployment_trends.

[63]             COM(2010)78 final.

[64]             Art. 157(4) TFEU clarifies that positive action measures can also be undertaken by Member States themselves but does not exclude the right of the EU to act. Positive action measures adopted on the basis of Article 157(3) TFEU would need to respect the relevant case-law of the Court of Justice of the European Union regarding the principle of non-discrimination on ground of sex which is set out in detail under point 2.4.4 below and in Annex 7.

[65]             Figures provided by the Latvian government in its reply to the stakeholder consultation.

[66]             This situation corresponds to the concept of 'real subsidiarity', whereby the Union's duty to abstain from action is limited to cases where Member States not only can act but also show the willingness to act (as opposed to the concept of 'formal subsidiarity', whereby the Union has to abstain from action, as soon as Member States have the legal possibility to act), see PV(2001) 1520 final, p. 20.

[67]             Nor does Article 157(3) TFEU require a direct cross-border dimension to serve as a legal basis for the EU legislator. Indeed several EU legal acts have been adopted on this basis without any direct aim of promoting the internal market, e.g. most recently Directive 2006/54/EC (gender equality in employment and occupational social security) and Directive 2010/41/EU (gender equality in self-employment).

[68]             See, for instance, consultation reply from Austria, which has not introduced gender quotas for private company boards itself, but calls for the EU to set binding objectives and highlights the advantages of introducing them at the EU level in terms of companies' competitiveness.

[69]                    Egon Zehnder International Board Diversity Analysis, "European board diversity analysis 2010 - Is it getting easier to find women on European boards"

[70]             See point 4.2.3 below for more detail on the appropriate deadline for compliance.

[71]             The risk of such problems is separately assessed for all binding policy options, in particular for options 3 and 5 analysing the differences between non-executive and executive board members. See points 5.4 and 5.6 below.

[72]             Directive 2006/54/EC of the European Parliament and of the Council of 5 July 2006 on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation (recast).

[73]             Self-regulation is defined as the possibility for economic operators, the social partners, non-governmental organisations or associations to adopt amongst themselves and for themselves common guidelines (particularly codes of practice or sector agreements) As the Single Market Review points out, measures set this way may be quicker to adopt and may lead to more acceptable results for stakeholders.

[74]             See a detailed overview about Member Stats existing self-regulation under 6.2 in  Annex 6.

[75]             For example in relation to the appropriate means for publishing such posts, the process of pre-selecting candidates (e.g. a certain required percentage of members of both sexes) or even the determination of the relevant qualification criteria.

[76]             For example, where a major shareholder, e.g. a family, has the right to individually appoint one or more board members and traditionally appoints a family member, a publication requirement would be clearly inappropriate.   

[77]             Without targets it would appear to be possible for companies much more easily, for example, to define the qualification requirements with a view to maintain the current patterns of board composition.  

[78]             Such a requirement, which would be insufficient as a stand-alone measure as set out above, would be sufficient as an element in an instrument also including a gender target.

[79]             Including both privately owned and state-owned listed companies.

[80]             The high percentage is due to the fact that these companies mostly  operate internationally and often worldwide

[81]             For the definition of SMEs see: Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (Text with EEA relevance), Official Journal L 124, p. 36-41, of 20 May 2003.

[82]             For instance, in Germany in listed family enterprises roughly 10-20% have family members among executive and non-executive directors. The non-executive board also tends to be smaller (5.1 members) than the average board, see: Stiftung Familienunternehmen, Börsennotierte Familienunternehmen in Deutschland.

[83]             Council Conclusions of 23/24 June 2011,see at: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/123075.pdf

[84]             COM(2011)78 (23) final.

[85]             COM(2011) 803 final, Commission Report, Minimizing regulatory burden for SMEs

[86]             On average, where a big company spends one euro per employee to comply with a regulatory duty a medium-sized enterprise might have to spend around four Euros and a small business up to ten Euros (Report from the Expert Group on “Models to Reduce the Disproportionate Regulatory burden on SMEs”, May 2007).

[87]             Joecks, J. et al (2012). 'Women on Boards and Firm Performance: What Exactly Constitutes a 'Critical Mass'?' Available at SSRN: http://ssrn.com/abstract=2009234; Kramer, V. et al (2007). 'Critical Mass on Corporate Boards: Why Three or More Women Enhance Governance'. Available from http://vkramerassociates.com/writings/NACD%20article.pdf. Konrad, M. and Kramer, V. (2006). 'How many women do boards need?', Harvard Business Review, Forethought Gender edition December 2006; Kramer, V. et al (2007). 'Critical Mass on Corporate Boards: Why Three or More Women Enhance Governance.

[88]             Some Member States have chosen different targets: NL(30%); IT (33%), (BE 33%) AT (35%).

[89]             In a scenario without SMEs.

[90]             In order to keep the number of options considered manageable and in view of the fact that effects of a lower objective of 30% or 35% will be proportionately lower, this impact assessment refrains from assessing in detail the exact impacts of other conceivable target levels.

[91]             Recalling the general objective of any initiative to contribute to the Europe 2020 strategy, setting targets to be achieved by the year 2020 would also represent a symbolic timeframe.

[92]             Such a deadline would also contribute to reducing or eliminating any risk of negative short-term effects of binding measures as explained in more detail below under section 5.4.2.

[93]             For example, in Italy, one of the Member States with the lowest female share of board members (6%), a level of 33% has to be reached by 2015.

[94]             The final political judgment as to the appropriate compliance period could also include, within this general framework, a differentiation based on reasonable expectations concerning the possibility to comply differing between different areas. For example, in line with existing regulation in some Member States, e.g. in relation to a binding objective in Belgium, it may be argued that companies in public ownership should be obliged to comply earlier.

[95]             None of the policy options were found to have environmental impacts. 

[96]             See point 2.1.5.

[97]             Catalyst (2004). The Bottom Line- Connecting Corporate Performance and Gender Diversity.

[98]             Catalyst ranked 353 Fortune 500 companies according to women on top management (bottom quartile: 0% to 5.1% women in top management; top quartile: 14.3% to 38.3% women in top management) and then compared their ROE. Companies in the top quartile had a ROE that is 34.1% (or 4.6 percentage points) higher than companies in the bottom quartile.

[99]             Catalyst (2011), The Bottom Line; based on data from 2005-2009.

[100]            Using ROE as a measure for financial performance of a company is advantageous because it indicates how the value of a company is growing. It is also an accounting indicator, meaning that the inputs to calculate ROE (shareholders equity and net income) are published in the company accounts, allowing for accurate measurement of the indicator.

[101]            'Women at the top of corporations: Making it happen'.

[102]            Ernst&Young (2012, Mixed Leadership) based on the 250 biggest companies in the EU, reports comparable results if there was at least one woman on boards, companies had, over a period of 5 years, a 89% better performance. Lückerath-Rovers, Women on board and firm performance, 2010, based on 99 Dutch listed companies in the period 2005-2007 found a difference in the ROE of 110% in companies with women on board compared to companies without women.

[103]            Due to lack of information by board type, it was assumed that both effects would impact on ROE separately and that the effects can be added.

[104]            For individuals: (a) net benefits are calculated based on gross earnings, income tax, social contributions, transfers, unemployment benefits, and grants; and (b) costs are calculated based on direct costs and forgone earnings whilst in education. For the public sector: (a) net benefits are calculated based on forgone taxes on earnings, income tax, social contributions, transfers, unemployment benefits and grants; and (b) costs are calculated based on direct costs.

[105]            As even non-binding measures on gender diversity are often combined with an obligation to make the situation transparent it is assumed that this administrative burden would also arise for a non-binding measure. 

[106]            Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies.

[107]            Including, for example, for female entrepeneurship.

[108]            The figures presented for all options in this impact assessment are based on the Matrix study and are based on a scenario without SMEs.   

[109]            It is calculated as the difference between the participation of men and women divided by the participation of women.

[110]            The unadjusted gender pay gap is the difference between hourly wages of male and female employees which has not been corrected according to individual characteristics that might explain part of the earnings difference. It comprises both potential discrimination and pay discrepancies that are not related to discrimination as such.

[111]            See footnote 1.

[112]            For more details on these assumptions consult Annex 8.

[113]            See above point 4.2.3.

[114]            See above point 4.1.2.

[115]            These considerations concerning the shape and form of transparency obligations are identical for all the following options including legally binding objectives. They are not repeated in the assessment of those options. 

[116]            Under the assumption that a derogation for cases of lack of equally qualified female candidates will allow companies to justify non-compliance, the feasibility of implementation was not analysed more in detail for sectors like the automobile or chemistry industry, where the highest numbers of additional women will be required.

[117]            The assumption of full compliance is made for all binding measures.

[118]            Ahern, Dittmar, 2011, The changing of the boards: the value effect of a massive exogenous shock.

[119]            Nygaard (2011) finds that investors anticipated the new (female) directors to be more effective in firms with less information asymmetry between insiders of the firm and outsiders. Firms with low information asymmetry experience positive Cumulative Abnormal Returns (CAR). Dale-Olsen et al (2011-2012) came to the result that the Norwegian reform contributed to increase return n assets for a previously badly performing firm.

[120]            Annex 9 provides further background information on the Norwegian case.

[121]            The average annual investment costs per company are estimated at € 3.327 for the period 2017 – 2020 and € 600 for the period 2021 – 2030.

[122]            The idea of a flexible target as such has been mentioned by some German stakeholders, as it has been proposed in the first place by the German Minister in charge of the file. 

[123]            The average annual investment costs per company are estimated to be € 4.821   for the period 2017 – 2020 and €915 for the period 2021 – 2030.

[124]            E.g. Frauen in die Aufsichtsräte e.V. (FidAR).

[125]            See table 8 in Annex8

[126]            The average annual investment costs per company are estimated to amount to €5,311 for an average company for the period 2017 – 2020 and of €1,011 for the period 2021 – 2030.

[127]            See for instance the proposal for the Capital requirement Directive 4 (CRD4).

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