TABLE OF CONTENTS

1........... ANNEX 1: List of consulted studies................................................................................ 2

2........... ANNEX 2: Results of the stakeholder consultation........................................................ 10

2.1........ Introduction.................................................................................................................. 10

2.2........ Number of contributions and profile of respondents....................................................... 11

2.3........ Summary of replies to the questions............................................................................... 13

3........... ANNEX 3: Business case literature review.................................................................... 19

4........... ANNEX 4: Background to the problem definition.......................................................... 33

5........... ANNEX 5: Background on the board structure and the appointment of board members in practice 36

5.1........ General Board Structure............................................................................................... 36

5.2........ Board Systems............................................................................................................. 37

5.3........ Board Member Selection Procedures............................................................................ 39

6........... ANNEX 6: Background to the baseline scenario........................................................... 43

6.1........ Methodology to calculate change in female presence in boards by 2020......................... 43

6.2........ Overview of natural trend in each Member State by 2020.............................................. 44

6.3........ Binding quota legislation for listed companies in Member States..................................... 49

6.4........ Other legislative measures............................................................................................. 53

6.5........ Regulation of gender balance on boards of state-owned companies by legislative means. 54

6.6........ Female presence in the board throughout all Member States.......................................... 56

7........... ANNEX 7: Fundamental Rights.................................................................................... 59

7.1........ Fundamental rights' check............................................................................................. 59

7.2........ Article 23 on equality between women and men and Article 21(1) on non-discrimination on the grounds of sex 60

7.3........ Article 16 on the freedom to conduct a business............................................................ 63

7.4........ Article 15(1) on the freedom to choose an occupation and right to engage in work......... 66

7.5........ Article 17(1) on the right to property............................................................................. 67

7.6........ Article 47 on the right to an effective remedy................................................................. 69

8........... ANNEX 8: Background on methodology of calculation of the impacts........................... 73

8.1........ Assessing the Effectiveness........................................................................................... 73

8.1.1..... Calculating the impacts of policy option 2 on female presence in company boards.......... 73

8.1.2..... Calculating the impacts of the other policy options......................................................... 75

8.1.3..... Assessing the impacts on company performance: corporate governance......................... 76

8.1.4..... Assessing the impacts on company financial performance............................................... 87

8.1.5..... Assessing the impacts on investment costs..................................................................... 89

8.2........ Economic impact.......................................................................................................... 98

8.2.1..... Calculating the impact on the Gender Pay Gap (GPG)................................................... 98

8.2.2..... Calculating the impact on the Gender Employment Gap (GEG).................................... 104

8.2.3..... Calculating the return on education.............................................................................. 105

8.3........ Calculating the administrative burden........................................................................... 107

9........... ANNEX 9: Background on the Norwegian case......................................................... 113

COMMISSION STAFF WORKING DOCUMENT

ANNEXES TO THE IMPACT ASSESSMENT ON COSTS AND BENEFITS OF IMPROVING THE GENDER BALANCE IN THE BOARDS OF COMPANIES LISTED ON STOCK EXCHANGES

Accompanying the initiative to improve gender balance in company boards

1. ANNEX 1: List of consulted studies

Adler, R. 2001. Women in the Executive Suite Correlate to High Profits. Glass Ceiling Research Center.

Adams, R. and Funk, P., 2009, Beyond the Glass Ceiling: Does Gender matter? SSRN eLibrary; available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1475152

Adams, R., Gray, S. and Nowland, J. 2011. Does Gender Matter in the Boardroom? Evidence from the Market Reaction to Mandatory New Director Announcements, Social Science Research Network

Asa Lofstrom: Gender equality, economic growth and employment

http://ec.europa.eu/social/BlobServlet?docld=3988&langld=en

Association of British Insurers. 2011. Report on Board Effectiveness. Highlighting Best Practices. Encouraging Progress. Available at: http://www.ivis.co.uk/PDF/ABI_1684_v6_CS4.pdf

Athey, S., Avery, C. and Zemsky, P. 2011. Chipping away the Glass Ceiling: Gender Spillovers in Corporate Leadership, American Economic Review: Papers and Proceedings 2011, 101:3: 635-639.

Bass, B. and Avolino, B. 1994. Improving organizational effectiveness through transformational leadership. Sage Publications,

Bauer, R., Guenster, N. and Otten, R. 2004. Empirical evidence on corporate governance in Europe: The effect on stock returns, firm value and performance. Journal of Asset Management 5(2): 91-104.

Bear, S., Rahman, N. and Post, C. 2010. The Impact of Board Diversity and Gender Composition on Corporate Social Responsibility and Firm Reputation, Journal of Business Ethics, 97: 207-221.

Belgian EU Presidency Report (2010). The gender pay gap in the Member States of the European Union: quantitative and qualitative indicators. Available at: http://register.consilium.europa.eu/pdf/en/10/st16/st16516-ad02.en10.pdf

Bertrand, M., and Hallock, K. F. 2000. The Gender Gap in Top Corporate Jobs. National Bureau of Economic Research Working Paper Series, No. 7931. Available at: http://www.nber.org/papers/w7931

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Boerner, S.; Keding, H. And Hüttermann, H. 2010. Gender Diversity und Organisationserfolg – Eine kritische Bestandsaufnahme. Zeitschrift für betriebswirtschaftliche Forschung 64: 37-70

Brammer, S., Millington, A. and Pavelin, S. 2009. Corporate reputation and women on the board. British Journal of Management, 20(1): 17-29.

Brown, D. A. H., Brown, D. L. and Anastasopoulos, V. 2002. Report May 2002. Women on Boards Not Just the Right Thing . . . But the “Bright” Thing. The Conference Board of Canada [Online] Available at: http://www.europeanpwn.net/files/women_on_boards_canada.pdf Insync Survey. 2010. Gender agenda: Unlocking the power of diversity in the boardroom

Brown, L., and Caylor, M. 2004. The Correlation Between Corporate Governance and Company Performance. Institutional Sharehold Services, Inc. Available at: http://www.stybelpeabody.com/issscoresandshareholdervalue.pdf

Banginsky & Cohen. Duties of Executives and Non-Executive Directors. Available at: http://www.baginskycohen.com/Documents/H7.pdf

Burke, R. and Vinnicombe, S (2005). Advancing women's careers. In: Career Development International, 10: 165-167.

Businesslink. 2012. Recruiting directors. The director recruitment process. Available at: http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1074429403&r.i=1074429388&r.l1=1073858787&r.l2=1084822723&r.l3=1074428854&r.s=sc&r.t=RESOURCES&type=RESOURCES

Campbell, K. and Mínguez-Vera, A. 2008. Gender Diversity in the Board and Firm Financial Performance. Journal of Business Ethics, Journal of Business Ethics, 83(3): 435-451.

Campbell, K., and Mínguez-Vera, A. 2009. Female board appointments and firm valuation: short and long-term effects. Journal of Management & Governance, 14: 37-59.

Carter, D. A., Simkins, B. J. and Simpson, W. G. 2003. Corporate Governance, Board Diversity, and Firm Value. The Financial Review, 38: 33-53.

Catalyst. 2004. The Bottom Line: Connecting Corporate Performance and Gender Diversity. Available at: http://www.catalyst.org/publication/82/the-bottom-line-connecting-corporate-performance-and-gender-diversity

Catalyst, Women in Leadership: A European Business Imperative, Catalyst and the Conference Board Europe, 2002. http://www.catalyst.org/publication/92/women-in-leadership-a-european-business-imperative

Catalyst. 2011. Gender and Corporate Social Responsibility: It’s a Matter of Sustainability.

Center for Work Life Balance. The Sponsor Effect: Breaking Through the Last Glass Ceiling. Harvard Business Review. Key Findings 2011 [cited 2011 Sep 23]. Available at: http://www.worklifepolicy.org/documents/CWLP%20Sponsor%20Effect%20Press%20Release.pdf

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Credit Suisse Research Institute, 2012. Gender diversity and corporate performance. Available at: https://infocus.credit-suisse.com/data/_product_documents/_shop/360145/csri_gender_diversity_and_corporate_performance.pdf

Daines, R., Gow, I. and Larcker, D. 2010. Rating the Ratings: How Good Are Commercial Governance Ratings? Kellogs Northwestern University.

Dezső, C. L. and Ross, D.G. 2011. Does female representation in Top Management Improve Firm Performance? A Panel Data Investigation. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1088182

Doldor, Vinnicombe, Gaughan and Sealy (Cranfield Management School), 2012, Gender Diversity on Boards: The Appointment Process and the Role of Executive Search Firms

Eagly, A. H., and Sczesny, S. 2009. Stereotypes about women, men, and leaders: Have times changed? In: M. Barreto, M. K. Ryan, and Schmitt, M.T. (Eds.), The glass ceiling in the 21st century: Understanding barriers to gender equality. (pp. 21-47). Washington: American Psychological Association. Available at: http://psycnet.apa.org/?&fa=main.doiLanding&uid=2008-18321-002

Erhardt, N.L., Werbel, J. D. and Shrader, C. B. 2003. Board of Director Diversity and Firm Financial Performance. Corporate Governance, 11(2) (April).

Erkut, S., Kramer, V. W., and Konrad, A. M. 2008. Critical Mass: Does the Number of Women on a Corporate Board Make a Difference? Women on Corporate Boards of Directors: International Research and Practice (pp. 222-232). New Horizons in Management. Cheltenham, U.K. and Northampton,

Ertugrul,M. and Hedge, S., 2009, Corporate Governance Ratings and Firm Performance, Financial management 38(1):139-160

EU Database: Women and Men in Decision Making, Available at: http://ec.europa.eu/social/main.jsp?catId=777&langId=en

EU Database: Women and Men in Decision Making, Available at: http://ec.europa.eu/social/main.jsp?catId=777&langId=en

The data on companies cover the largest (by market capitalisation) nationally registered (according to ISIN code) constituents of the main blue-chip index of the national stock exchange in each country. In countries with unitary (one-tier) systems, the board of directors is counted (including non-executive and executive members). In countries with two-tier systems, only the supervisory board is counted.

EU Strategy for Equality between Women and Men (2010-2015)

European Commission, 2003, The Costs and Benefits of Diversity, available at: http://www.eurofound.europa.eu/eiro/2003/11/feature/eu0311208f.htm

Eurostat, Labour Force Survey, 2008.

Eurochambres interviewed women entrepreneurs (41%) and managers (59%) in six EU Member States. http://www.eurochambres.be/Content/Default.asp?PageID=216

European Commission. 2010. More Women in Senior Positions, Key to Economic Stability and Growth, January 2010

European Commission. 2012. Women in economic decision-making in the EU: Progress report, A Europe 2020 Initiative, European Union, 2012 Available at: http://ec.europa.eu/justice/gender-equality/files/women-on-boards_en.pdf

Eurostat, Employment by sex, age groups and nationality [lfsq_egan], 3rd quarter of 2011.

Eurostat, Tertiary students (ISCED 5-6) by field of education and sex [educ_enrl5], 2009.

Franke, G., Crown, D., Spake, D. 1997. Gender Differences in Ethical Perceptions of Business Practices. Journal of Applied Psychology, 82(6), 920-934. Anastasopoulos, V., Brown, D. and Brown, D. 2002. Women on boards: Not just the Right Thing… but the ‘Bright’ Thing. Available at: http://www.europeanpwn.net/files/women_on_boards_canada.pdf

Ferree, M.M. and Purkayastha, B. 2000. Review: Equality and Cumulative Disadvantage: Response to Baxter and Wright. Gender and Society, 14(6): 809-813.

Fombrun, C. J., 1996, Reputation: realizing value from the corporate image, Harvard Business School Press, Boston MA

Fondas, and Sassalos. A Different Voice in the Boardroom: How the Presence of Women Directors affects Board Influence over Management. Global Focus, 12(2):13-22.

Freshfields Bruckhaus Deringer. 2011. A guide for directors of subsidiary companies in France. Available at: http://www.freshfields.com/publications/pdfs/2011/aug11/30829.pdf

Gompers, A., Ishii, J. and Metric, A. 2003. Corporate Governance and Equity Prices. Quarterly Journal of Economics, 118: 107-55.

Government Commission on the German Corporate Governance Code. 2010. Corporate Governance Codes and Principles – Germany. Available at: http://www.ecgi.org/codes/documents/cg_code_germany_may2010_en.pdf

Hambrick, D. and Mason, P. 1984. Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193–206. Beekun, R., Stedham, Y. and Young, G. 1998. Board characteristics, managerial controls and corporate strategy: A study of us hospitals. Journal of Management, 24(1), 3-19.

Harquail, C. V. 2008. Through the Labyrinth: The Truth about How Women Become Leaders. Administrative Science Quarterly, 53(2): 363-366.

Haslam, S. A., Ryan, M. K., Kulich, C., Trojanowski, G., and Atkins, C. 2010. Investing with Prejudice: the Relationship Between Women’s Presence on Company Boards and Objective and Subjective Measures of Company Performance. British Journal of Management, 21(2): 484.

Haygroup 2011, Non-executive directors in Europe.

Hewlett, Sylvia Ann, Executive women and the myth of having it all, April 2002, pages 66-73.

Higgs, D. 2003. Review of the role and effectiveness of non-executive directors. The Department of Trade and Industry. The Stationery Office: London.

Higher Education Policy Institute, 2009, Male and female participation and progression in Higher Education, see: http://www.hepi.ac.uk/files/41Maleandfemaleparticipationsummary.pdf

Hillman, A.J., Cannella, A.A. and Harris, I.C. 2002. Women and racial minorities in the boardroom: how do directors differ? Journal of Management, 28: 747-63. Singh, V., Vinnicombe, S., and Terjesen, S. 2007. Women Advancing onto the Corporate Board. Handbook on Women in Business and Management (pp. 304-329). Cheltenham, U.K. and Northampton, Mass.: Elgar.

Holst, Nach wie vor kaum Frauen in den Top -Gremien großer Unternehmen, DIW 18/2009, page 11.

Holst, DIW, Discussion paper 557, Women in managerial positions in Europe,

Insync Survey, 2010, Gender agenda: unlock the power of diversity in the boardroom

Jensen, M. C. and Meckling, W. H. 1976. ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’, Journal of Financial Economics, 3: 305-60.

Joecks, J.; Pull, K. And Vetter, K. 2012. Women on Boards and Firm Performance: What Exactly Constitutes a 'Critical Mass'? Available at SSRN: http://ssrn.com/abstract=2009234

Joy, L. 2008. Women Board Directors in the United States: An Eleven Year Retrospective. Women on Corporate Boards of Directors: International Research and Practice (pp. 15-23). New Horizons in Management. Cheltenham, U.K. and Northampton, Mass.: Elgar.

Joecks, J.; Pull, K. and Vetter, K. 2012. Women on Boards and Firm Performance: What Exactly Constitutes a 'Critical Mass'? Available at SSRN: http://ssrn.com/abstract=2009234

Jungmann, C. 2008. The Dualism of One-Tier and Two-Tier Board Systems in Europe, Summer School of European Business Law, Dusseldorf Law School. Available at: http://www.duslaw.eu/files/The%20Dualism%20of%20One-Tier%20and%20Two-Tier%20Boards%20in%20Europe%20%28Jungmann%29.pdf

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Kohaut/ Möller, Frauen kommen in den Chefetagen nicht voran, IAB Kurzbericht 6/2010; the figures are based on an annual survey of 16000 companies in Germany

Kotiranta, A., Kovalainen, A., and Rouvinen, P. 2007. Female Leadership and Firm Profitability. Eva Analysis. Available at: http://www.frauen.bka.gv.at/DocView.axd?CobId=37906

Kramer, V.W., Konrad, A.M. and Erkut, S. 2006. Critical Mass on Corporate Boards: Why Three or More Women Enhance Governance. Available at: http://www.wcwonline.org/pdf/CriticalMassExecSummary.pdf

Kumra, S. and Vinnicombe, S. 2008. A Study of the Promotion to Partner Process in a Professional Services Firm: How Women Are Disadvantaged. SSRN eLibrary. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id

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Liebig, B. and Sansonetti, S. 2004. Career Paths. Current Sociology, 52(3): 371 -406.

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Matsa, D. A., and Miller, A. R. 2011. Chipping Away at the Glass Ceiling: Gender Spillovers in Corporate Leadership. American Economic Review, 101(3): 635-639. doi: http://www.aeaweb.org/aer/

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McKinsey. 2007. A Wake-Up Call for Female Leadership in Europe Available at: http://www.mckinsey.com/careers/women/social_sector_impact/~/media/Reports/Women/Mckinsey_women_wakeupcall.ashx

McKinsey. 2008. Women Matter 2. Female leadership, a competitive edge for the future. Available at: http://www.mckinsey.com/locations/paris/home/womenmatter/pdfs/women_matter_oct2008_english.pdf

McKinsey. 2010. Women Matter. Women at the top of corporations: Making it happen. Available at: http://www.mckinsey.com/locations/swiss/news_publications/pdf/women_matter_2010_4.pdf

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2. ANNEX 2: Results of the stakeholder consultation

2.1. Introduction

On the basis of the Progress Report "Women in economic decision-making in the EU" presented on 5 March 2012, the Commission launched a public consultation of stakeholders on the gender imbalance on corporate boards in the EU and possible EU measures to be taken in that context.

The consultation was announced on the Commission website[1], and was widely publicised through a Commission press release[2], articles in European newspapers, social media (Facebook, Twitter), and interventions of Commission representatives in meetings with other institutions and stakeholders.

The target group of this consultation was composed of Member States, business, industry and employer organisations, individual companies, civil society organisations with an interest in gender and/or social issues, trade unions, equality bodies, and other organisations or individuals.

Stakeholders wishing to contribute to the consultation were invited to answer the following questions:

· How effective is self-regulation by businesses to address the issue of gender imbalance in corporate boards in the EU?

· What additional action (self-regulatory/regulatory) should be taken to address the issue of gender imbalance in corporate boards in the EU?

· In your view, would an increased presence of women on company boards bring economic benefits, and which ones?

· Which objectives (e.g. 20%, 30%, 40%, 60%) should be defined for the share of the underrepresented sex on company boards and for which timeframe? Should these objectives be binding or a recommendation? Why?

· Which companies (e.g. publicly listed / from a certain size) should be covered by such an initiative?

· Which boards/board members (executive / non-executive) should be covered by such an initiative?

· Should there be any sanctions applied to companies which do not meet the objectives? Should there be any exception for not reaching the objectives?

The deadline for sending contributions was 28 May 2012.

2.2. Number of contributions and profile of respondents

The amount of feedback was significant, showing the considerable amount of interest in the topic among European stakeholders. In total, the Commission received 485 contributions to the public consultation, of which 161 were sent by individuals and 324 by organisations (public authorities, business or industry associations, companies, NGOs and women organisations, trade union and professional organisations and other bodies).

Replies were received from 23 EU Member States (all but Bulgaria, Lithuania, Slovenia and Slovakia), by far most of them from Germany (163) and the United Kingdom (79), followed by the Netherlands (43), France (26), the Czech Republic (25), Italy (17), Spain (15), Denmark (15) and Austria (15). 22 EU-level organisations responded, as well as citizens and organisations from third countries and international bodies.

Graph 1: Replies to the public consultation per Member State

Among the replies from individual citizens, which include those received from researchers, most of them were also sent from Germany (71), followed by the Netherlands (35), the Czech Republic (14) and the UK (12). Almost half (159) of the organisations contributing to the consultation are based in Germany and the UK, showing the extensive debate in those two Member States on the issue of women in corporate management.

Graph 2: Replies of organisations to the public consultation per Member State

The following graph shows the type of organisations that have contributed to the consultation.

Graph 3: Replies by type of organisations

Central governments in 13 Member States have responded (AT, CZ, DE, DK, FI, FR, HU, IE, LV, NL, PL, SE, UK). Replies were also sent by regional governments (Nordrhein-Westfalen, Berlin, Emilia-Romagna) and cities / municipalities (Barcelona, München, Frankfurt, Nürnberg, Würselen, Ozzano Emilia), as well as by the Czech National Bank.

Many individual companies of all sizes and from different sectors of industry (in total 79) have sent contributions, including some of the major listed companies in Europe (e.g. Allianz, Aviva, BASF, BMW, BNP Paribas, BP, Deutsche Telekom, GlaxoSmithKline, Novo Nordisk, Siemens, Sodexo, SONAE, ThyssenKrupp). Several SMEs as well as a few micro-businesses run by female entrepreneurs have also participated.

In total 56 business, industry and employer associations at both EU and national level (19 from Germany) have responded to the consultation, including both European umbrella organisations (e.g. BUSINESSEUROPE, ERT, EUROCHAMBRES, UEAPME, EuroCommerce, CEEMET) and many major national business organisations (e.g. CBI, Medef, BDA/BDI, Confindustria, VNO-NCW, SN, WKÖ, CIP, DI, IBEC, UEL) and chambers of commerce. Some associations of listed companies have also responded.

The contributors include 53 NGOs, most of them women's organisations (and one men's organisation). The European Women's Lobby (EWL) and many of their national members, as well as associations of businesswomen (including local branches of the European PWN) or women lawyers have all responded to the call.

Several trade unions at EU (e.g. ETUC, CESI) and at national level (e.g. DGB, CFDT, CFE-CGC, TUC, ÖGB, LO) as well as professional organisations, such as the European Confederation of Directors’ Associations (ecoDa), national institutes of directors (e.g. in IE and FI) and associations of accountants, engineers and financial analysts were among the respondents.

Among the other stakeholders, notable contributions were received from the actors in financial services (e.g. London Stock Exchange and NASDAQ OMX), associations of investors or shareholders, bodies dealing with corporate governance, research institutions, and several specific initiatives to bring more women into corporate boardrooms. Some political actors, in particular parties' women organisations (e.g. EPP Women, Social Democratic Women (CZ and DE), Green Women Vienna) as well as several individual MEPs and national MPs also replied.

2.3. Summary of replies to the questions

There is a broad agreement among stakeholders that the underrepresentation of women on company boards is a problem that needs to be tackled. Therefore, the objective of increasing the proportion of women at all company levels is widely shared. Views diverge, however, on how this should be achieved, namely through regulation or through self-regulatory or corporate initiatives.

The vast majority of stakeholders also recognise that a gender-diverse workforce and board structure creates a committed and creative atmosphere and is a driver of innovation and good governance. Many share the view that a gender-balanced board can reflect a company's customer base more accurately and that it would be short-sighted to leave untapped the economic potential of qualified women who constitute half of the talent pool. Only a few organisations deny the existence of a business case for more gender diversity in companies and on boards, stating that qualification is the only relevant factor.

In their detailed comments, most of the respondents followed the structure of the questionnaire proposed by the Commission. Their replies are summarised below[3].

· How effective is self-regulation by businesses to address the issue of gender imbalance in corporate boards in the EU?

Stakeholders' views vary widely about how successful self-regulation had been or could be in addressing the issue of gender imbalance on company boards.

The business community in particular , i.e. companies and industry associations, sees self-regulation as the most appropriate approach, as it allows taking into account the starting point of different companies and sectors and provides for tailor-made solutions. In their view, the self-regulatory method ensures ownership and a substantial change in corporate culture, through a bottom-up approach and realistic targets, without undue interferences into the freedom of business.

Examples of a successful self-regulatory approach sometimes referred to are Sweden and Finland, but also Latvia. Many stakeholders from the UK point to how the debate on the issue has picked up since the publication of Lord Davies' report on women on boards and to the increase in the number of women directors being appointed to boards in the last one or two years. They think the voluntary method suggested in the UK should be given a chance. Similarly, the change in speed since Commission Vice-President Reding's call for self-regulation in March 2011 if often noted positively.

Other stakeholders consider that self-regulation may be a first step, but has not (yet) delivered. The disappointment about the failure of the approach to produce satisfactory results is strongest among women NGOs and trade unions. They consider that only the recent threat of legislation to impose a higher share of women business leaders has triggered some change, but this change is not fast enough, as it would still take decades at the current pace to achieve a sufficient level of gender balance on company boards.

These stakeholders often point to disappointing experiences with self-regulation in their own Member States, e.g. in Germany, where a 2001 self-commitment of the business community was – in their view – not followed up by any concrete action, but also in other Member States (e.g. IE, PT, NL). Others recall the Norwegian experience, where after years of unsuccessful self-regulation, only a regulatory approach brought about a change in numbers.

· What additional action (self-regulatory/regulatory) should be taken to address the issue of gender imbalance in corporate boards in the EU?

Depending on their views on the merits of self-regulation, stakeholders have different opinions on additional action that should be taken to strengthen women's positions in the management and supervision of companies. Actions proposed include both measures to directly tackle the gender imbalance on boards and flanking measures to create a business environment conducive to a better promotion of women's careers in business management.

The actors favouring self-regulation advocate a voluntary approach, notably through corporate governance codes and industry or individual corporate initiatives. They argue that change will be led by the market, as the business case argument will convince more and more companies that diversity pays off. Some also argue that developing a talent pool of sufficiently qualified women for board positions is a matter of time, and the composition of company boards will change naturally.

Other stakeholders, including in the business community, acknowledge that public authorities, including at EU level, have a role to play in triggering a change of mentality and can support that change through soft measures, such as recommendations and awareness-raising. Many also think that the role of the State is to create the necessary environment in which women can take on decision-making positions, notably through measures ensuring a better reconciliation of work and family life (e.g. childcare institutions).

Other proposals include specific actions to help women progress in their careers, e.g. mentoring and training programmes, professional networks for women, databases of CVs of women with board potential. Companies could contribute through a better human resources diversity management and clear job descriptions, profile criteria and transparent selections procedures for board positions.

Finally, a substantive share of contributors consider that the current gender imbalance on boards can at least partly be explained by prejudice and stereotypes in a male-dominated business culture, where many appointment decisions are taken in backroom deals, so that even the highest qualified women never get a chance. In their view, only clear targets or quotas for women on company boards will break the glass ceiling that many women in middle-management of companies currently face.

· In your view, would an increased presence of women on company boards bring economic benefits, and which ones?

The replies to this question show the greatest degree of consensus among stakeholders, as there is broad agreement that diverse boards, including in terms of gender, take better decisions and produce better economic outcomes for companies. This is explained by the fact that gender diversity leads to a better understanding of the market, openness to new ideas and visions and boosts creativity and innovation. They also argue that companies with a higher share of women in management attract even more highly educated women.

Many contributions refer to existing research and studies (notably by some consultancy firms such as McKinsey and Ernst&Young) showing a positive correlation between the presence of women on company boards and overall corporate performance and financial results, including turnover, profit and shareholder value.

Some stakeholders underline, however, that the causality of these findings has not been proven yet and contest that the sex of a person can have any direct influence. While they highlight the exclusive importance of competence, qualifications and experience, they also acknowledge the importance of having heterogeneous profiles of directors.

Finally, several stakeholders also point to the macro-economic benefits that a higher share of women directors can bring in terms of attracting more women into the labour market and to management positions, with positive effects on the gender pay gap. They underline the importance of female role models for providing incentives for women to start businesses.

· Which objectives (e.g. 20%, 30%, 40%, 60%) should be defined for the share of the underrepresented sex on company boards and for which timeframe? Should these objectives be binding or a recommendation? Why?

This question, again, draws very different answers, depending on the approach that stakeholders favour– regulatory or self-regulatory – to address the issue of gender imbalance on company boards.

Advocates of a self-regulatory approach consider that, while public or corporate governance initiatives can make suggestions, each company should be free to set its own targets in relation to the promotion of women in management and company boards. They consider that one-size-fits-all quotas would not do justice to existing initiatives and not take account of different starting positions of certain companies and industries. Therefore, any objectives set by public authorities should not be binding. However, some business representatives would accept soft law initiatives with a suggested target (e.g. 30% of women by 2018), if it is acknowledged that this may not be achievable for all, while others may be able to advance faster.

Proponents of a more ambitious approach support binding objectives for company boards at levels generally ranging from 30% to 50%. Many favour a gradual scheme, with objectives rising with time, or depending on company type or size. The proposed timeframe varies in most cases from 3 to 8 years, most stakeholders acknowledging that a sufficient time span is required to achieve substantial progress, without putting companies in difficulty, in particular since board elections in some Member States take place only every 3 or 4 years. Some of them argue that binding gender objectives should be limited in time.

Interestingly, a considerable number of stakeholders support the targets and timeframes proposed in March 2011 by Commission Vice-President Reding as a benchmark for self-regulation and supported by the European Parliament, i.e. a share of 30% of women by 2015 and 40% by 2020.

· Which companies (e.g. publicly listed / from a certain size) should be covered by such an initiative?

When asked about the companies that should be covered by an initiative to increase the number of women on boards, the respondents often replied differently, according to their preference as regards the nature of such initiative.

Those favouring more far-reaching – in particular binding – measures argued that the target group should be restricted, both for reasons of feasibility and the possibility to control compliance. Many contributors thought that such an initiative should focus on companies listed on stock exchanges, where the public interest rationale for external intervention is greatest, due to these companies' visibility in the public domain. Others preferred targeting the companies with the highest market capitalisation, as they did not consider the criterion of listing as relevant. The size in terms of employees was often cited as a relevant criterion, with different thresholds suggested, such as 250 or 500 employees – which would exclude small and medium-sized enterprises (SME) from the scope. Finally some stakeholders thought that state-owned or publicly owned companies should be covered as well, some even including 'high-growth SMEs'.

Stakeholders pleading in favour of voluntary commitments and self-regulation thought that companies of all sizes and types could make their own contribution to improving the situation. It was acknowledged, however, that soft law or corporate governance initiatives in many cases also concern only publicly listed companies, but that other companies should launch their own (voluntary) initiatives.

Quite some stakeholders pleaded in favour of a gradual or differentiated approach, namely by starting an initiative with listed and/or state-owned companies and then extending it to a wider target group, or by having different requirements for different sizes of companies.

Other criteria quoted included companies participating in public procurement or companies with a compulsory works council (which is a legal category in German company law).

· Which boards/board members (executive / non-executive) should be covered by such an initiative?

There was no clear trend in the replies to this question. Many stakeholders argued that both management and supervisory boards (in the dual board system) or both executive and non-executive directors (in the unitary board system) should be covered by an EU-level initiative, while other favoured covering only one or the other group.

Many contributions underlined the need to take into account the diversity of board systems across Member States, when designing an initiative. Several German organisations (including women NGOs) argued that the initiative should focus on supervisory boards only (including both shareholder and employee representatives on those boards), and also some Finnish organisations argued that only the non-executive boards should be covered.

Some stakeholders suggested starting an initiative with non-executive board members, as it would constitute a less significant interference with the daily management of companies and could be done faster, while executive board members should follow later.

Quite a few stakeholders stressed the importance of not only focusing on company boards, but also to think of how women could be promoted in higher and middle management to ensure a 'sustainable pipeline' or 'supply chain' of qualified women for board positions. However, in most cases, it was argued that this should be achieved by way of self-regulation and corporate initiatives.

· Should there be any sanctions applied to companies which do not meet the objectives? Should there be any exception for not reaching the objectives?

The views of whether sanction should be applied to companies not ensuring a sufficient gender balance in company boards heavily depended on whether stakeholders favoured or opposed binding objectives.

Those calling for binding measures usually called for strict sanctions and made a number of suggestions including: invalidity of appointment of board members; invalidity of board decisions; suspension of board members' remuneration; exclusion from public subsidies and/or public procurement; financial sanctions (fines), many highlighting that these should be dissuasive and thus not too low; exclusion from fiscal deductions. Some pleaded for using the habitual company law sanctions in each Member State. Many highlighted how essential sanctions were for the efficiency of binding objectives, citing Norway as a good example and Spain as a counter-example.

A few stakeholders argued that legal measures should only be backed up by a 'comply-or-explain' approach, i.e. the duty to report on progress in the company's annual report and to develop a strategy if the objectives have not been reached.

Incentive mechanisms were sometimes suggested as a type of 'positive sanctions' for those companies who abide by the objectives. Such incentives included 'gender certification' of companies or advantages in public procurement.

Some contributions also suggested a gradual approach for non-complying companies, starting with mild dissuasive measures such as warnings or progressive monetary sanctions and then increasing to harsher actions such as the forfeiture of offices of appointed board members.

The importance of a monitoring system was often highlighted, as was the need to guarantee the proportionality of sanctions, taking into account the nature, size and complexity of a company, as well as the degree of infringement. It was stated that the sanctions should not prevent a company from carrying out its usual business.

As concerns the question for exceptions for not reaching the objectives should be allowed, many stakeholders expressed their reservations, as this would open a way out for companies. However, some stakeholders advocated exceptions to take account of company-related specificities, for instance in cases where women were strongly underrepresented in the employee structure of a company.

3. ANNEX 3: Business case literature review

Women on boards: positive effects

Name(s) || Title || Year || Findings

Renée Adams Daniel Ferreira || Diversity and Incentives in teams: evidence from corporate boards || 2003 || Tobin's Q is positively related to the percentage of female directors on the board.

Renée Adams Daniel Ferreira || Women in the boardroom and their impact on governance and performance || 2009 || Diversity is found to have a positive impact on performance in firms that otherwise have weak governance, as measured by their abilities to resist takeovers (although this does not hold for firms with strong governance, see below).

Renée Adams Stephen Grey John Nowland || Does Gender Matter in the Boardroom? Evidence from the Market Reaction to Mandatory New Director Announcements || 2011 || On average, shareholders value additions of female directors more than they value additions of male directors. This suggests that appointing female directors may help resolve value-decreasing stakeholder conflicts.

Roy Adler || Women in the Executive Suite Correlate to High Profits || 2007 || An extensive 19-year study of 215 Fortune 500 firms shows a strong correlation between a strong record of promoting women into the executive suite and high profitability.

Stephen Bear Noushi Rahman Corinne Post || The impact of board diversity and gender composition on corporate social responsibility and firm reputation || 2010 || Having more female directors can enhance critical board processes including analysis and decision-making. This positive impact of women on boards can improve ratings for CSR which can, in turn, enhance corporate reputation and positively impact financial performance, institutional investment, and share price.

Stephen Brammer Andrew Millington Stephen Pavelin || Corporate Reputation and Women on the Board || 2009 || The presence of women on the board is favourably viewed in only those sectors that operate close to final consumers. It is argued that the nature of this effect reflects an imperative for equality of representation that highlights the need to reflect gender diversity among customers.

Lissa Broome John Conley Kimberly Krawiec || Dangerous categories: narratives of corporate board diversity || 2011 || Interviewing board members who face board diversity themselves, the authors find that all of the interview subjects agree with the abstract proposition that board diversity is a good thing. On the more specific question of why it is good, there is broad agreement, though not necessarily quantifiable—a master narrative of sorts – that board diversity results in functional improvements to board or corporate operations—a "qualitative “business case” for board diversity.

Kevin Campbell Antonio Minguez-Vera || Gender Diversity in the Boardroom and Firm Financial Performance || 2008 || Gender diversity has a positive effect on firm value. The study suggests that investors in Spain do not penalise firms which increase their female board membership and that greater gender diversity may generate economic gains.

David Carter Betty Simkins Gary Simpson || Corporate Governance, Board Diversity and Firm Value || 2003 || This study examines the relationship between board diversity and firm value for Fortune 1000 firms and finds that Tobin's Q is positively related to both the percentage of female directors and the percentage of minority directors.

David Carter Frank D'Souza Betty Simkins Gary Simpson || The diversity of corporate board committees and firm financial performance || 2007 || Empirical analysis supports the hypothesis that board diversity positively affect financial performance as measured by Tobin's Q. However, the board committee evidence also indicates that the process through which gender and ethnic diversity impacts financial performance is subtle and complex. Some functions of the board may benefit from diverse directors while other functions may actually suffer. Furthermore, the type of diversity appears to matter.

Alessandra Casarico Paola Profeta || Quote rosa: svolta in Italia || 2011 || Legislative instruments, such as quota, are useful in attaining equality in economic and political decision-making, especially because it addresses market failures and makes the market of competent employees more competitive (by widening the recruitment pool). Positive effects are not only felt directly at the management level, but also indirectly on the labour market as the measures encourage female participation.

Catalyst || Women in leadership; The bottom line; Women on boards … || 2002 2004 2005 2006 2007 2008 2009 || Companies with the highest representation of women board members outperform companies with the least representation of women board members in terms of return on equity (ROE), return on sales and return on invested capital.

Cerved || Donne al commando delle imprese: il fattore D || 2009 || This econometrical analysis shows that more women on company boards reduce the risk of default (factor D). When women are prevalent on company boards, the firm is 15% less likely to receive a bad rating (indicative of risk of default), than firms which have very few or no women on board. Likewise, only 13% of 'female companies' have become insolvent. In addition, 'female companies' tend to grow faster, are more prevalent among emerging companies and generate more profit.

Credit Suisse research Institute || Gender diversity and company performance || 2012 || Over six years, companies with at least one female board member outperformed those with no women on the board in terms of share price performance by 26% for companies with a market capitalisation greater than USD 10 billion, and by 17% for small-to-mid cap stocks. The sample comprised 2,360 companies constituting the MSCI AC World index.

Larelle Law Chapple Pamela Kent James Routledge || Board Gender Diversity and Going Concern Audit Opinions || 2012 || Boards with at least one female director are less likely to receive an emphasis of matter going concern opinion. The authors attribute this result to the improved monitoring that the board is able to provide as a result of the qualities brought to bear by female directors. This finding is indicative of the important role of the audit committee in relation to the integrity of financial reporting and that the existence of female members on the committee expectation enhances its operation.

Harald Dale-Olsen Pål Schøne Mette Verner || Diversity among Directors - The Impact on Performance of a Quota for Women on Company Boards || 2011 || The average impact of the reform on firm performance is negligible. However, the reform contributed to increased return on assets for a priori badly performing surviving firms. This may have followed from the recruitment of highly competent female board members following the reform.

Harald Dale-Olsen Pål Schøne Mette Verner || Women on Boards of Directors and Firm Performance: Evidence from Denmark and Norway || 2012 || The results for Denmark reveal no significant relationships between the proportion of women on boards and firm performance. As there was no quota policy in place in Denmark in this period and the proportion of women on boards has been quite constant, this is hardly surprising. The results for Norway reveal first a positive relationship between the proportion of women on boards of directors and firm performance. This relationship does hold after controlling for a wide set of firm characteristics.

Lord Davies || Women on boards || 2011 || The business case for increasing the number of women on corporate boards is clear. Women are successful at university and in their early careers, but attrition rates increase as they progress through an organisation. When women are so under-represented on corporate boards, companies are missing out, as they are unable to draw from the widest possible range of talent. Evidence suggests that companies with a strong female representation at board and top management level perform better than those without and that gender-diverse boards have a positive impact on performance.

Niclas Erhardt James Werbel Charles Shrader || Board of Director Diversity and Firm Financial Performance || 2003 || Our findings are that diverse boards are found in conjunction with increased firm financial performance. Correlation and regression analyses indicate board diversity is positively associated with these financial indicators of firm performance. And regardless of whether it is the cause or result of performance, it does appear that firms should seriously consider the potential for the enhanced representation and perspective diversity might create.

Ernst&Young || Mixed leadership || 2012 || The study comparing European top companies from 2005 -2010 came to the result that companies with higher female presence have better financial performance indicators (turnover, shareholder value, revenue)

EVA (Finnish Business and Policy Forum) || Female leadership and Firm profitability || 2007 || Female leadership is good for business from three standpoints: social, corporate social responsibility and profitability. EVA finds that a firm with a gender-balanced board is on average about 10% more profitable than a similar firm with an all-male board. Same results hold for firms with a female CEO. Though clearly stating this is a correlation and no causality, and not necessarily supporting female quotas, EVA concludes that they could be called for in a transitional period to 'normalise' the presence and role of women in business.

Finland Chamber of Commerce || Men lead business operations of listed companies - Women end up in support functions || 2011 || Generally supportive of board gender diversity as a means of securing the availability of the best possible employees and top management for businesses (without necessarily being in favour of quota, see below): "Companies lose potential if top management is selected only among the most knowledgeable and suitable men, not among the best persons".

Ruth Mateos Ricardo Gimeno Lorenzo Escot || Disentangling Discrimination On Spanish Boards Of Directors || 2010 || Manifestation of Becker’s model according to which most competitive companies that have survived are those with more diverse boards. In this sense, the authors observe that those companies with fewer women directors in 2005 were more likely to become extinct in the following three years.

Ruth Mateos Ricardo Gimeno María Nieto || Gender Diversity On European Banks’ Boards Of Directors: Traces Of Discrimination || 2011 || There is empirical evidence that highlights the benefits of diversity for corporate governance in terms of both efficiency and better monitoring. As women directors add to the diversity of the boards their inclusion can improve their corporate governance.

Morten Huse || The “Golden Skirts”: Changes in board composition following gender quotas on corporate boards || 2011 || Women are generally getting the independent director positions, and the traditional old boys network on corporate boards are replaced by “Golden Skirts” and “Gold Sacks”. Competence and not independence has been the main criteria for selecting them. Many women have become very visible as good board members. There is no shortage of highly qualified women for board positions. Highly qualified women are numerous. They are now getting more experiences and are becoming more visible. Imitating or mimicking processes take place. It has become a reputation-building initiative to have women on the board.

Jasmin Joecks Kerstin Pull Karin Vetter || Women on Boards and Firm Performance: What Exactly Constitutes a 'Critical Mass'? || 2012 || Based on critical mass theory and with the help of a hand-collected panel data set of 151 listed German firms for the years 2000-2005, the authors explore whether the link between gender diversity and firm performance follow a U-shape. Controlling for reversed causality, they find gender diversity in fact to at first negatively affect firm performance and – only after a 'critical mass' of about 30 percent women has been reached – to be associated with higher firm performance than completely male boards.

Mijntje Lückerath-Rovers || Women On Boards And Firm Performance || 2010 || This article adds to the international debate and applies useful methods to 99 listed companies in the Dutch Female Board Index. Firms with women perform better than those without women. The differences are statistically significant for return on equity. Regression analyses confirm these findings. Both results are indications that on average the presence of women on the board could be a distinctive feature of companies that perform better. This study does not suggest that there is causality.

McKinsey and Company || Women Matter (series) || 2007 2008 2009 2010 2012 || McKinsey consistently argues that the companies where women are most strongly represented at board or top-management level are also the companies that perform best. Insights include the importance of a critical mass of at least three women, criteria of organisational excellence and leadership styles (2008), a call for more women leaders as a competitive edge in and after the economic crisis (2009), CEO commitment and women's individual development programmes (2010), gender diversity programmes and low women's representation on executive committees in particular (2012). However, position on quota remains ambivalent and cautious.

Pam Watson Korbel and Donna Evans || Women on boards = Peak performance || 2012 || Women significantly impact on organizations' performance, particularly when three or more women serve on the same board. Organizations benefit from women serving in the boardroom including: 1. Improved financial performance; 2. Improved governance; 3. Higher level of board independence from management; 4. Stronger commitment to social responsibility; 5. Increased number of women role models in society

Toyah Miller Maria del Carmen || Demographic diversity in the boardroom: Mediators of the Board Diversity – Firm Performance Relationship || 2009 || The authors explain how board (racial) diversity is related to firm performance. Applying signalling and behavioural theory to a sample of Fortune 500 firms, it is concluded that board diversity enhances a firm's reputation and innovation – indirectly leading to better firm performance. In addition, the authors find a positive relationship between board gender diversity and innovation – although no direct relationship was found with firm performance. The lack of a direct relationship does not necessarily mean that gender equality does not help firms – it is suggested that maybe the firm's environment is not set up to allow the firm to reap the benefits of a diverse board.

Antonio Mínguez-Vera Raquel López-Martínez || Female directors and SMEs: An empirical analysis || 2010 || A mix of men and women on the board has a positive effect on firm performance. This result suggests that gender diversity not only advances social equity in Spanish boardrooms but serves to improve the firms’ economic situation.

Knut Nygaard || Forced board changes: Evidence from Norway || 2011 || Firms with low information asymmetry experience positive and significant cumulative abnormal returns (CAR) at the introduction of the quota, whereas firms with high information asymmetry show negative but insignificant CAR.

Emilia Peni || Essays on the Effects of Female Executives and Experts on Corporate Governance and Financial Reporting Practices || 2012 || The results indicate that male- and female led firms differ in several aspects. For example, the firms with female executives are associated with better corporate governance quality, more conservative financial reporting practices, and better financial performance. In general, the findings provide support for the existence of gender-based behavioural differences at the executive and expert level.

Luis Rodríguez-Domínguez, Isabel-María García-Sánchez Isabel Gallego-Álvarez || Explanatory factors of the relationship between gender diversity and corporate performance || 2010 || Mixed evidence might indicate the importance of the business context and the optimum size of the female presence in decision-making bodies. The results obtained show that when working conditions and academic backgrounds are similar, women achieve better performance in sectors traditionally dominated by men. Moreover, to take the best advantage of gender diversity it is recommended that boards of directors should be balanced or have a slightly higher female presence.

Nina Smith Valdemar Smith Mette Verner || Do women in top management affect firm performance? A panel study of 2,500 Danish Firms || 2006 || The proportion of women in top management jobs tends to have positive effects on firm performance, even after controlling for numerous characteristics of the firm and direction of causality. The results show that the positive effects of women in top management depend on the qualifications of female top managers.

Nina Smith Valdemar Smith Mette Verner || Women in Top Management and Firm Performance (DK) || 2008 || The analysis suggests that the proportion of women in top management jobs has from none to positive influence on firm performance. However, the results show that the strength of the effects of women in top management depends on how top CEOs are defined and on the method of estimation of the model.

Carol Stephenson || Leveraging diversity to maximum advantage: The business case for appointing more women to boards || 2004 || As the research proves, companies with female board members can expect significantly higher returns and better overall financial performance. More female representation also translates into improved risk management and audit control, increased ethical oversight and a broader, more accurate assessment of the company's success. Equally important, with more female leadership, companies are better able to attract more female talent. They send a powerful message to the women who already work for their organizations that their contributions are valuable - that their voices are heard.

Siri Terjesen Ruth Sealy Val Singh || Women Directors on Corporate Boards: A Review and Research Agenda || 2009 || The evidence shows that gender diversity on corporate boards contributes to more effective corporate governance through a variety of board processes, some of which do not show up as a direct influence on the firm’s bottom line, as well as through individual interactions. As well as governance outcomes, women directors contribute to important firm level outcomes as they play direct roles as leaders, mentors, and network members as well as indirect roles as symbols of opportunity for other women, and inspire them to achieve and stay with their firm.

Mariateresa Torchia Andrea Calabro` Morten Huse || Women Directors on Corporate Boards: From Tokenism to Critical Mass || 2011 || The results suggest that attaining critical mass – going from one or two women (a few tokens) to at least three women (consistent minority) – makes it possible to enhance the level of firm innovation. This study highlights that heterogeneous boards are better than homogeneous male-dominated boards in terms of contribution to firm organizational innovation.

Mohamed Triki Zied Bouaziz II || The Impact of the Board of Directors on the Financial Performance of Tunisian Companies || 2012 || Testing for the impact of gender diversity on boards in terms of ROA (return on assets), ROE (return on equity) and Tobin's Q, the authors conducted research on a sample of 26 companies listed on the Tunisian stock exchange Tunis (Tunis Stock Exchange) over a period that spans four years (2007-2010). The estimated models show satisfactory results showing the importance of the impact of board diversity on financial performance of Tunisian companies.

Sabine Verboom Marieke Ranzijn || Connecting Corporate Performance and gender diversity || 2004 || A significant correlation was found between the percentages of women on the Supervisory Board and the Total Return to Shareholders. Concluding, there is a relationship between the number of women at the top management layer and the bottom line performance of a company. When looking at the performance of the companies, divided into three groups by percentages of women in the Supervisory Board, a trend showing a positive increase in the Total Return of Shareholders can be found. There are no significant relationships found between company financial performance and the percentages of women in the Board of Directors and the Higher Management layer.

J. Verstegen || Women in corporate boards: Do they create financial value? || 2011 || By estimating an ordinary least squares regression it follows that board gender diversity has a positive effect on firm value. After controlling for endogeneity by estimating a two-stages-least squares regression this conclusion stays unchanged, it even becomes stronger. In practical terms, this means that firms which have women on their corporate board perform better.

Virtcom Consulting || Board diversification strategy: realizing competitive advantage and shareowner value || 2009 || This research suggests that companies with more diverse boards, especially gender based diversification, have higher performance and key financial metrics such as: Return on Equity, Return on Sales and Return on Invested Capital. A selected group of companies with a high representation of diverse board seats exceeded the average returns of the Dow Jones and NASDAQ Indices over a 5 year period. The Business Case for Diversity has evolved to a proven Diversity Return on Investment (DROI) model that can be implemented across industries and on a global scale.

Harvey M. Wagner || The Bottom Line: Corporate Performance and Gender Diversity in the C-Suite (2004-2008) || 2011 || This research makes the bottom-line business case for gender diversity in the C-Suite (most important senior executives, CEOs, CFOs etc), with data from 2004-2008. Finds that companies with the most women consistently outperform those with the least, in terms of return on sales (ROS, 17%), return on invested capital (ROIC, 45%) and return on equity (ROE, 25%). Figures are even higher in the case of sustained representation (= critical mass).

Women on boards: neutral effects

Name(s) || Title || Year || Findings

Douglas Branson || No seat at the table: how corporate governance and law keep women out of the boardroom || 2007 || Analysis of Fortune 500 companies based on 2001-2005 data. Greater gender diversity improves corporate decision-making by helping to ensure a variety of perspectives at the boardroom table, reducing negative stereotypes and encouraging women and minority employees. No correlation as such between board diversity and corporate performance.

Lissa Broome Kimberly Krawiec || Signalling Through Board Diversity: Is Anyone Listening? || 2008 || Although signalling is frequently mentioned by researchers as a rationale supporting board diversity, it is concluded that the distribution of costs and benefits of board diversity in “good” firms versus “bad” firms is unknown.

David Carter Frank D'Souza Betty Simkins Gary Simpson || The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial Performance || 2010 || The results of our analysis do not support the business case for inclusion of women and ethnic minorities on corporate boards. However, there is no evidence of any negative effect either. Our evidence implies that decisions concerning the appointment of women and ethnic minorities to corporate boards should be based on criteria other than future financial performance.

Harald Dale-Olsen Pål Schøne Mette Verner || Women on Boards of Directors and Firm Performance: Evidence from Denmark and Norway || 2012 || The results indicate that the short-term relationship between gender diversity and firm performance is negligible. Neither for public limited firms nor for limited firms, can firm performance during this period really be attributed to women on boards. Thus, from a gender equalisation point of view, it appears that one has achieved increased gender diversity on Norwegian boards, without affecting firm performance.

Kathleen Farrell Philip Hersch || Additions to Corporate Boards: The Effects of Gender || 2005 || No evidence that the addition of a female board member affects Return on Assets (ROA) or market returns to shareholders.

Alan Gregory Emma Jeanes Rajesh Tharyan Ian Tonks || Does the Stock Market Gender Stereotype Corporate Boards? Evidence from the Market's Reaction to Directors' Trades || 2012 || Short-run market reactions may retain a ‘gender bias’, reflecting the prevalence of negative stereotypes, where the market reacts to ‘beliefs’ rather than ‘performance’. Allowing for firm and trade effects, some evidence is found that, in the longer term, markets recognize that female executives' trades are informative about future corporate performance, although initially markets underestimate these effects. This has important implications for research that has attempted to assess the value of board diversity by examining only short-run stock market responses.

Jasmin Joecks Kerstin Pull Karin Vetter || Women on Boards and Firm Performance: What Exactly Constitutes a 'Critical Mass'? || 2012 || Based on critical mass theory and with the help of a hand-collected panel data set of 151 listed German firms for the years 2000-2005, the authors explore whether the link between gender diversity and firm performance follow a U-shape. Controlling for reversed causality, they find gender diversity in fact to at first negatively affect firm performance and – only after a 'critical mass' of about 30 percent women has been reached – to be associated with higher firm performance than completely male boards.

Joana Marinova Janneke Plantenga Chantal Remery || Gender Diversity and Firm Performance: Evidence from Dutch and Danish Boardrooms || 2010 || Our findings indicate that there is no effect of board gender diversity on firm performance. This implies that the business case for board gender diversity is not supported for this particular sample of Dutch and Danish firms.

Sabina Nielsen Morten Huse || The contribution of women on boards of directors: going beyond the surface || 2010 || Women's ability to make a contribution to the board may be attributable to their different leadership styles. The presence of women on corporate boards seems to increase board effectiveness through reducing the level of conflict and ensuring high quality of board development activities.

Joao Paulo Torre Vieito || Gender, Top Management Compensation Gap, and Company Performance: Tournament versus Behavioral Theory || 2011 || Companies managed by a female CEO perform better, and have a smaller compensation gap between the CEO and Vice-Presidents than companies managed by a male CEO. In companies managed by a female CEO, a smaller difference in the total compensation gap between CEO and Vice-Presidents leads, on average, to higher company performance, however, when the CEO is a male, a higher compensation gap is required to obtain higher company performance.

Deborah Rhode Amanda Packel || Diversity on Corporate Boards: How Much Difference Does Difference Make? || 2010 || The relationship between diversity and financial performance has not been convincingly established. The review does, however, find some theoretical and empirical basis for believing that when diversity is well managed, it can improve decision making and can enhance a corporation’s public image by conveying commitments to equal opportunity and inclusion. To achieve such benefits, however, diversity must extend beyond tokenism and corporations must be held more accountable for their progress.

Caspar Rose || Does Female Board Representation Influence Firm Performance? The Danish Evidence || 2007 || Contrary to a number of other studies, this article does not find any significant link between firm performance as measured by Tobin's Q and female board representation. It is argued that board members with an unconventional background are socialised unconsciously adopting the ideas of the majority of conventional board members, which entails that a potential performance effect does not materialise.

Amira Roula Per Stånge || The Norwegian gender quota law and its effects – a natural experiment || 2010 || The results suggest that the law has not affected firm performance, firm risk taking or the cost of equity. The authors reach the conclusion that the law has not affected companies in a significant way, when looking at their performance, firm risk taking or their cost of capital.

Miriam Schwartz-Ziv || When All Are A-board: Does the Gender of Directors Matter? || 2012 || The findings stress that gender-balanced boards work harder than non gender-balanced boards, and have a more diverse set of skills. Gender was not found to impact upon financial performance of Israeli companies.

Charles Shrader Virginia Blackburn Paul Iles || Women in Management and Firm Financial Performance: An explanatory study || 1997 || No relationship between the percentage of female directors and profit margin, Return on Assets (ROA) or Return on Equity (ROE).

Gary Simpson David Carter Frank D’Souza || What Do We Know About Women on Boards (US)? || 2010 || Evidence for the business case for women directors is mixed, but tends to support the view that the ability of women directors to influence profitability and shareholder value is contingent on the specific circumstances of each company. Nevertheless, the lack of consistent evidence in support of the business case for women on boards does not negate the equity case.

Women on boards: negative effects

Name(s) || Title || Year || Findings

Renée Adams Daniel Ferreira || Women in the boardroom and their impact on governance and performance || 2009 || Diversity is found to have a positive impact on performance in firms that otherwise have weak governance, as measured by their abilities to resist takeovers. In firms with strong governance, however, enforcing gender quotas in the boardroom could ultimately decrease shareholder value. No evidence suggests that quota would improve firm performance on average.

Kenneth Ahern Amy Dittmar || The changing of the boards: The value effect of a massive exogenous shock || 2010 || The constraint imposed by the NO law resulted in a significantly negative impact on firm value. The value loss was not caused by the sex of the new board members, but rather by their younger age and lack of high-level work experience

Kenneth Ahern Amy Dittmar || The changing of the boards: the impact on firm valuation of mandated female board representation || 2011 || The constraint imposed by the NO quota caused a significant drop in the stock price at the announcement of the law and a large decline in Tobin’s Q over the following years. The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance, consistent with less capable boards

Sabine Boerner Hannah Keding Hendrik Huttermann || Gender Diversity und Orgaisationserfolg Eine kritsiche Bestandsaufnahme (Gender diversity and organisational success – a critical review) || 2012 || They conclude that the effects of gender diversity and team performance or organisational performance can be described as contradictory; hence it seems problematic to justify the need for gender diversity by economic/business reasoning. According to some of the studies there are positive effects in specific circumstances and under specific conditions. However, this can not be generalised to all possible teams and all possible circumstances.

Frank Dobbin Jiwook Jung || Corporate board gender diversity and stock performance: the competence gap or institutional investor bias? || 2011 || Findings are consistent with the proposition that bias is affecting stock price. Female directors have negative effects on stock value but no effects on company performance as such. An adverse reaction to the introduction of women on company boards may thus denote an investor bias – rather than a competence gap.

Finland Chamber of Commerce || Men lead business operations of listed companies - Women end up in support functions || 2011 || When quotas are enforced, many new women candidates are needed at the same time. In Norway some women have held numerous parallel board positions, even well over ten directorships. Quota legislation has also failed to increase the number of women CEO's or top positions in line management in Norway. The quota led to younger and less experienced boards, causing a decline in Tobin's Q. Therefore it is concluded that "In Finland gender quotas for company boards may turn out to be a new barrier to growth and stock exchange listings".

Alexander Haslam Michelle Ryan Clara Kulich Grzegorz Trojanowski Cate Atkins || Investing with Prejudice: The Relationship Between Women’s Presence on Company Boards and Objective and Subjective Measures of Company Performance || 2010 || There is no relationship between women’s presence on boards and ‘objective’ accountancy-based measures of performance (return on assets, return on equity). However, consistent with ‘glass cliff’ research there was a negative relationship between women’s presence on boards and ‘subjective’ stock-based measures of performance. Findings indicate that perceptions and investment are not aligned with the underlying realities of company performance.

David Matsa Amalia Miller || A Female Style in Corporate Leadership? Evidence from Quotas || 2011 || Using financial data for publicly listed firms in Norway, and a matched control sample of unlisted firms in Norway and all firms elsewhere in Scandinavia, there is evidence of a relative decline in annual profits over assets associated with the quota. Decomposing the change in profits, the authors identify increased labour costs, from fewer layoffs and higher relative employment, as the primary cause. This suggests that compliance with the quota was costly for firms in the short term, but raises important questions about the long-term impacts.

Rohini Pande Deanna Ford || Gender Quotas and Female Leadership: A Review || 2011 || While female entry on boards is correlated with changing management practices, this change appears to adversely influence short-run profits. Whether this is partly driven by negative perceptions of female management choices remains an open question.

4. ANNEX 4: Background to the problem definition

Female labour market participation

Figure 1: Share of Women and Men amongst All Workers (across the EU, Iceland, Norway, Australia, Canada and the US)

Source: Eurostat, Labour Force Survey 2011

Gender composition of publicly listed company boards across the EU

The figure below outlines the typical gender composition of boards in listed companies across the EU, distinguishing between executive (ED) and non-executive (NED) directors. On average then, 85% of board directors are male with only 15% of female board directors, with only 2% of all directors being executive females.

Figure 2: Average Gender and Role Composition of Listed Company Boards across the EU (2011)

Source: Matrix calculation

Literature review of "glass ceiling"

Adams, R.B. and Funk, P. 2009. Beyond the Glass Ceiling: Does Gender Matter? SSRN eLibrary. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1475152

Adler, R. 2001. Women in the Executive Suite Correlate to High Profits. Glass Ceiling Research Center.

Akande, A. 1994. The Glass Ceiling: Women and Mentoring in Management and Business. Journal of Workplace Learning, 6: 21-28.

Athey, S., Avery, C. and Zemsky, P. 2011. Chipping away the Glass Ceiling: Gender Spillovers in Corporate Leadership, American Economic Review: Papers and Proceedings 2011, 101:3: 635-639.

Barreto, M. Ryan, M. K. and Schmitt, M. T. (Eds.). 2009. The glass ceiling in the 21st century: Understanding barriers to gender equality. Psychology of women book series. Washington, DC US: American Psychological Association.

Becker, E. and Cotton, M.L. 2004. Assortative Mating or Glass Ceiling: under-representation of female workers among top earners. Accounting for workers well-being, Research in Labour Economics, 23: 235-267.

Dalton, D. R., and Dalton, C. M. 2008. On the Progress of Corporate Women: Less a Glass Ceiling Than a Bottleneck? Women on Corporate Boards of Directors: International Research and Practice (pp. 184-197). New Horizons in Management. Cheltenham, U.K. and Northampton, Mass.: Elgar.

Fain, J. R. 2011. Breaking the Glass Ceiling: Slow Progress Ahead. Contemporary Economic Policy, 29(1): 56-66. doi:10.1111/j.1465-7287.2010.00196.x

Fairfax, L., Clogs in the Pipeline: the mixed data on women directors and continued barriers to their advancement, 2006, 65 MD. L. REV. 579, 586, available here: http://digitalcommons.law.umaryland.edu/fac_pubs/385/

Gatrell, C., and Cooper, C. L. 2007. (No) Cracks in the Glass Ceiling: Women Managers, Stress and the Barriers to Success. Handbook on Women in Business and Management (pp. 57-77). Cheltenham, U.K. and Northampton, Mass.: Elgar.

Haslam, S. A. and Ryan, M. K. 2008. The Road to the Glass Cliff: Differences in the Perceived Suitability of Men and Women for Leadership Positions in Succeeding and Failing Organisations’, The Leadership Quarterly, 19(5): 530-546.

Li C., Wearing B. 2001. The Glass Ceiling and Directors of Large UK Quoted Companies. Available at: http://cosmic.rrz.uni-hamburg.de/webcat/hwwa/edok02/f10351g/WP01-08.pdf

Liff, S., and Ward, K. 2001. Distorted Views Through the Glass Ceiling: The Construction of Women’s Understandings of Promotion and Senior Management Positions. Gender, Work and Organization, 8(1): 19-36. doi:10.1111/1468-0432.00120

Matsa, D. A., and Miller, A. R. 2011. Chipping Away at the Glass Ceiling: Gender Spillovers in Corporate Leadership. American Economic Review, 101(3): 635-639. doi: http://www.aeaweb.org/aer/

Slick, R. F. 2002, November. Sex role stereotypes as an attitudinal component of the glass ceiling phenomenon. ProQuest Information & Learning, US.

US Federal Glass Ceiling Commission, 1995, Good for business: making full use of the nation's human capital, available at: http://www.dol.gov/oasam/programs/history/reich/reports/ceiling.pdf

Veale, C. and Gold, J. 1998. Smashing into the glass ceiling for women managers. Journal of Management Development, 17:17-26.

Wirth, L. (n.d.). Breaking through the glass ceiling: Women in management. Geneva: International Labour Office.

5. ANNEX 5: Background on the board structure and the appointment of board members in practice

5.1. General Board Structure

The corporate board consists of a group of elected directors that oversee the activities of a company or an organisation. Its main purpose is to act in the long-term interest of the company’s shareholders and to ensure company’s prosperity. Board responsibilities are usually formulated in the national corporate governance codes. Despite differences among national legal structures and corporate models, all corporate governance systems recognise a managerial (executive) and a supervisory (non-executive) function of the board.

· Executive/Managerial Board: The executive part of the board is in charge of day-to-day management of the corporation. It is composed of executive directors who generally work for the company and each have a specific area of responsibility.

· Non-Executive/Supervisory Board: The supervisory part of the board is primarily tasked with ensuring that financial reporting and control systems are functioning appropriately and that the corporation is in compliance with the law.[4] It is composed of non-executive directors, which are usually shareholder representatives and so-called independent members, who have no stake in the company. In some countries, the non-executive role is also assumed by employee representatives whose right to be represented on board is enshrined in national company law.[5]

In order to improve the functioning of the board, governance codes recommend establishing board committees.[6] Each committee is predominantly composed of non-executive directors. While executive directors can also be part of a committee, corporate governance codes advice that the committee chair be a non-executive in order to prevent a conflict of interests with the executive team.[7]

Each board might comprise up to four committees. While their nature may vary by industry (e.g. risk committees for companies in the financial sector, committees for corporate social responsibility in the energy sector), companies most commonly put in place audit, remuneration and nomination committees.[8] These are found in between 70% and 90% of European organisations.[9]

5.2. Board Systems

It is generally possible to distinguish between three broad types of board systems: unitary, dual and mixed.[10] The distinction lies in the level of separation between the management and the supervision of the company, which are clearly separated only in the dual system.[11]

The unitary (or single-tier) system has a single board structure with executive and non-executive directors sitting together on a single board of directors.[12] In the case of a unitary system, national company law does not draw a distinction between statutory duties of executive and non-executive directors.[13] Hence, all members of the unitary board are equally accountable to shareholders[14], have equal legal status and have equal responsibilities[15].

The dual system has two officially separated boards – a supervisory board of non-executive directors, headed by a Chairman and a management board of executive directors, headed by a CEO.[16] This system does not allow members to sit on management and supervisory boards at the same time. The main role of the supervisory board is to appoint and dismiss the members of the management board and to supervise the latter in performing its duties. The role of the management board is to coordinate the company’s strategic approach and to inform the supervisory board on any issues related to business development

The mixed system is a system of two separate boards (non-executive board and executive board), but with only one person holding both the roles of CEO and Chairman. In addition, some executives might sit on the non-executive board. While the advantage of a mixed system is a better information flow between the two boards, its main challenge resides in the joint exercise of chairman and CEO duties.[17]

As illustrated in the table below, the unitary system is most commonly used in Anglo-Saxon countries while the dual system is predominantly found in continental Europe. Mixed systems are the form of corporate governance in Belgium[18] and Italy.

Table 1: Existing and Prevalent Board System by Country

Country || Existing Board System || Prevalent Board System*

Unitary || Dual || Mixed

Austria || || ✓ || || Dual

Belgium[19] || ✓ || || ✓ || Mixed

Bulgaria || ✓ || ✓ || || Unitary/Dual

Cyprus || ✓ || || || Unitary

Czech Republic || || ✓ || || Dual

Denmark || ✓ || ✓ || || Dual

Estonia || || ✓ || || Dual

Finland || ✓ || ✓ || || Dual

France || ✓ || ✓ || || Unitary

Germany || || ✓ || || Dual

Greece || ✓ || || || Unitary

Hungary || ✓ || ✓ || || Dual

Ireland** || ✓ || ✓ || || Dual

Italy || ✓ || ✓ || ✓ || Unitary

Latvia[20] || ✓ || ✓ || || Unitary/Dual

Lithuania || ✓ || ✓ || || Dual

Luxembourg || ✓ || ✓ || || Unitary

Malta || ✓ || || || Unitary

Netherlands** || ✓ || ✓ || || Dual

Poland || || ✓ || || Dual

Portugal* || ✓ || ✓ || ✓ || Unitary

Romania || ✓ || ✓ || || Unitary

Slovakia || || ✓ || || Dual

Slovenia** || ✓ || ✓ || || Dual

Spain || ✓ || || || Unitary

Sweden || ✓ || || || Unitary

United Kingdom || ✓ || || || Unitary

Source: Kluge et al. - European Trade Union Institute. 2010. Table: Worker board-level participation in the EU-27. *Material provided by the European Commission on 6th of October 2011

** Information collected through desk research shows countries have more board systems than indicated in European Commission’s document

Source: Kluge et al. - European Trade Union Institute. 2010. Table: Worker board-level participation in the EU-27.

*Material provided by the European Commission on 6th of October 2011

5.3. Board Member Selection Procedures

The recruitment process of board members represents one of the most critical tasks for a company’s business. Directors are responsible for a company’s strategy and overall control of a company’s progress. It is therefore very important to choose candidates who can make a visible and lasting difference to the business. However, as evidenced by the following, the recruitment process still remains opaque and subjective with detrimental consequences for the appointment of female board members.

The selection procedures for board directors differ entirely from normal recruitment procedures. Across all board systems, they typically involve shareholders and other board members engaging in nomination and election procedures and include a pre-selection stage and a voting stage:

· Pre-Selection Stage: At this stage, a pool of relevant candidates for board positions is identified. Board nomination committees are usually involved at this stage; they might also be supported by subcontracted head-hunters. The purpose of this stage is to identify candidates with the skills, competencies and experience required to occupy the specific board position.

· Voting Stage: At this stage candidates shortlisted during the pre-selection are presented for election to the GSM[21]. This second stage can involve both board members and shareholders, depending on whether executive or non-executive directors are to be appointed and depending on the board system. Candidates can be elected by means of bundled or individual elections.[22] Whereas bundled elections restrict shareholders to elect the board as a whole, individual (i.e. unbundled) elections allow voting on directors separately. Generally, a new director is elected by an ordinary majority of shareholders’ votes. There is a growing tendency to elect board members through unbundled elections. In 2008, 49%[23] of elections in Europe were individual (unbundled) as opposed to 44% which were bundled[24]. In Finland, Greece, Italy, Portugal and Sweden all elections were bundled, while individual elections prevailed in France, Germany, Ireland and the United Kingdom.

In companies governed by a unitary board system, candidates for board positions (executives and non-executives) are pre-selected by the nomination committee and are subsequently presented to the GSM. Generally, a new director is appointed by an ordinary majority of shareholders’ votes. Chairman and CEO are selected among and appointed by the board of directors.[25]

In companies governed by a dual board system the selection procedures for non-executive and executive board members differ. Members of the supervisory board (non-executives) are in most cases pre-searched by the nomination committee and appointed by the GSM. In contrast, members of the management board (executives) are most commonly pre-selected and appointed by the supervisory board. Chairman and CEO are selected among supervisory and management board members respectively and they are appointed by members of supervisory board.

The nomination committee is usually responsible for the selection of board members. Non-executive board members that are part of the nomination committee usually rely on their formal or informal networks in order to identify candidates in the pre-selection phase of the selection procedure. This practice could favour candidates that are part of the network of existing board members and instead be detrimental to candidates without a strong network.[26] Through this practice the nomination committee runs the risk of appointing a director because of his/her personal relationship or share ownership rather than his/her professional merits.[27] This practice might ultimately undermine company’s performance. A study on 2500 Danish firms observed a negative correlation between candidates with family ties to the owners of a company and its financial performance.[28]

(a) The regulation of the recruitment and appointment procedure of board members in national law

It seems that the procedure for nominating and electing the board members is largely left for the company to regulate in its articles of association. In many Member States there is no legislation on this procedure. Even where such rules exist in the company laws, they are either default rules that come into play only where a company has not addressed these matters in its articles of association or they are dispositive and can be departed from by the statutes of the company.

Therefore, any interference or conflict with national law in this respect appears to be rather unlikely since a) the EU instrument would not comprise any specific rules on recruitment or appointment and b) any indirect implications of the EU instruments[29] would not necessitate a modification of national law but could be accommodated by companies in their own rules.

Given this general legal situation the following observations shed light on the habitual practices of companies in Member States (rather than on legal obligations) concerning two issues that are of relevance to the transferability of the CJEU case law.

(b) The identification and (pre-)selection of candidates to be presented to the assembly of shareholders

The recruitment for director's posts tends to be informal and based on agreements and coalitions between the main shareholders, which has a decisive influence on the identification of potential candidates. The notable exceptions are Member States in which special formalised procedures (competition-like) are prescribed for members of the board of state companies (AT, PL, EL, IE). In PL, in addition, candidates to posts of boards of state companies need to have a special certificate.

In some systems (UK, FR, Nordic states, SI) it is common practice (recommended rather than required) that a nomination committee of the board prepares the list of candidates, 'analysing the skills and experience of the candidates' (FI) – which is then presented to the shareholders (or first to the board and then to shareholders).

Sometimes under the articles of association a given principal shareholder or authority may have a right to nominate or even to directly appoint its own candidate(s) for board membership (DA, AT, EL), a situation which would be somewhat analogical (but not identical) to the election of workers' representatives and which would move the identification and selection of candidates to the remit of those shareholders thus tending to yet increase the informal nature of this process (except possibly again where it is a public authority that can nominate or appoint).

(c) The election of board members by the assembly of shareholders

Again, it is important to note that national law generally does not regulate the specifics of the election procedure and leaves these matters to the companies. In a number of Member States it appears t