The European Commission proposed a directive that would require listed companies to have at least 40% female representation on corporate boards by 2026. Once approved by the parliament and member states later this year, EU listed companies will be required to report the gender representation on their boards and might face penalties if they fail to reach the 40% goal.
Interestingly, member states can choose to fulfill the mandate one of two ways: hitting the goal of 40% women on the board, or achieving a combined female representation of 33% of the board and executive leadership team combined. The smaller goal for the combined positions reflects a bigger challenge (and more powerful impact) with regard to diversifying the executive team versus the board.
Gender representation on corporate boards varies significantly by country. Currently, 30.6% of board members in the largest EU publicly listed companies are women, with Estonia having 9% women on the board and France more than 45%. Authorities think such a requirement will more effectively help less-advanced member states achieve board gender equality. The European Institute for Gender Equality (EIGE), an EU agency, shared that female representation on boards in the EU grew after France, Germany and Italy introduced national goals. But progress has stalled as only 9 out of 27 member states have implemented such legislation.
Each member nation is obligated to introduce and implement the penalties of noncompliance. Besides fines, company could see director appointments annulled for non-compliance with the law.
Outlook: The directive has a laudable goal – to improve board diversity. However, a blunt quota at the board level can’t solve all obstacles that women encounter in the workplace - instead, national and corporate culture shift might be needed for meaningful change.