Man overboard: what will gender quotas mean for EU company directors?

Experts at Baker Tilly have hailed the EU’s new gender diversity mandates as a major milestone for equality but warn there is still a long way to go for genuine balance at the executive level.

Achieving gender equality in the boardroom has long been an ambition that’s repeatedly discussed, but rarely acted upon.

But that’s soon likely to change for listed companies with more than 250 employees across Europe, after the European Parliament and Council reached a political agreement to improve gender balance.

Under the agreed directive, large listed entities will be mandated to have 40% of their non-executive directors, or 33% of all directors, to be from the under-represented gender from June 2026.

If there are two individuals that are similarly qualified for a specified position, companies will be required to employ the candidate of the under-represented gender.

Businesses that are unable to meet the objectives of the directive must disclose why, and what steps they are taking to address gender diversity at a management level.

Penalties for breaching the directive have not yet been finalised but could include fines or annulment of director appointments.

Baker Tilly Mooney Moore Consulting Partner Donal Laverty said making it legally binding for publicly listed companies to ensure women were represented on their boards was a major step in the right direction.

“On a board where there is diversity, it leads to a diversity of thought, it leads to better decision making and it better represents the customer, the shareholder and the employee,” Mr Laverty said.

“It also allows you to keep up with the pace of change in the marketplace and can give you a competitive advantage, if your board represents the market.”

While the concept of gender equality isn’t new, progress has been exceedingly slow.

In the mid-1980s, the European Council made its first recommendation for the private sector to increase the number of women in decision-making positions, with that encouragement repeated around 1996.

It took another 16 years for a binding gender equality directive to surface, with a mandate proposed to be implemented in November 2012.

At that time, just 13.7% of board positions in the EU’s biggest listed companies were held by women.

By 2021, the proportion of women on boards had risen to 35%, according to the European Women on Boards’ Gender Diversity Index.

Mr Laverty said several countries were much further advanced than others, pointing to France and Norway in particular as examples of gender equity excellence.

In France, new laws were enshrined in 2011 that required listed companies and private companies of more than 500 employees or turnover of more than €50 million over the previous three years to have 40% gender balance on their boards.

Norway moved even earlier, passing legislation in 2003 requiring at least 40% of each gender on company boards.

“Many countries have taken different approaches, and there has been some discussion over whether having a hard quota or a soft quota is the better approach,” Mr Laverty said.

“The evidence from Norway is beginning to suggest that mandatory quotas are having an impact in terms of lessons learned and the impact of increased female representation at the top level.

“There is some evidence emerging in terms of better performance, and there is less evidence around men who are ostensibly qualified for leadership positions being squeezed out.

“It’s general, but the influence of women on decision making is that women tend to be more ethical and women tend to be slightly more risk averse and long-term oriented.

“These are huge points of influence that women will bring into those kinds of settings.”

On the surface, the growth in female representation at management level across the EU’s biggest companies looks like significant progress.

But EWOB’s index found that while 35% of the 668 companies it studied had a gender diverse board of directors, at the executive level women were still playing catchup, remaining significantly behind men at just 19%.

Just 50 of those near-700 companies, or 7%, had a female chief executive, while only 9% had 40% or more women at the executive level.

Amanda Trewhella, Managing Associate at Freeths, part of the Baker Tilly International Network, said setting a legally binding quota was the key to making legitimate advancements, particularly at the top level.

“In an ideal world, we wouldn’t need to have mandatory quotas, but we’ve been talking about this for decades and things haven’t improved,” Ms Trewhella said.

“So it’s got to that point where this is the last thing that we can do to actually make a change.”

While management level has been the focus of the new legislation, Ms Trewhella said for lasting change to occur, all levels of a business’ operations needed to be accessible and attractive for women.

“It really starts from the bottom and who you are bringing into the business at the lower levels, and what opportunities you are giving them,” Ms Trewhella said.

“We should be looking at mentoring people and coaching women in particular, so that they can progress through the business – it’s not just looking at the top, but all the way though.

“And unfortunately, that takes time. I’m sure there’s plenty of female talent out there, whether they are qualified as yet and experienced enough for the most senior roles, remains to be seen.

“So again, that is going to take some time and effort in training people and giving women the necessary experience to go up the ladder.”

Mr Laverty said while the majority of the business community acknowledged the need for gender diversity at the decision-maker level, there were several broader societal issues that needed to be overcome before it could be achieved.

At the top of that list would be the availability of talent, which is already stretched to its limit in some jurisdictions.

“That ambitious target of 2026 is going to require pay transparency, better childcare, infrastructure and gender parity,” Mr Laverty said.

“These are big issues that aren’t going to be addressed in three or four years – the implementation piece is going to be significant.

“The other aspect that will need to be looked at is the gender pay gap, which is 14% in the EU on average.

“But it is up to 20% in countries like Germany, Switzerland and Austria – that is significant.

“There are some fundamental elements of a bigger picture here that include access to maternity and all of those things that are part of the bundle that need to align to make this work or not work.

“In the short term, the directive will increase the number of women sitting on boards, but it’s misguided to think that on its own, it’s going to deliver gender equality.”

Markella Antonopoulou, Regional Head of HR for Baker Tilly South East Europe, said one of the biggest changes for businesses impacted by the new legislation would be around recruitment strategies and succession planning.

“For me, the role of the board of directors is to have accumulated knowledge from different backgrounds, to share different perspectives and to add value to the company,” Ms Antonopoulou said.

“If you only have representation from a specific profile of individuals, you leave a big percentage of employees out of the decision-making process.

“So for recruitment, it will be about making policies and procedures more transparent and setting clear objectives and requirements.

“And for succession planning, it will be about actually including women in order to prepare them to take the roles within the boards.”

While the legislation slated to come into effect in 2026 will only apply to the largest companies in Europe, Ms Antonopoulou said expected smaller companies to be impacted as well.

In Cyprus, where Ms Antonopoulou is based, she said the vast majority of businesses were SMEs and would not be within the requirements of the quotas, but they would be better served if they also made an effort to be more gender balanced.

“If big companies start doing it, it will likely have a trickle down effect on the SMEs as well,” she said.

“Women are going to expect that they will be included in the board at big companies, so they will expect that from the SMEs that they are working at as well.

“Companies that promote gender diversity will be able to retain better talent. If a woman knows she will have an opportunity to get on the board of your company, it will be an incentive.

“But if the representation of women on an SME’s board is low, they will seek to go somewhere else.

“For talented individuals, they will prefer to go to companies where they will have a chance to be appointed to the board. Why stay somewhere where they don’t value you?”