Leiden Law Blog

A European Directive to break the glass ceiling?

Posted on by Tom Dijkhuizen in Private Law
A European Directive to break the glass ceiling?

Although the Member States and the European Union (EU) institutions have acted decisively on numerous occasions to promote gender equality in economic decision-making, more particularly to enhance the number of corporate seats in the largest listed companies held by women, results show that company boards in the EU are characterised by ‘persistent gender imbalances’. A Progress report showed that only 13.7% of executive director (EDs) seats are held by women and only 15% of non-executive director (NEDs) seats. In the view of the Commission, it is this under-utilisation of the skills of highly qualified women that constitutes a loss of economic growth potential and is a missed opportunity at company level ‘in terms of both corporate governance and financial company performance’. The Commission therefore proposes a new Directive regarding gender balance among NEDs that must enforce current equality policies as these policies ‘are vital to economic growth, prosperity and competitiveness’ within the EU.

This new Directive is also necessary as current domestic efforts regarding gender equality are diverging and have a negative effect on the EU labour market. Some Member States, if they have taken any action at all, require companies, that do not comply with a gender balance objective, to disclose the reasons for this noncompliance (a ‘comply or explain’ model), whilst others introduced binding measures. Member States also differ in the kind of companies or positions (EDs or NEDs or both) such legislation covers. These divergences lead to discrepancies in the number of corporate seats being held by women, but also ‘poses barriers to the internal market by imposing divergent corporate governance requirements on European listed companies’. This European ‘glass ceiling’ undermines the optimal functioning of the labour market for top management positions throughout the EU and therefore the ‘internal market potential for sustainable growth and employment may not be fully exploited.’

The proposed Directive sets a minimum objective of a 40% presence of the under-represented sex among the NEDs of listed companies by 2020 and requires companies with a lower share to introduce pre-established, clear, neutrally formulated and unambiguous criteria in selection procedures for NEDs. The reason to apply this objective only to NEDs is to strike the right balance between the necessity to enhance gender diversity and to minimize interference with the day-to-day management of a company. Small and medium-sized enterprises (SMEs) are excluded.

Interesting, however, is that the original proposal also provided for rules on applicable sanctions for a breach of the Directive, i.e. administrative fines or annulment of the election of NEDs. Those punitive measures were dropped as they experienced fierce resistance. Under the revised proposal, it will now be left to the Member States to determine which measures could be imposed as they implement the regulation as part of national law. Yet again, divergence is just around the corner and past experience has shown that such divergence is not able to break the ‘glass ceiling’, at least not on a European level.

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