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Diversity Quotas Considered by European Union

The European Union has launched an open consultation on promoting gender equality in the boardrooms of publicly-listed companies after an European Commission report disclosed unpromising results under current policies. The consultation will be open until 28 May 2012 and will ask stakeholders such as the companies and the public for their opinions on this issue. The European Union is considering a number of options to solve this issue after the lack of success of self-regulation on the part of publicly-listed companies, including potential legislation mandating quotas on the Boards of Directors.

This comes after European Justice Commissioner Viviane Reding called on publicly-listed European companies in 2011 to voluntarily raise the number of women on their Boards of Directors. At the time, she challenged these companies to sign the 'Women on the Board Pledge for Europe', in which signatories committed themselves to achieving 30% female representation on their boards by 2015 and 40% female representation by 2020. Her pledge has not been very successful - only 24 European companies have signed the pledge since its introduction a year ago.

Reding has commented on her disappointment that her call for self-regulation has failed to meet expectations and pointed out that while she does not like quotas, they do work. She noted the increasing adoption of gender-balanced quota legislation by countries such as France and Italy and already existent legislation in countries such as Denmark and Austria, pointing out that the lack of women at the top is hurting European competitiveness in the market.

The average percentage of women on the Boards of Directors of publicly-listed European companies remained low at 13.7% in 2011. This is an 1.9% increase from 11.8% representation in 2010, which is an unusually large increase compared to the average 0.6% increase per year for the past decade. Unfortunately, this is still unacceptably slow progress because it will take more than 40 years for European companies to reach gender-balanced boards with at least 40% representation for each gender, even assuming similar increases in each following year. Worse still, the percentage of women serving as board chairs has actually decreased in 2011, falling from 3.4% in 2010 to 3.2% in January of 2012.

Popular support for proposals to improve female representation on European company boards is high. An Eurobarometer survey found that 88% of Europeans believe that women should have equal representation in the highest business positions so long as their competence equal that of their male counterparts. Furthermore, 77% of those surveyed believe that women already have the skills needed to fill those positions and 75% are supportive of legislation to promote gender equality on company boards.

Supporters of such measures often cite better business competitiveness as a benefit of gender equality on company boards. They advance evidence-based claims that gender-balanced companies have both higher profits and improved competitiveness compared to gender-imbalanced counterparts. A McKinsey report found that gender-balanced companies had 56% higher operating profit compared to male-only companies while Ernest & Young found that companies with at least one woman on their boards had higher earnings than those that did not. These improvements are often attributed to the increased range of opinions that helps improve corporate decision-making.

Opponents of mandated quotas claim that the quotas would be insulting to women and damaging to the trust of investors in the companies' boards. They accept that gender-balanced boards are a good thing but believe that mandating gender-balance will hurt more than it helps. Instead, they believe in continuing efforts to encourage self-regulation on the part of publicly-listed companies in the European Union.


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