EUROPE – The European Commission has pulled back from mandating gender quotas in a modest proposal for "general rules" designed to help companies increase the number of female non-executive directors on boards to 40%.

In July, the European Parliament had called on the Commission to propose legislation – explicitly including quotas – to increase representation of women in "corporate management bodies" to 30% by 2015 and 40% by 2020.

But in a watered-down proposal published last week, the Commission narrowed the scope to listed companies and non-executive directors.

And it made clear in supplementary notes that it had opted for the lowest common denominator to avoid "complications" created by divergent national rules.

The Commission said it had focused on listed companies "due to their economic importance and high visibility", and on non-executive directorships "in order not to interfere with the freedom to conduct the business and property rights".

According to the European Confederation of Directors' Associations, non-listed companies account for 75% of Europe's GDP.

In an explanatory note, the Commission said the apparently arbitrary 40% struck a balance between 50% gender parity and the 30% critical mass required for gender diversity to impact board performance positively.

Under the proposal, female candidates will be given preference only where all other criteria are equal.

In a note published with the proposal, the Commission said: "Inbuilt safeguards will make sure there is no unconditional, automatic promotion of the under-represented sex."

It will be up to member states to determine which, if any, sanctions they will impose for non-compliance, although those sanctions must be "effective, proportionate and dissuasive", the Commission said.

There was no mention in the proposal published of the European Parliament's call for restrictions on non-executive directors holding multiple positions.

The UK Investment Management Association described the Commission's withdrawal from mandatory quotas as "sensible".

UK investors including RPMI Railpen, the Local Authority Pension Fund Forum, Aberdeen and Aviva have supported the position adopted by the 30% Club, which opposes quotas.

In its submission to a public consultation launched by the Commission, Aberdeen said quotas "would not be effective in delivering well-balanced boards and should not be introduced".

In contrast, Hermes Equity Ownership Services director Paul Lee made a case for quotas if self-regulation failed to deliver within a reasonable timeframe.

In some markets, such as Portugal, binding measures "could prove an indispensable trigger for change", he said.
 

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