Analysis: Will Germany’s female quota for corporate boards lead to “empty seats”?

One of the more interesting, and initially puzzling, moments during a German corporate governance conference in Berlin last week was a discussion about how the government’s female quota for German boardrooms could lead to “empty seats.”

The discussion began when Ulrich Seibert, a senior justice ministry official, was asked how the government meant to deal with the empty seat problem when the quota takes effect in 2017.

By then, at least 30% of the board seats at 120 German firms, including all 30 traded on the blue-chip Dax index, must be filled by women. In his response, Seibert denied there was any problem, saying that if there were any “metaphorical empty seats” left in boardrooms, they would be filled by women by court order.

The issue is essentially this: following complaints from the companies that they may not find enough qualified women to meet the quota by 2017, Manuela Schwesig, the Social Democratic family minister who has championed the measure, suggested that the firms leave the board seats empty until the women were found.

Schwesig may have meant well, but her suggestion just made the companies more agitated. That’s because German securities laws expressly forbid vacant board seats. Said Manfred Gentz, a former executive at auto giant Daimler AG: “Policymakers need to think about the consequences of what they say. If the suggestion was implemented, this would not only cause an imbalance between labour and shareholder representatives on German boards, it could reduce the ability of those boards to oversee management. Ms Schwesig’s suggestion is, in other words, completely unrealistic.” Gentz’s comments carry all the more weight: he heads the government’s special commission on German corporate governance.
The justice ministry’s Seibert was naturally aware of this, which is why he took the offensive at the conference, which was hosted by Union Investment.He said Schwesig had misspoken, as the issue of empty seats simply wasn’t one. “Companies should prepare for the female quota which will come in 2017,” he said, adding: “The notion that this could lead to empty seats is wrong-headed, as the company would not want to risk being forced by court order to fill those seats with women.”

Indeed, no German firm would want to be in breach of the country’s securities laws by not adequately staffing their boards; any one shareholder could then sue it.

Asked why government was taking such a hard line on the quota, Seibert said Germans had clearly voted for it. Actually, the Conservative CDU/CSU parties, which were against the quota, dealt the Social Democratic Party (SPD) a big defeat in last September’s national election, but decided to form a coalition with the SPD after falling just short of an absolute majority. The SPD was won over in part after the CDU/CSU, among other conditions, agreed to Schweswig’s quota idea.

Some corporate governance experts say in any case that the debate about the female quota is totally overblown. One of them, Jella Benner-Heinacher, says that there are not only plenty of qualified women for German boards, but the firms have plenty of time – three years at least – to find them. “The 30 firms in the Dax already have a female board quota of 19%, so getting to 30% shouldn’t pose a problem for them,” said Benner-Heinacher, who is a managing director at German shareholder association DSW. She added that if German firms recruited qualified women from abroad they would get a “double diversification bonus.”

The fact that many male board members at listed German firms were elected for five-year terms in 2013 wasn’t a problem either, said Benner-Heinacher. “Right now, it looks like the government is taking a hard line, but it knows full well that it has to be pragmatic on this issue. I therefore expect that firms with newly elected male board members will get more time to meet the quota.”