Board diversity in Europe: the roadmap to improved corporate decision-making

The multiple motives for more women on boards.

The inequality of sexual diversity in the boardroom is not caused by a lack of intelligence, experience, skills, or masters degrees. The problems underlying this challenge appear to be of a social and cultural character. Good corporate governance helps firms improve performance, drive growth, better manage risks, attract and retain investors, and better weather financial crises. A board should strive to be a rich mix of attributes, experiences, cultures, viewpoints, diverse perspectives and skill sets that can best contribute to the company. (Gender) diversity is a part of this important mix. A growing body of research shows a broad set of business benefits associated with gender diversity on corporate boards: improved financial performance and shareholder value, increased customer and employee satisfaction, rising investor confidence, and greater market knowledge and reputation. It is assumed that boardrooms that don’t sufficiently represent the stakeholders and operating environment of the business are not able to do their jobs as capably. The value of board diversity can be explained from different angles:

  • The moral motive: this assumes that we simply cannot leave out 50% of our population and that they should be equally represented in boards.
  • The strategic motive: it is the wise thing to do. Each individual brings different skills and each culture brings different views and strengths, both male and female. A homogenous board is less likely to challenge its own ideas and seek a different perspective.
  • The economic motive: assumes that we simply cannot ‘afford’ to leave out 50% of our population. Diverse teams outperform their homogenous counterparts and contribute directly to the profitability of the business because they are better able to perceive and address business risks and more accurately reflect all their stakeholders.* The corporate governance motive assumes that it is good governance and good business sense to have diversity of thought and experience, knowledge and understanding, perspective and age in the board, and a fair representation of the whole range of business stakeholders. This argument considers diversity as a source of innovation, and as a good idea for both business and society on the longer term.
  • The social motive argues that more women in the board decreases risks, leads to more justice and reduces violence against women. Globalization demands a world view at board level and the right leaders to adequately analyze risk, have in-depth knowledge of their operations, help management to have a long term focus and keep seeing the bigger picture, regardless of the market.

By 2020, European regulatory incentives for board diversity say that an “under-represented” gender quota will impose at least 40 % of men and women among non-executive committees of major public companies. Smaller and medium companies face the same quota with a 2018 deadline. At present, in Europe, 85% of non-executive board members and 91% of executive committee members are men. In February 2011, Lord Davies of Abersoch published a report on gender diversity in UK boardrooms, including the aim for FTSE 100 companies for a minimum of 25% female representation by 2015. A French law of January 2011 mandates that 20% of boards be comprised of women within 3 years. From January 1, 2017, the proportion will have to be at least 40 , or else fees would be suspended for all board members. Within a year, the “lady boom” in CAC 40 boards has risen to 20 and more in some cases.

In Germany, the Corporate Governance Commission recently issued recommendations asking for improvements in board diversity. In Spain, legislation was passed in 2007 requiring public companies and IBEX-35 constituents to raise the proportion of women on their boards to 40% by 2015. Despite the absence of sanctions, the percentage of companies with at least one female board member has increased. In Italy, a law requiring boards of public and state-owned companies to comprise at least one-third women was passed in 2010, but is still to be approved by the upper house of parliament.In the Netherlands, a legislative amendment requiring gender quotas for executive and supervisory board members has not yet been enacted. If the amendment were to be approved, it would require a 30% quota for men and women for larger companies. We believe that board structures that are more gender balanced improve the sustainable long-term performance of investment targets.

Yvonne Janssen is an ESG professional & Bercan Günel is Founder and Managing Partner at Woman Capital