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# 52012SC0348

**COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT ON COSTS AND BENEFITS OF IMPROVING THE GENDER BALANCE IN THE BOARDS OF COMPANIES LISTED ON STOCK EXCHANGES Accompanying the document Proposal for a Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures /\* SWD/2012/0348 final \*/**

  

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

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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 to be common practice that individual candidates are
appointed to individual posts but in these Member States it would generally
also be admissible to vote on the basis of lists. Where candidates are
individually appointed there appears to be no obligation to give the assembly a
choice between several candidates and often (based on informal agreements
before the vote is taken) there is only one candidate per post. The vote on a
list (or lists) of candidates appears to be the option favoured in practice in
a number of other Member States – in several of them (e.g. CZ, FI, DE, IE) this
routinely excludes an expression of support to individual candidates due to an
'en bloc' procedure presenting only the whole list(s) to the assembly for an up
or down vote.

(d) The average board size in listed 
companies

The average board in EU 27 has 7.76 members
(8.31 in a scenario excluding SMEs). The details per Member State can be found
in the table below.

Table 2: Average
board size

Average size of the board || All listed companies || Listed companies excluding SMEs

Total directors || Executive directors || Non-executive directors || Total directors || Executive directors || Non-executive directors

EU27 || 7.76 || 1.87 || 5.89 || 8.31 || 1.91 || 6.39

AT || 9.60 || 0.70 || 8.90 || 9.87 || 0.71 || 9.16

BE || 9.66 || 1.97 || 7.69 || 9.77 || 1.95 || 7.83

BG || 6.42 || 2.08 || 4.33 || 5.57 || 1.62 || 3.95

CY || 6.86 || 1.87 || 4.99 || 6.77 || 1.82 || 4.94

CZ || 10.00 || 2.95 || 7.05 || 10.44 || 3.12 || 7.32

DK || 8.57 || 1.23 || 7.34 || 8.45 || 1.31 || 7.13

EE || 5.92 || 0.54 || 5.38 || 6.00 || 0.56 || 5.44

FI || 10.00 || 1.36 || 8.64 || 10.05 || 1.49 || 8.57

FR || 8.01 || 1.85 || 6.16 || 8.23 || 1.89 || 6.34

DE || 9.13 || 2.74 || 6.39 || 9.38 || 2.81 || 6.57

EL || 8.56 || 3.15 || 5.41 || 8.73 || 3.25 || 5.48

HU || 12.97 || 2.73 || 10.23 || 13.45 || 2.97 || 10.48

IE || 8.83 || 2.58 || 6.25 || 9.35 || 2.60 || 6.75

IT || 14.32 || 2.00 || 12.31 || 14.45 || 2.34 || 12.11

LV || 6.18 || 0.48 || 5.70 || 7.00 || 0.72 || 6.28

LT || 5.53 || 1.80 || 3.73 || 5.72 || 1.82 || 3.90

LU || 9.49 || 1.59 || 7.89 || 9.91 || 1.94 || 7.97

MT || 7.30 || 1.35 || 5.96 || 6.67 || 1.33 || 5.33

NL || 6.91 || 0.93 || 5.99 || 7.23 || 1.09 || 6.15

PL || 5.76 || 0.54 || 5.21 || 5.79 || 0.57 || 5.22

PT || 10.96 || 3.06 || 7.90 || 10.78 || 3.16 || 7.62

RO || 5.51 || 1.41 || 4.11 || 5.56 || 1.65 || 3.91

SK || 9.10 || 2.40 || 6.70 || 8.29 || 0.93 || 7.36

SI || 7.67 || 0.57 || 7.10 || 9.22 || 2.33 || 6.89

ES || 10.26 || 1.90 || 8.36 || 10.30 || 1.95 || 8.35

SE || 7.59 || 0.80 || 6.79 || 7.63 || 0.81 || 6.82

UK || 6.42 || 2.30 || 4.12 || 7.10 || 2.31 || 4.78

Source: Matrix calculations based on data
provided by S&P IQ Capital

6.           ANNEX
6: Background to the baseline scenario

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

The legislative
quotas in place in Member States will affect the natural trend of female
participation in company boards. Female participation
in company boardrooms in the countries that have introduced binding quotas will
rely on the level of compliance with binding legislation. More precisely, the
number of women that will sit on listed company boards in 2020 will vary
depending on the sanctions and monitoring systems in place in the different
countries with binding legislation. Therefore, in order
to draw informed assumptions on future[30]
level of compliance and thereby establishing the baseline scenario, it is
important to evaluate the monitoring and sanction system in place in the
different countries. The degree of compliance in Member States with
legislation that does not envisage any monitoring or sanction system is likely
to be lower than the degree of compliance in Member States with legislation
that introduces a strong and credible sanction system.

Drawing on an effectiveness scoring which takes into
consideration both the sanction system in place and the
recent progress made, the table below summarises the expected change in
gender-diverse boards subject to binding quotas, with notable implications for
the calculation of the baseline scenario in the next section.

Table 1: Likely Level of Compliance with National
Binding Quotas in 2020

MS || Year of Adoption || Type of sanction || Recent progress || Effectiveness (3 very effective, 1 least effective)

FR || January 2011 || Annulment of nominations || 12pp (from 10% in 2009 to 22% in 2012) || 3

NL || May 2011 || The target is not binding; in case of non-compliance, companies need to explain in the annual report why the target was not respected || 4pp (from 15% in 2010 to 19% in 2012) || 2

BE || June 2011 || Temporary loss of benefit for board members || 1pp (from 10% in 2010 to 11% in 2012) || 1.5

IT || July 2011 || Official warning; fines; forfeiture of offices of elected board members || 1pp (from 5% in 2010 to 6% in 2012) || 1.5

ES || 2007 || No formal penalties but considered in public procurement || 7pp increase (from 4% in 2006 to 11% in 2012) || 1

Source: Matrix

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

On the basis of past trends and taking into
consideration the recent introduction of national measures, it is possible to
estimate how female presence on company boards will evolve in the future. In
particular, the table below presents the estimates of the level of female
presence on company boards, distinguishing between executive and non-executive
positions. In order to produce these estimates the following steps were
undertaken:

Data
on female participation in boards, for each Member State and for the period
2003-2011 was retrieved from the EC database on women and men in decision
making. Estimates for each Member State, for the period 2012-2040 were made
assuming that the trend observed during the period 2003-2011 will continue
throughout this period. This trend was assumed to be linear.

Excluded
methods: Three other extrapolation methods were evaluated before the linear
model was selected:

·
Annual growth rates: the year on year
percentage increase (decrease) from 2003 to 2011 was applied each year until
2040.

·
Excel growth calculation: The function was
used to estimate the relationship between time and female participation for the
period 2003 to 2011. The excel growth function assumes exponential growth. This
function was then applied to predict female board participation until 2040.

·
A linear function was used to estimate the
relationship between time and female participation for the period 2003 to 2011.
This function was then used to predict participation until 2040.

For
each method, each country’s current regulation was taken into account to
produce the estimations. After observing the figures generated by each method,
the linear method was deemed most appropriate, as the first two methods were
thought to overestimate the growth in female participation in boards. As they
tended to exponentially increase the percentage of women in the board, with
some countries presenting more than 100% of board members being female by 2040.

The
linear model was applied to all countries, except Estonia, Cyprus and Slovenia.
For these countries assuming a linear trend would mean that by 2020 the
percentage of women in the board would be zero. As this was considered
unrealistically low, rather than imposing a decreasing trend, it was assumed
that the percentage of women would remain at the minimum value observed during
2003-2011.

Table 2: Estimated Percentage of
Women on Boards by 2020 (in listed companies excluding SMEs)[31]

MS || 2004 (Estimated) || 2011 (Estimated) || 2020 (Predicted)

ED || NED || Average || ED || NED || Average || ED || NED || Average

AT || 1% || 10% || 6% || 2% || 19% || 11% || 3% || 25% || 15%

BE || 3% || 8% || 7% || 4% || 12% || 11% || 9% || 27% || 25%

BG || 62% || 0% || 18% || 52% || 0% || 15% || 40% || 0% || 12%

CY || 12% || 10% || 7% || 8% || 6% || 5% || 4% || 3% || 2%

CZ || 4% || 0% || 11% || 6% || 0% || 16% || 8% || 0% || 20%

DE || 4% || 16% || 12% || 5% || 20% || 15% || 6% || 23% || 18%

DK || 8% || 2% || 11% || 12% || 3% || 16% || 20% || 6% || 28%

EE || 28% || 38% || 15% || 13% || 17% || 7% || 11% || 15% || 6%

EL || 6% || 31% || 7% || 5% || 28% || 6% || 3% || 16% || 4%

ES || 1% || 10% || 4% || 3% || 27% || 11% || 7% || 40% || 29%

FI || 9% || 8% || 16% || 15% || 13% || 26% || 22% || 19% || 38%

FR || 1% || 5% || 6% || 4% || 19% || 22% || 7% || 36% || 40%

HU || 3% || 26% || 9% || 2% || 15% || 5% || 3% || 33% || 12%

IE || 5% || 4% || 6% || 7% || 6% || 9% || 10% || 9% || 13%

IT || 0% || 2% || 2% || 1% || 7% || 6% || 3% || 28% || 23%

LT || 9% || 5% || 11% || 11% || 7% || 14% || 15% || 9% || 18%

LU || 0% || 19% || 4% || 0% || 27% || 6% || 0% || 32% || 7%

LV || 8% || 4% || 10% || 22% || 9% || 27% || 31% || 13% || 37%

MT || 5% || 6% || 2% || 6% || 7% || 2% || 7% || 8% || 3%

NL || 3% || 0% || 5% || 9% || 1% || 18% || 16% || 3% || 31%

PL || 6% || 9% || 9% || 9% || 12% || 12% || 10% || 15% || 14%

PT || 5% || 4% || 4% || 7% || 5% || 6% || 6% || 4% || 5%

RO || 32% || 11% || 17% || 19% || 7% || 10% || 23% || 8% || 12%

SE || 3% || 23% || 21% || 4% || 27% || 25% || 5% || 35% || 32%

SI || 22% || 20% || 19% || 17% || 15% || 14% || 12% || 10% || 10%

SK || 9% || 8% || 9% || 15% || 13% || 15% || 33% || 30% || 33%

UK || 6% || 16% || 13% || 7% || 21% || 16% || 8% || 22% || 17%

EU || 9% || 11% || 9% || 6% || 17% || 14% || 8% || 25% || 21%

Average = overall presence of women in
corporate boards; the average is weighted, i.e. it depends on the number of
executive and non-executive directors

ED = Executive Directors

NED = Non-executive Directors

Source: 2004 and 2011 figures were estimated
by Matrix based on data from EC Database for Women and Men in Decision-Making
and Standard & Poor’s; 2020 data have been extrapolated by Matrix on the
basis of the above.

Table 3: Overview of Regulatory and Self-Regulatory
Measures Adopted across the EU[32]

MS || Regulation || Self-Regulation

Level || Coverage || Year of Adoption || Source || Type || Year of Adoption

AT || Non-binding targets: 25% (by 2013) 35% (by 2018) || -Supervisory Board of State-owned companies || 2011 || Corporate Code || Recommends representation of both genders in appointments in the supervisory board. || 2009

BE || 33% || -State-owned Companies (2012); -Public Limited Companies (2018); -Public Limited SME (2020) || 2011 || Corporate Code || Recommends board’s composition to be determined on the basis of gender diversity || 2009

BG || No Regulation/Self-regulation

CY || No Regulation/Self-regulation

CZ || No Regulation/Self-regulation

DK[33] || No Regulation || Corporate governance code; Charter || Recommends considering the need for gender diversity in the nomination process of new board candidates. || 2008

EE || No Regulation/Self-regulation

FI || 40% || State-owned companies || 2005 || Corporate Code || Recommends both genders to be represented on the board; if one gender is not represented, the company has to explain the reason (comply or explain principle) || 2008

FR || 20% (by 2014) 40% (by 2017) || -Public Limited Companies -Private Limited Companies (with more than 500 employees or over EUR50mln revenues) || 2011 || Corporate Code || Recommends gender diversity on board || 2010

DE || No Regulation || Corporate governance code; Companies Initiatives || Recommends taking women into consideration when filling management and supervisory board positions Some companies have introduced voluntary targets for women on boards || 2010

EL || No Regulation/Self-Regulation

HU || No Regulation/Self-Regulation

IT || 20% (2012) 33% (by 2015) || -Public Limited Companies -State-owned Companies || 2011 || No Self-Regulation

LV || No Regulation/Self-regulation

LI || No Regulation/Self-regulation

LT || No Regulation/Self-regulation

LU || No Regulation || Corporate Code || Recommends the board to have an appropriate representation of both genders. || 2009

MT || No Regulation/Self-regulation

NL || 30% (by 2016) || -Private Limited Companies and (with more than 250 employees) - Public Limited Companies (with more 250 employees) || 2010 || Corporate governance code covering only supervisory (not management) boards || Recommends the supervisory board should have a diverse gender composition. || 2008

PL || No Regulation || Corporate Code || Recommends public companies to ensure a balanced gender proportion in management and supervisory boards. Companies are required to report on their compliance with the code || 2010

PT[34] || No Regulation/Self-regulation

IE || No Regulation/Self-Regulation

RO || No Regulation/Self-regulation

SK || No Regulation/Self-regulation

SI || No Regulation/Self-regulation

ES || 40% (by 2015) || -Public Limited Companies -Private Limited Companies (with more than 250 employees) || 2007 || Corporate Code || Recommends the Board of Directors to have adequate gender diversity based on the comply or explain principle || 2006

SE || No Legislation || Corporate Code || Recommends an equal gender distribution on the Board of Directors, based on comply or explain principle. Compulsory annual statement containing the rationale for selection of new board members in relation to board requirements. || 2004

UK || No Legislation || Corporate Code || Recommends the search for board candidates to be conducted with due regard for the benefit of gender diversity on the board (Recommended quota: 25%) || 2010

Source: Matrix

6.3.        Binding
quota legislation for listed companies in Member States

Belgium

In Belgium the
relevant rules were introduced by the Act of 28 July 2011.[35] The Act amended the Company
Code (concerning companies which are quoted on the stock exchange) and the laws
regulating state-owned enterprises.

According to the Act at least one third of
board members of publicly-listed companies and state-owned companies need to be
of each sex. Belgium's listed companies in the majority have a unitary
board system.

The Act is applicable to state enterprises
from the financial year following the adoption of the law (i.e. applicable as
of 2012). However, the amendment to the Company Code is applicable to listed
companies after a longer implementation period ranging from six to eight years
depending on the size of the company measured by several criteria, i.e. the
number of employees, the total annual balance sheet and annual turnover. Thus
the amendment will be fully applicable only in 2019.

As long as the
quota is not fulfilled, a person belonging to the minority sex must be
appointed to any vacant position and any appointment which does not comply with
this rule is void. In relation to listed companies the amended Company Code
provides a specific sanction consisting in suspension of any advantage,
financial or otherwise, attached to the position of director for all the
members of the board as long as the composition of a board does not comply with
the quota.

France

In France (mixed system of roughly
77% of all companies; 23% of all companies have a two-tier board) the
relevant rules were introduced by the Law of 27 January 2011,[36] under which companies will
have to ensure that members of each sex occupy at least 20 % of boardroom seats
within three years (i.e. by 2014) and 40 % within six years from the entry into
force of the law (i.e. by 2017). These requirements apply to companies listed
on the stock exchange and non-listed companies with at least 500 workers and with
revenues of over EUR 50 million over the previous three consecutive years. It
is estimated that around 2000 companies will be affected by the law. Public
companies regulated by commercial law, such as state-owned companies are also
covered.

Non-compliant companies face nullification
of their board elections, but the decisions adopted by the board remain valid.
The law envisages also the suspension of benefits of directors of infringing
companies.

Additionally, the law established the same
quotas for other public bodies, such as universities and administrative
institutions.

Italy

In Italy all
three board systems are present, but the majority (68%) of companies have a mixed
board which works with the so-called traditional system. The executive board
and the controlling board is elected by the general assembly.

The relevant
quota rules were established by Law 120 of 12 July 2011[37] and are applicable to
companies listed on the stock-exchange and to state-owned companies. The law
provides for at least one-third representation of each sex among members of the
mixed board system composed by the management board and the supervisory board.
In the mixed system, all board members are elected by the general assembly.

The law also
applies to any other board system if the board is made up of at least three
members. The one-third quota (33%) must be reached until 2015 (and 20% by
2012).

For listed companies the enforcement of the
rules is ensured by the National Securities and Exchange Commission (Consob)
which will apply progressively the following sanctions in case of
non-compliance:

(1) a warning to apply the quota system
within four months; followed by

(2) a fine from EUR 100 000 to EUR 1 000
000 (from EUR 20 000 to EUR 200 000 in the case of supervisory boards) together
with a second warning that the quota system be accomplished within three
months; followed by

(3) forfeiture of the offices of elected
members of the board which does not comply with the quota.

The Netherlands

In the Netherlands the majority of companies
have a two-tier board. The relevant quota rules were adopted by means of
a law amending the Civil Code.[38]
The amended Civil Code now obliges public limited companies and private limited
companies[39]
to strive for a balanced representation of members of each sex on the company’s
management board and on the supervisory board. The law defines a ‘balanced
representation’ as having at least 30% representation of each sex on the board.

This norm only applies to larger private
and public limited companies. These companies need to take into account a
balanced representation of both sexes in as far as possible in their
procedures to select new members of the management board or the supervisory
board, and in the drafting of the specification of any vacancy. [40]

Small and medium-sized companies, i.e.
companies that do meet at least two of the following three criteria, do not
fall under this legal obligation. The three criteria are:
the total value of company's assets is no more than €17.5 million, its net
annual turnover is no more than €35 million and its annual average number of
employees is less than 250.

If a larger company does not reach a
representation of at least 30% of each sex on its board, it must explain in the
annual report to the shareholders why the balanced representation has not been
achieved, which measures have been taken to achieve it and what measures the
company plans to introduce to achieve it in the future ('comply or explain'
mechanism). There are no sanctions for not meeting the 30% norm.[41]

The measure has a temporary character and
expires on 1 January 2016.

Spain

Article 75 of the Spanish Organic Law on
gender equality of 2007[42]
encourages large companies[43]
to alter the membership of their boards gradually until each sex makes up at
least 40 % by 2015. The rule has the character of a recommendation.[44] No sanction for failure to
comply with that rule is envisaged. Nevertheless taking measures to reach the
target of a balanced composition on the company board may be taken into account
in practice in awarding the company with the “equality label”[45] and in the procedures to award
a public contract with the Administration.[46]
The measure can be described as a recommendation.

Table 4: Overview of Regulatory
Gender Quotas in Company Boardrooms

Country || Year of Adoption || Level of the Quota || Deadline || Penalties for Non-Compliance || Preliminary Effects on Female Representation on the Board[47]

ES || 2007 || 40% || 2015 (8 years from introduction) || No formal penalties but considered in public procurement || 5pp increase (from 6% in 2007 to 11% in 2012)

FR || January 2011 || 20% (2014) 40% (2017) || 2013 2017 || Annulment of nominations || 10pp (from 12% in 2010 to 22% in 2012)

NL || May 2011 || 30% || 2016 || The target is not binding; in case of non-compliance, companies need to explain in the annual report why the target was not respected || 4pp (from 15% in 2010 to 19% in 2012)

BE || June 2011 || 33% || First fiscal year after publication 2017-20 for listed companies || Temporary loss of benefit for board members || 1pp (from 10% in 2010 to 11% in 2012)

IT || July 2011 || 20% (2012) 33% (2015) || 2012 2015 The law will be effective only for a limited period of time (three board renewals) || Official warning; fines; forfeiture of offices of elected board members || 1pp (from 5% in 2010 to 6% in 2012)

Source: Matrix

6.4.        Other
legislative measures

Germany

Germany has a two-tier system.
Although Germany does not have gender quota legislation for boards of
companies, some existing legislative measures affect gender balance on boards.
This is the case of the rules regulating workers’ representation on
boards and recommending that men and women should be represented there
proportionately to their representation among the workforce.[48]

Furthermore a vivid public debate is
currently taking place in relation to the “flexi-quota” plan of the German Federal Ministry for Family, Senior Citizens, Women and Youth, which would contain essentially a legal obligation
of self-commitment. Listed companies and certain other companies (those with
complete workers’ representation, which are determined by size, sector and
organizational form of company) would be obliged by law to establish a
self-determined quota for women both in their executive and supervisory boards
and to make it public. This obligation would be conditional and only enter into
force in 2013 if by that date the companies concerned have not tripled the
average percentage of women in supervisory and management boards. The quota
would have to be achieved within a specified period. If the companies fail to
reach their targets, corporate law sanctions, such as the possibility to
contest the appointment of members of the board, would apply. The legal obligation will cease to apply to individual companies
once (and as long as) they have achieved a female share of 30% on their
supervisory and management boards.[49]

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

The following Member States regulate the
gender composition of boards of state-owned companies, which may include companies
listed on the stock exchange, either in legislation (Denmark, Finland, Greece)
or by means of administrative regulations (Austria, Slovenia).

Denmark

The relevant provisions
have been in force since 1990. Section 11 of the Danish Gender Equality Act[50] stipulates that boards in state-owned
companies should, 'as far as possible', have an equal gender balance. According
to Section 12 of that Act ministers and authorities that are empowered to
suggest a member of a board are obliged to suggest a man and a woman for each
post. The competent minister has a duty to report on the gender
composition of the boards every third year.

In May 2012, the Danish government
announced their plan (the ‘Danish model’) for getting more women into company
boards. It will be done through legislative changes in company law and the
annual accounts law. The reform looks similar to what has been envisaged in the
‘flexi-quota’ model of the German family minister, Kristina Schröder, but
includes elements of the Dutch comply-or-explain approach. There are no details
available yet, but the main points are:

The 1100 largest companies will have to set
'realistic and ambitious' targets for the underrepresented sex in the highest
company board (which in Denmark typically is a supervisory board).

They will also have to introduce a policy
to increase the number of members of the underrepresented sex in management in
general.

They will have to report on the achievement
of the targets and the implementation of the policy in their annual report. If
that does not happen, there is a possibility for imposing a fine (which,
however, does not seem automatic in case of not reaching the target).

State-owned companies will have to do the
same, whatever their size. (So far they should have equal representation, as
far as possible.)

Finland

In 2004, the Finnish government set a
target of 40% for female board members in state –owned companies. This
objective was achieved in 2006. In 2010, women's share in state-owned companies
was 45%. In listed companies with a state majority ownership in 2010 there were
39% of board members were women [51].

Furthermore, the Corporate Governance Code
which is binding for listed companies recommends that both genders are
represented on the board. If a company does not comply with this, it has to
explain the departure from the code. After this recommendation was issued in
2008, more and more boards had a female board member. In 2011, in 80% of the
company boards there was at least one female member.

In November 2011, the government adopted a
resolution stressing the need to promote gender quality by ensuring equal
opportunities for both sexes in appointment to board positions. Non-executive
boards have a share of 26% of female members in January 2012.

Greece

In Greece the Gender Equality Act[52] imposes a 1/3 quota
requirement for state-appointed members of boards of all executive
bodies, including companies fully or partially state-controlled. Appointment
decisions failing to respect the quota requirement are subject to annulment by
administrative courts. Moreover, decisions adopted by those boards not
respecting the quota rule are subject to annulment by civil courts.

Austria

In March 2011,
the Austrian Council of Ministers issued an administrative decision to
gradually implement quotas for boards of companies owned 50% or more by the
state. Such companies need to achieve 25% representation of women in their
company boards before 31 December 2013 and 35% representation before
31 December 2018. If possible, the quota mentioned should be applied not
only to board members representing the public owners but also to the board as a
whole, progress being monitored by an annual report.[53] If this objective is not
achieved, Austria plans a legislative measure.

Also, the
governance Code recommends equal representation of both genders. There are no
sanctions if companies do not follow this recommendation.

Slovenia

The Regulation on Criteria for
Respecting the Principle of Gender Balanced Representation[54] adopted by the government in 2004 establishes a principle of 40% representation of each sex in nominating or appointing government
representatives in public enterprises
and other entities
of public law, including management and supervisory boards of state-owned
enterprises. There are no sanctions for not
respecting the principle.

6.6.        Female presence in the board throughout all Member States

Table 5: Female
Presence in Corporate Boards across Countries between 2004 and January 2012
(across the EU, Iceland and Norway)[55]

|| 2004 || 2007 || 2010 || 2011 || Jan-12

Austria || 6% || 5% || 9% || 11% || 11%

Belgium || 7% || 6% || 10% || 11% || 11%

Bulgaria || 18% || 15% || 11% || 15% || 16%

Cyprus || 7% || 2% || 4% || 5% || 4%

Czech Republic || 11% || 11% || 12% || 16% || 15%

Denmark || 11% || 15% || 18% || 16% || 16%

Estonia || 15% || 10% || 7% || 7% || 7%

Finland || 16% || 18% || 26% || 27% || 27%

France || 6% || 9% || 12% || 22% || 22%

Germany || 12% || 11% || 13% || 15% || 16%

Greece || 7% || 11% || 6% || 7% || 7%

Hungary || 9% || 11% || 14% || 5% || 5%

Ireland || 6% || 6% || 8% || 9% || 9%

Italy || 2% || 3% || 5% || 6% || 6%

Latvia || 10% || 17% || 23% || 27% || 26%

Lithuania || 11% || 18% || 13% || 14% || 15%

Luxembourg || 4% || 3% || 4% || 6% || 6%

Malta || 2% || 4% || 2% || 2% || 3%

Poland || 9% || 12% || 12% || 12% || 12%

Portugal || 4% || 3% || 5% || 6% || 6%

Romania || 17% || 18% || 21% || 10% || 10%

Slovakia || 9% || 24% || 22% || 15% || 13%

Slovenia || 19% || 14% || 10% || 14% || 15%

Spain || 4% || 6% || 10% || 11% || 11%

Sweden || 21% || 24% || 26% || 25% || 25%

The Netherlands || 5% || 14% || 15% || 18% || 19%

United Kingdom || 13% || 12% || 13% || 16% || 16%

EU 27 || 9% || 10% || 12% || 13% || 14%

Iceland || 5% || 10% || 16% || 21% || 25%

Norway || 22% || 34% || 39% || 41% || 42%

Source: European Commission. Database: women & men in decision making.
Available from: http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/business-finance/quoted-companies/index\_en.htm

The figure below shows the percentage point change in
female presence on company boards between 2004 and January 2012, thereby
grouping countries into categories which correspond to the different types of
measures taken.

Figure 1: Percentage Point Change in Female Presence in
Corporate Boards between 2004 and January 2012 (across the EU, Iceland and
Norway)

Source: European Commission. Database: women &
men in decision making. Available from: http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/business-finance/quoted-companies/index\_en.htm

7.           ANNEX
7: Fundamental Rights

EU legislation
must fully comply with the provisions of the EU Charter of Fundamental Rights
(hereinafter referred to as "the Charter"), which has become legally
binding following the entry into force of the Lisbon Treaty. All legislative
proposals of the Commission are subject to a systematic check to ensure their
compliance with the Charter[56].

It should be
underlined that the Charter does not constitute a legal basis upon which the EU
could adopt secondary legislation, but lays down a legal framework in order to
ensure that EU law will stay in conformity with the fundamental values of human
rights, democracy and the rule of law.

Moreover, the
fundamental rights contained in the Charter can be subject to limitations
provided that they comply with the principle of proportionality[57]. When a measure impact various
fundamental rights, it is necessary to assess the impact on each of these
rights in order to ensure that all fundamental rights concerned will be
respected.

This annex
assesses in detail how the envisaged EU legislative instrument whose aim is to
increase the gender balance on company boards (hereinafter referred to as "the
instrument") will impact on the relevant fundamental rights embodied in
the Charter.

It will first
look at the different fundamental rights of the Charter that could be
positively or negatively affected by the instrument (chapter 1), and then
analyse the differences in impact that the various policy options considered in
the Impact Assessment would have on those fundamental rights (chapter 2).

7.1.        Fundamental
rights' check

The fundamental
rights in the Charter that could be affected by the instrument include:

–
Article 23 on equality between women and men and
Article 21(1) on non-discrimination on the basis of sex ,

–
Article 16 on the freedom to conduct a business,

–
Article 17 on the right to property,

–
Article 15(1) on freedom to choose an occupation
and right to engage in work, and

–
Article 47(1) on the right to an effective
remedy.

–
These will be analysed in turn.

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

Article 21

Non-discrimination

1. Any
discrimination based on any ground such as sex, race, colour, ethnic or social
origin, genetic features, language, religion or belief, political or any other
opinion, membership of a national minority, property, birth, disability, age or
sexual orientation shall be prohibited.

[…]

Article 23

Equality between
women and men

Equality between
women and men must be ensured in all areas, including employment, work and pay.

The principle of equality shall not prevent the maintenance
or adoption of measures providing for specific advantages in favour of the
under-represented sex.

The principle of non-discrimination on
grounds of sex (among other grounds) in Article 21(1)[58] of the Charter flows from the
general principle of equality before the law which is enshrined in Article 20
of the Charter and in all international human rights instruments[59] and national Constitutions.

The right to non-discrimination means that
no person must be treated less favourably on grounds of his or her sex than
another is, has been or would be treated in a comparable situation[60]. The principle of equal
treatment therefore naturally takes an individual perspective in that it
compares the situations of individual persons and the treatment they receive.
It gives a remedy to persons who have been discriminated against, by granting
them reparation or compensation of damages. It does not, however, allow
tackling structural discrimination, for instance gender segregation in the
labour market.

By contrast, Article 23 of the Charter requires
equality between men and women in all areas – this goes beyond individual
equality of treatment and extends to equal opportunities and participation in
all spheres of society, including positions of responsibility. This is not
simply a matter of social policy, but a collective expression of the
fundamental right of all persons, men and women, to be treated as equals. This
principle does not only look at the individual situation of persons, compared
to others, but also at the equality outcomes at a societal level.

This collective principle of equality between
women and men is also reflected in Article 8 of the
Treaty on the Functioning of the European Union (TFEU) which provides that
"in all its activities, the Union shall aim to eliminate inequalities, and
to promote equality, between women and men" and which contains a clear
mandate to fight structural inequalities.

The second sentence of Article 23 of the
Charter indicates the possible tension between the individual principle of
equal treatment and the societal objective of equality between men and women.
It stipulates that, under certain conditions, the collective aim of eliminating
structural inequalities must be reconciled with the individual interest in
equal treatment. Positive action, i.e. "the maintenance or adoption of measures providing for
specific advantages in favour of the under-represented sex", with the aim
of achieving de facto equality is therefore accepted.

The Charter provision is practically
identical in substance with Article 157(4) TFEU (relevant for employment
matters), which provides that, with a view to ensuring full equality in
practice between men and women in working life, the principle of equal
treatment does not prevent the maintenance or adoption of measures providing for
specific advantages in order to make it easier for the under-represented sex to
pursue a vocational activity or to prevent or compensate for disadvantages in
professional careers.

In this respect, the
aim of redressing a pre-existing situation of inequality has been accepted as a
legitimate objective of differential treatment and the Court of Justice of the
European Union (hereinafter referred to as "the Court") has further
specified the conditions under which positive action is permissible.

As the instrument intends to increase the
participation of women in company boards, it will be necessary to take into
consideration the Court's case-law on positive action.

The case law of the Court[61] accepted that priority may in
certain cases be given to women in employment under the following cumulative
conditions:

–
there are fewer women than men in the relevant
department or sector (i.e. the female sex is clearly underrepresented);

–
the female candidate is equally qualified as the
male competitor in terms of suitability, competence and professional
performance,

–
the priority is not automatic and unconditional,
but may be overridden if reasons specific to an individual male candidate tilt
the balance in his favour,

–
the candidature of all candidates is subject of
an objective assessment which will take account of all criteria specific to the
individual candidates (but such criteria must not indirectly discriminate
against the female candidates).

Moreover, the Court has seen positive
action measures in favour of women as an exception to the principle of
equality. In this context, the Court has emphasised that positive action
measures have to respect the principle of proportionality. In its Lommers[62] ruling, for example, the Court
stated that:

"(…)
according to settled case-law, in determining the scope of any derogation from
an individual right such
as the equal treatment of men and women laid down by the Directive, due regard
must be had to the principle of proportionality, which requires that
derogations must remain within the limits of what is appropriate and necessary
in order to achieve the aim in view and that the principle of equal treatment
be reconciled as far as possible with the requirements of the aim thus pursued
(…)".

In so far as
the instrument would impose a binding preference (at least to a certain degree)
for the underrepresented sex in appointments to company boards, it would also
derogate from the individual right to equal treatment with the aim of achieving
de facto equality in practice. As this derogation implies a potential
limitation of Article 21 (1) of the Charter, it has to be proportionate and
must not go beyond what is necessary to achieve the intended aim.

To be
proportionate, the instrument must, first, intervene in situations where one
sex is obviously underrepresented. This is clearly the case of boards of
listed companies throughout the EU. In January 2012, women occupied on average
just 13.7% of board seats of the largest publicly listed companies in EU Member
States. Even in the best-performing Member States, this share does not rise
beyond 27%, which indicates that the underrepresentation is a general feature
and does not only concern a few Member States. This criterion further implies
the requirement to maintain a positive action measure only as long as it is
indispensable to redress continuing underrepresentation. Provisions ensuring,
from the outset, the temporary nature of the instrument and its expiration or
repeal as soon as the disadvantages that justify positive action have sustainably
been removed would thus underpin the proportionality of such action.

Another element
for ensuring the proportionality of the instrument is to set an objective for
the gender composition of company boards that leaves sufficient flexibility
for shareholders to select the candidates of their choice. An objective of 40%
would seem to leave a sufficient margin of choice, as 50-50 equality may be
difficult to achieve in practice, while being ambitious enough for creating a
situation of de facto equality. As from that threshold one sex can no
longer be considered as underrepresented.

Moreover, the
instrument would have to respect the case-law of the Court set out above
defining the conditions under which positive action can be accepted.
Concretely, the instrument can only give priority to equally qualified
female candidates over male candidates. Furthermore, it must not give
automatic and unconditional priority to equally qualified candidates but
has to include a 'safeguard clause' which includes the possibility of
granting exceptions in justified cases which take into account the individual
situation of all candidates.

If these
conditions are respected, the limitation to Article 21 (1) of the Charter will
be proportionate and not go beyond what is necessary to achieve the aim of de
facto equality between women and men in decision-making bodies of
companies. In addition, such a measure would have a beneficial impact in
that it would promote the fundamental right enshrined in Article 23 of the
Charter.

7.3.        Article
16 on the freedom to conduct a business

Article 16

Freedom to conduct
a business

The freedom to conduct a business in accordance with Union
law and national laws and practices is recognised.

The freedom to conduct a
business, provided under Article
16 of the Charter, is based on the Court's case-law which has recognised the freedom to
exercise an economic or commercial activity[63]
and the freedom of contract[64]
and on Article 119(1) and (3) TFEU, which recognises free competition.

The freedom to conduct a business is a
fundamental economic freedom, and one that is central to the principles of a
liberal market economy upon which the EU was founded. The notion of 'business'
is deliberately broad, and includes a very wide range of economic or commercial
activities, including both small local businesses run by self-employed and
large corporations operating internationally.

It is also
important to note that Article 16 provides that this freedom is recognised
"in accordance with Union law and national laws and practices",
making this right subject to other principles of law in the European and
national legal orders, including the principle of equality between men and
women.

The right to
decide how and by whom a company is managed or supervised is intrinsically linked
to the quality of owner/shareholder of a company and must be seen as part of
the freedom to run a business. The instrument, if it takes the form of binding
objectives for the gender composition of company boards, would affect the
entrepreneurs' and/or shareholders' right to freely appoint members of the
company board and thereby have the effect of restricting their freedom to
conduct a business, i.e. a negative impact on the right in Article 16.

Indeed, setting
up a numerical objective on the gender composition may limit in certain
situations the pool of candidates for the positions in question and the
shareholders could be required to appoint board members they would not have
otherwise chosen (e.g. if the shareholders would prefer to appoint an all-male
board).

In accordance with Article 52 of the Charter, any such
restriction of the freedom to conduct a business would have to be provided by
law and to respect the essence of the freedom and the principle of
proportionality. The principle of proportionality requires that limitations be
made only if they genuinely meet objectives of general interest recognised by
the Union. Moreover, the measure must be appropriate to achieve the objective
of general interest or to protect the rights and freedoms of others, the
measure must not go beyond what is necessary to achieve this objective, and
there should be no less restrictive alternative measures to achieve this
objective.

It is clear that the measure in question pursues an
objective of general interest since, as explained above, it aims at promoting
equality between women and men as enshrined in Article 23 of the Charter and the aim of redressing a pre-existing situation
of inequality has been accepted as a legitimate objective of differential
treatment by the Court.

The proportionality of the limitation of the freedom to
conduct a business would have to be ensured through the following means:

–
a targeted scope of the instrument: it
would only apply to listed companies and would explicitly exclude small and medium-sized
enterprises (SME) from its scope, even if they are listed[65]. Thereby it would only target
relatively large companies with a widespread net of shareholders, who tend to
have larger boards and therefore more leeway to accommodate gender requirements
for board members. They will be able to search for appropriate female
candidates for board positions, possibly with the professional help of
executive search firms, in a wider pool of candidates. Meeting the gender
requirements therefore constitutes less of an obstacle for listed companies
than for other companies, where family ties often play an important role in the
appointment of board members. The instrument would therefore not apply to
companies where the limitation to the right to conduct a business would have
the most intrusive effect.

–
not providing for a ban or prohibition of
certain kind of activities or regulating the business model of the companies
concerned: the instrument only concerns a particular aspect of the organisation
of the management of the supervision. Contrary to what was at stake in the
cases Scarlet extended[66]
and Sabam[67]
where the Court concluded to a violation of the freedom to conduct a business,
the measure envisaged does not require establishing a costly and complicated
system, at the expense of the company, for carrying systematically a
particular task. The interference would consist in limiting (and not
eliminating), in certain specific situations, the discretionary power to choose
the members of the board. This as such does not represent a specific cost
affecting directly the business model of the companies.

–
limiting the interference with decision on
boards members: the measure would not interfere with the concrete choice of
individual board members from a potentially very wide pool of male and female
candidates and there would be in addition a 'saving clause' which allows to
depart from the rules in cases where equally qualified candidates from the
underrepresented sex could not be found. The instrument would not exclude any
particular candidates for board positions, nor would it impose any individual
board members on shareholders. The compliance with the requirements resulting
from the Court's case law guarantees that qualification remains the decisive
criterion for the selection of board members and that shareholders do not have
to lower or modify their qualification standards. The instrument would thus
fully respect the essence of the freedom to conduct a business and to
choose the persons managing and supervising the company.

The limitation of the fundamental freedom would further be
eased if the instrument focused on those board members who are not involved in
the daily management of the company but rather in charge of supervisory tasks.
While non-executive directors are important actors in corporate governance as
they have a say on the strategic orientation of an enterprise and perform
essential control functions, they are not involved in the day-to-day running of
operations. Restricting the binding gender objectives to non-executive
directors would further alleviate the limitation of the freedom to conduct a
business.

Finally, and more generally, it should be noted that the
freedom to conduct a business is limited by numerous legal instruments at EU
and national level in the field of company law, labour law, environmental law,
competition law etc., which often directly interfere with the way businesses
are run. These include rules on the legal form of companies, their
registration, the structure of management and supervisory bodies, qualification
requirements for certain positions, accounting and reporting, information and
consultation of workers (works councils etc.) and, in several Member States,
rules on the membership or presence of worker representatives in management or
supervisory boards.

Compared to these rules and their degree of interference
with the freedom to conduct a business (which has to be seen in the light of
the objectives they pursue), an instrument that lays down requirements for the
overall gender composition of boards but does not interfere with the concrete
choice of individual board members, and that is moreover mitigated by a 'saving
clause' (as explained above), would not constitute a disproportionate
restriction of the fundamental freedom, in particular if considered in
light of the important objective to improve equality between men and women in
economic decision-making positions.

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

Article 15

Freedom to choose
an occupation and right to engage in work

1. Everyone has
the right to engage in work and to pursue a freely chosen or accepted
occupation.

[…]

The right to
work is mainly based on the Court's case-law[68]
and is meant to ensure that all persons are free to engage in work and to share
the benefits that flow from it, both in terms of securing an adequate standard
of living for themselves and promoting economic prosperity in general. Another
way of understanding the right to work is to ensure that nobody is excluded
from participation in the economic sphere[69].

In practical terms, the right to engage in
work and to pursue a freely chosen or accepted occupation does not require
Member States to provide EU residents with work or even the opportunity to
obtain work. The State is only under an obligation to guarantee the freedom to
work, i.e. by regulating a free market for the provision of labour, goods and
services. Instances of this kind of regulation may include positive legislation
to promote access to employment, e.g. prohibiting discrimination on the grounds
of ethnicity, gender, disability, etc. In this regard, the promotion of a high level of
employment is enshrined among the tasks assigned to the Union (Article 3 TEU and Article 9 TFEU).
As such, improving access to employment facilitates the completion of this
objective.

The freedom to choose an occupation also
encompasses a person's right to choose a career path and the freedom to
progress in their career to positions of responsibility. This principle
applies both to employed workers and self-employed persons or persons in other
forms of occupation. It allows persons to freely compete for any position and
guarantees that one's application shall be objectively assessed without biases.

An instrument
pursuing the objective of a gender-balanced composition of company boards would
strongly contribute to breaking the "glass ceiling" that currently
hampers the career progression of many women, due to a male-dominated business
culture and intransparent selection procedures, and despite excellent
qualifications of many female candidates for such positions. It could therefore
reinforce the freedom of women to choose an occupation, as a whole range of senior management positions and new career
opportunities would become accessible to them, whereas,
under the present circumstances, the social bias would prevent them from
attaining such a position. Such binding objectives could thus have a complementary effect with the prohibition of discriminatory
practices in occupation and employment.

Furthermore, it is unlikely that the instrument would
produce the adverse effect of restricting the right of men to choose an
occupation. Indeed, the establishment of gender objectives for company boards
would merely affect a restricted number of positions and would not
automatically disqualify male candidates when applying for these positions. It
also has to be noted that, in respect with Court's case-law as regards the
lawfulness of positive action in EU law (see above in section 1.1), applications
from male candidates must be objectively assessed in any case, the priority accorded to female candidates shall only be given in case
of equally qualified candidates, and shall be overridden where one or more of
those criteria tilt the balance in favor of the male candidates. As such, male candidates shall neither be
automatically nor unconditionally excluded when applying for senior management
positions.

Therefore,
while having a beneficial impact on the right of women to seek an occupation
as members of company boards, the instrument would not have a negative
effect on men's exercise of this fundamental right.

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

Article
17

Right to property

1. Everyone has
the right to own, use, dispose of and bequeath his or her lawfully acquired
possessions. No one may be deprived of his or her possessions, except in the
public interest and in the cases and under the conditions provided for by law,
subject to fair compensation being paid in good time for their loss. The use of
property may be regulated by law in so far as is necessary for the general
interest.

[…]

The right to
property is based on Article 1 of the Protocol to the Convention for the
Protection of Human Rights and Fundamental Freedoms (ECHR) and has been recognised
as a fundamental constitutional right in all Member States of the EU. As such,
it has been repeatedly confirmed as a fundamental right in the case-law of the
Court (Nold and Hauer judgments)[70].

Article 17 of the Charter specifically
protects the right to peaceful enjoyment of one's lawfully acquired
possessions, including the right to have, use, dispose of, pledge, lend, and
even to destroy one’s belongings. The term 'possessions' has been interpreted
broadly. It includes all 'real property' (i.e. land and interests in land),
chattels (i.e. any thing or moveable property) and also acquired rights
involving economic interests such as shares[71], patents, fishing rights,
alcohol licenses, planning consent, the ownership of a debt, and even
commercial goodwill.

Article 17 nonetheless allows public
authorities to interfere with individual property rights: deprivation of
property is possible so long as it is "in the public interest" and
subject to "fair compensation". Similarly, it is permitted to
regulate the use of property by law "insofar as is necessary for the
general interest". Moreover, Member States will be responsible only for
interferences which affect the economic value of property.

The first
sentence of Article 17(1) provides protection for the right to property in
situations not covered under the second and third sentence, which constitute
the exceptions. The third sentence includes the regulatory possibility to control
the use of property. The use of property is a general term which covers
various kinds of interference with property that are considerably milder than
deprivation and thus subject to less strict conditions, depending on the
specific degree of interference, in line with the principle of proportionality.

The instrument
might restrict the shareholders' voting rights with regard to the appointment
of company board members in a way that is similar to the limitation of their
freedom to conduct a business (see above in section 1.2). The right of
shareholders to vote freely in general meetings of public limited companies can
be considered as expression of their property rights on their shares which
confer upon the shareholders the possibility to make use of them as they see
fit.

It is important
to note that if such a restriction affected the use of property, it would
certainly not constitute deprivation of property. It is generally accepted that
restrictions on the use of property have a much less severe impact than deprivation.
Moreover the restriction concerns only one aspect of the property right, as
other voting rights, the right to a dividend or other advantages for
shareholders as well as the right to sell or otherwise dispose of the share
would not be affected in any way.

As mentioned
above, Article 17 stipulates that the use of property
may be regulated by law in so far as is necessary for the general interest. The
promotion of women in company boards, due to their current and significant
underrepresentation, clearly constitutes an objective of general interest in
the light of the fundamental principle of gender equality (see above in section
1.1).

Moreover, similarly as for the right to conduct a business,
the voting right attached to the property of the share would only be restricted
in a very light way, as only the overall composition of the board would be
regulated, without any interference in the choice of individual candidates.
Reference can be made to the more detailed considerations in section 1.2 above.

Finally, in the cases of listed companies (which usually
have the legal form of public limited companies, with a very large number of
owners of shares), the actual role of individual shareholders in the management
of the company is very limited, and their right of property to shares rather
consists in the right to receive payment of dividends and the right to sell the
share at any given moment.

The limitation
that the instrument would impose the shareholders' right to property would
therefore seem necessary and proportionate to the objective pursued, and
would fully preserve the essence of the right.

7.6.        Article 47 on the right to an effective
remedy

Article
47

Right to
an effective remedy and to a fair trial

Everyone
whose rights and freedoms guaranteed by the law of the Union are violated has
the right to an effective remedy before a tribunal in compliance with the
conditions laid down in this Article.

[…]

Article 47 combines protection for two
formerly distinct rights: the right to a fair trial and the right to an
effective remedy before a court. Recognised by the Court as a general principle
of Union law[72],
the right to an effective remedy also applies to the Member States when they
are implementing Union law. The right to access to a court is one of the most
basic prerequisites of an effective system of justice.

The right to an effective remedy means in
essence that everyone is entitled to a judicial remedy if their rights have
been violated[73].
An instrument imposing binding objectives for a gender-balanced composition of
company boards would as such not confer any individual, enforceable rights on
any particular person. Therefore no general individual remedy for unsuccessful
candidates for a board position must be provided.

Nevertheless, if the objective is meant to
be binding and to be applied in an equivalent manner across the European Union,
the instrument should provide for effective, proportionate and dissuasive
sanctions for companies that do not comply with the requirements of the
instrument. Naturally, deriving from the principle of the
right to an effective remedy, companies that would be targeted by such
sanctions should be given the possibility to appeal against these decisions,
notably by providing sufficient evidence that in a particular case they
exhausted all reasonable means to find qualified directors of the
underrepresented sex.

Furthermore, Member States would need to
provide judicial remedies for cases where the case-law requirements on positive
action have not been respected, e.g. where a male candidate considers that he
was more qualified than a female candidate who was given the post. This would
require that selection procedures are conducted in a transparent way with clear
criteria and that candidates have access to a court.

The instrument would therefore fully respect the right to an
effective remedy, as long as Member States provide for effective administrative
and/or judicial procedures to appeal against any measures or sanctions that
would be imposed pursuant to the provisions of EU law.

2.    Impact of various policy options on fundamental
rights

This chapter will analyse the differences in impact that
the five policy options selected for the Impact Assessment would have on the
various fundamental rights examined above.

Option 1:
No further action at EU level (baseline scenario).

This policy option would obviously have the smallest impact
on the fundamental rights enshrined in the
Charter, or even no impact at least as far as the EU level is concerned. There
would neither be a beneficial impact on equality between women and men (Article
23) and the freedom to choose an occupation and right to engage in work
(Article 15), nor would there be any negative impact on the freedom to
conduct a business (Article 16) and the right to property (Article 17).

Obviously, binding measures or soft
regulation in Member States do have an impact on those fundamental rights, but
as they would not be implementing Union law, the Charter would not be applicable pursuant to its Article
51(1).

Option 2: A Commission Recommendation encouraging Member States to
achieve an objective of at least 40% of
board members of each gender by 2020 for executive and non-executive
directors of listed companies.

The impacts of a Recommendation are difficult to assess in general
due to the high uncertainty with regard to how Member States will react to a
non-binding measure. This is also true for its impact on fundamental rights.

Nevertheless, to the extent that the Recommendation will
achieve its objective of increasing the proportion of women on company boards
and in managerial positions in the economy and thereby reducing gender gaps, it
will positively contribute to the promotion
of the right to equality between women and men in the labour market (Article 23) and of women's freedom to choose an occupation
and to engage in work (Article 15).

Inasmuch as action by Member States following up to the
Recommendation has to be considered as implementing EU law within the meaning
of Article 51(1) of the Charter, Member States would have to ensure that the
negative impact on the freedom to conduct a
business (Article 16) and the right to property (Article 17) is
minimised as far as possible in order to respect the essence of these
fundamental rights. As outlined above, the
proportionality of these limitations can be ensured.

Option 3: A Directive introducing an objective of at least 40% of
each gender by 2020 for non-executive
directors of listed companies.

A binding objective of 40% for non-executive directors
backed by proportionate sanctions would certainly
achieve the intended objective of bringing more women into economic decision-making positions and therefore also have a clear
beneficial impact on equality between women and men (Article 23) and on women's
freedom to choose an occupation and right to engage in work (Article
15).

It clearly also represents a
limitation to the freedom to conduct a business (Article 16) and the right to
property (Article 17) of owners and shareholders of companies in that it
restricts their right to determine
by whom the company is managed and supervised. However, as argued above in sections 1.2 and 1.З., such
limitation still respects the principle of proportionality since it
leaves a sufficiently wide margin of choice for selecting board members and
does not go beyond what is necessary to achieve the intended objective.
Companies do not face restrictions in defining qualification requirements and
in the appointment of the best qualified candidates and the instrument only
affects the overall gender composition of the body. Moreover, the limitation is
lighter if the binding objective only covers non-executive directors who are
not involved in day-to-day management tasks.

Option 4: A Directive introducing
both a) an objective of at least 40% of board members of each gender by 2020 for non-executive directors of
listed companies and, in addition to option
3, also b) a flexible objective for executive directors of listed companies.

The impact on fundamental rights of this option would be
very similar to option 3. As a result of a not too prescriptive provision
acting as an incentive for companies to raise their
share of female executive directors and thereby bring more women into the
highest management posts, the
beneficial impact on promoting equality between women and men (Article
23) and on women's freedom to choose an occupation and right to engage in work
(Article 15) could be even more substantial.

At the same time, the negative impact on the freedom to
conduct a business (Article 16) and the right to property (Article 17) of
owners and shareholders of companies would not increase, as each company would
be free to set their own objective and only the company's own ambition would
determine the extent of its duties.

Option 5: A Directive introducing an objective
of at least 40% of board members of each gender by 2020 for executive and
non-executive directors of listed companies.

The positive impact on gender equality (Article 23) and on
women's freedom to choose an occupation and right to engage in work (Article
15) would undoubtedly be strongest for this
option, which extends the binding objective of gender composition to executive directors of listed companies. It would achieve
the furthest-reaching and most sustainable change in management and business culture, with the strongest positive
effects for the position of women on the labour market.

As argued above in sections 1.2 and 1.З., the limitation to
the fundamental freedom to conduct a business (Article 16) and the fundamental
right to property (Article 17) of owners and shareholders of companies would be
more significant if gender equality considerations
would limit the choice of those persons who run the enterprise on a daily basis
and decide on important business transactions.

Nevertheless, other restrictions of
these fundamental rights in company law, labour law, environmental law etc. would not make
this limitation appear disproportionate, especially given the importance of the intended
aim of gender equality which is recognised both in the Charter and the
Treaties. It can, however, be argued that such limitation needs in any case to
be mitigated by a 'saving clause' which allows departing from the binding
gender objective where equally
qualified candidates of the underrepresented sex cannot be found, e.g. in
sectors where female participation in the workforce and management is
particularly low and for executive positions which require specific expertise
and experience in that sector. Policy makers would have to consciously take
into consideration the extent of the restricting
shareholders' fundamental rights when choosing this option.

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

8.1.        Assessing
the Effectiveness

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

Policy option 2
would be a Recommendation encouraging Member States to introduce appropriate
measures (binding or non-binding) to achieve a target of at least 40% of board
members of each gender by 2020 for executive and non-executive boards/
board members of listed companies

Recommendations
are not legally binding on Member States. This policy option would hence leave
it to the discretion of each government to choose its own level of compliance.
In particular, Member States will decide whether to:

–
Follow the Recommendation and introduce binding
measures;

–
Follow the Recommendation and introduce
non-binding measures;

–
Not follow the Recommendation.

Naturally, the
impact of the policy option would materialise only in those Member States which
decide to follow the Commission Recommendation.

While it is not
possible to establish with any certainty how national governments would react
to the introduction of an EU level Recommendation (predictions should thus not
be viewed as prescriptive), the assumptions were based
on assessment of the following factors:

The
current national policy framework in a given Member State with respect
to gender quotas in corporate boardroom, in the public sector or in state-owned
companies, namely whether the Member States has introduced any binding or
non-binding policy to increase the number of women in corporate boards and the existence
of a proposal for gender quotas in corporate boards which has been
discussed at the national level.

On this basis, the
following reactions of Member States[74]
can be identified:

(1)
Member States that have not introduced any type
of measure to ensure gender equality in boards of listed companies, public
companies or state-owned companies[75] are assumed to be highly likely not to adopt the Commission
Recommendation.

(2)
Most of the Member States that have introduced
measures (binding or non-binding) on gender equality in the board of public
sector companies, in the board of state-owned companies or on corporate boards
of listed companies are assumed to stay at the level of their current national
measures and not adopt any additional measures following the Commission
Recommendation (Policy Option 2).

(3)
5 Member States are assumed to be likely to
adopt non-binding measures following the Commission Recommendation (Policy
Option 2). This is however a highly uncertain assumption. In the past – as has
been shown for the baseline scenario - recommendations at EU level have not had
a measurable impact. However, as currently the discussion on measures how to
achieve better gender balance in boards of companies has some momentum in
certain Member States, the assumption that 5 Member States will react seems a
realistic optimism.

(4)
2 Member States will take binding measures.
Again, considering the effect of previous recommendations at EU level, this
seems optimistic.

Non-executive directors:

Where non-binding measures are
introduced at the Member State level, estimates on the effect of this
recommendation on female presence in corporate boards have been based on
progress made in countries where non-binding measures to improve gender
equality in corporate boards have been introduced. Of all the Member States,
which have introduced non-binding measures to increase the number of women on
boards of listed companies, the UK has been the only country to set a specific
target. For this reasons, UK figures are used as a basis for extrapolation for
the 5 Member States that take non-binding action.

In
the United Kingdom, the corporate governance code sets specific targets that
companies should aim to achieve. An Independent Review into Women on Boards,
led by Lord Davies and concluded in February 2011 (Department for Business
Innovation & Skills. 2011), recommends that UK listed companies in the FTSE
100 should be aiming for a minimum of 25% female board member representation by
2015. This recommendation has contributed to accelerated progress in the
percentage of women in corporate boards in the United Kingdom. The number of
women in executive positions in the UK has increased by 11.11% between October
2010 and January 2012 (25 months)[76] and the number of women
in non-executive positions in the UK has increased by 22.22% in the same period[77]. These – rather
optimistic - growth rates have been used in order to estimate the possible
effects of Policy Option 2 on the percentage of women in corporate boards.[78] It was further assumed
that all companies in the Member States concerned would set themselves a
non-binding target of 40%, which again is probably too optimistic.

As to the two Member States that will
introduce binding measures with a 40 target, this probably is also too
optimistic.

Therefore,
the figures have to be seen only as a highly speculative estimate which is most
likely to overstate the likely effect of a recommendation and have to be treated with
great caution.

Executive
directors:

For
this part of the Commission Recommendation it was also assumed that companies
following the Recommendation set themselves a target of 40%, which again is
probably too optimistic. However, it was assumed that Member States and
companies would be less willing to follow this recommendation, because, in
general, rules for the management board are assumed to be more difficult to
implement. Therefore, for this part of the Recommendation, it was assumed that
the effect might be comparable to the effect of PO4 on executive board members
(flexiquota), though less significant. As a consequence, it was assumed that,
due to the non binding nature of a Recommendation and the fact that only a few
Member States will take action, the recommendation would only have one tenth of
the effect of PO 4 on the number of executive board members (see further explantion for PO4 below).
This would mean that only one out of ten companies replaces a male by a female
executive board member.

8.1.2.     Calculating
the impacts of the other policy options

For the other options, it was assumed that
Member States will comply with binding measures. Therefore, for PO 3 and 5
the effect of the policy option was calculated as the difference between the
target set in the policy option and the percentage of board members who would
be female in 2020 (baseline scenario).

For PO4 which
is a combination of a target and a ‘flexiquota’ a combination of the approaches was used.

Executive
directors: Listed
companies across Europe will be required to set their own individual targets
for female presence in the executive board. Once the target has been
communicated to the relevant national authority, should the company not comply
with it, sanctions will apply. The flexible quota set by individual companies is likely to
depend on:

–
The current female representation on boards;

–
the sector in which the company operates;

–
the existence of a talent pool of women to be
promoted to board position; and

–
company performance before the introduction of
the quota.

A small number
of listed companies across Europe have introduced voluntary and independent
initiatives to increase female participation in board. Among these,
approximately half have set specific targets (mainly for non-executive board
members), which tend to vary from doubling female presence in corporate board
to maintaining the current share of women or ensuring that at least one woman
sits on the board.

On this basis, and due to the lack of consistency
across listed companies, it was decided to predict the effects of the policy
option using a “conservative” estimate. Taking the average board size (8.31
members in the scenario excluding SMEs) and average number of female directors
(1.1) as starting point, we assume that under a flexi quota, each company would
replace one man with one woman (leaving the average board size unchanged[79]). This results in nearly
doubling the number of females from 1.1 to 2.1.

For the non-executive directors, it
was assumed that Member States would comply with a 40% target.

8.1.3.     Assessing
the impacts on company performance: corporate governance

Research shows
that companies with more women on their boards have better corporate
governance. Based on 26 studies relevant to this
purpose, the following nine non-financial performance dimensions were
identified, which appear to be positively affected by female presence in
corporate boards. The corporate
governance indices, which were developed by governance rating firms, include
several hundred factors, designed to help evaluate the quality of corporate
boards and the impact their governance practices may have on performance. Notwithstanding the challenges around disaggregating complex
governance mechanisms into a single integrated yet informative indicator,
Ertugrul and Hegde (2009) have identified seven key dimensions of dynamic
governance structures which provide positive and reliable evidence of their
information content in predicting the multiple dimensions of firm performance.
These are outlined in the table below and linked to
specific non-financial performance dimensions.

Table 2: Overview Corporate Governance
Indicators – Female Performance

Non-financial Performance Dimensions || Corporate Dimension || Balanced Score Card Dimension

Accountability, risk and audit || Accounting || Business Process Perspective

Monitoring and Control || Litigation and Regulatory Problems || Business Process Perspective

Innovation and creativity || || Learning & Growth Perspective

Work environment and values || || Learning & Growth Perspective

Direction and leadership || Shareholders’ Responsiveness || Learning & Growth Perspective

Pay policies || Compensation || Business Process Perspective

Corporate Reputation and Corporate Social Responsibility (CSR) || Shareholders’ Responsiveness || Customer Perspective

Improved understanding of the market || Shareholders’ Responsiveness || Customer Perspective

Board Dynamics || Board Composition || Business Process Perspective

The next
paragraphs present each of the performance indicators separately and discuss:

·
the relationship between good corporate
governance as defined by the abovementioned dimensions and a company’s
financial performance, and

·
the relationship between greater gender
diversity in corporate boards and the performance dimension.

Accountability, Risk and Audit

One of the main
tasks of the corporate board is to
evaluate individual and company performance to ensure accountability and
responsibility for business results. Non-executive directors hold top
management and executive directors accountable for company performance.
Accountability is associated with positive company performance if expectations
and targets are defined clearly and if the achievement of targets is rewarded
(McKinsey, 2008). In addition, the audit committee, which is typically composed
of non-executive directors, is charged with oversight of financial reporting
and disclosure; and, the risk committee, also composed of non-executives,
assists the board in assessing the different types of risks to which the
company is exposed. However, the relation between risk exposure and company
performance is difficult to determine and it is likely to depend on the sector
in which the company operates, as well as other factors.

Existing
evidence suggests that there is a positive relationship between gender
diversity on the board and accountability and audit. According to McKinsey
(2008), women use leadership behaviours such as expectations and rewards more
frequently than men. Thus, they set clear targets for top management and for
the company in general and they reward their achievement more frequently than
men do. Similarly, according to the Association of British Insurers (ABI,
2011), boards with better gender balance pay more attention to audit and
control. Female auditors are associated with higher audit fees than male
auditors, suggesting that they are attributed a higher value (Peni, 2012).

The evidence on
the relationship between gender diverse boards and risk is instead mixed. While
the Association of British Insurers (2011) concludes that boards with better
gender balance pay more attention to risk oversight, Miller and del Carmen
(2009) and Adams and Funk (2011) conclude that female directors are slightly
more risk loving than male directors. This suggests that having women on the
board does not lead to more risk-averse decision-making.

Monitoring and Control

In their
capacity as ‘guardians’ of the corporate good, non-executive directors monitor
executive actions, question executive decisions and are required to ensure that
the company is acting in a ‘responsible’ way and in the best interests of the
shareholders and other stakeholders (Pass, 2002). Monitoring and control are
thus one of the main responsibilities of the non-executive board and, in
particular, of the monitoring committees. Both monitoring and control influence
company financial performance as they allow the identification of possible
errors and gaps and the development of any possible corrective measure needed.

According to the
evidence, there is a positive relationship between female presence on board and
monitoring and control. Watson et al. (1993) and Fondas and Sassalos (2000)
argued that diversity in board composition via greater female representation
would improve the board’s monitoring role in protecting shareholder interests
by better top management control, reducing agency costs. Board with better
gender balance appear to be better at explicitly identifying criteria for
measuring and monitoring the implementation of corporate strategy as compared
to all male boards (ABI, 2011). Moreover, women are more likely to join
monitoring committees on non-executive boards, suggesting that if the number of
women on the board increases, more efforts would be allocated to monitoring
(Adams and Ferreira, 2009). However, Adams and Ferreira (2009) also stress how
gender diversity on the board has beneficial effects in companies with weak
shareholder rights, where additional board monitoring could enhance firm value.

Innovation and Creativity

Another important
non-financial indicator of company performance is the level of innovation and
creativity. A flow of ideas would allow the company to adapt to the
ever-changing market dynamics and face upcoming challenges (McKinsey, 2008),
ultimately leading to improved company performance. Board members need to be
involved in the initiation and implementation phases of the strategic process
in order to affect innovation (Torchia et al., 2011). In addition, they should
identify strategies that provide new opportunities for the firm to create
products or services. Intellectual stimulation is particularly important in
order to challenge assumptions and encourage risk taking and creativity
(McKinsey, 2008). Similarly, teamwork and the introduction of a new perspective
within the board or top management team will contribute to a more innovative
environment (Dezsö and Ross, 2011).

Gender diversity
in corporate boards is positively related to innovation. According to Torchia
et al. (2011) going from one or two women to at least three women on the board
enhances the level of firm innovation. There are two main reasons for this:
firstly, female management style favours teamwork (Dezsö and Ross, 2011) and
intellectual stimulation (McKinsey, 2008), which are the main drivers of
innovation; secondly, women on the board bring new perspectives, which lead to
innovation. While the first explanation relates particularly to female
management style, the second explanation relates more broadly to the fact that
heterogeneous groups produce a broader range of ideas and information, because
they contain a diverse body of knowledge (Miller and Triana, 2009). Thus, in
the second case, it is not gender diversity but diversity in general that
brings new perspectives that lead to innovation (Teigen, 2010b).

Work Environment and Values

Work environment
and values influence company performance, as they affect labour force
productivity. According to McKinsey (2008), a well-functioning company should
shape employee interactions and foster a shared understanding of values. In
this sense, it should also inspire and encourage employees to perform and stay.
Finally, it should ensure that the right internal skills and talent to support
strategy are identified. Top management and executive board members play a key
role in creating a productive work environment, setting the right values,
communicating them to the workforce and motivating the staff. In particular, in
order to have a positive impact on work environment and values in the company,
the top management should build a team atmosphere in which everyone is
encouraged to participate in decision-making (‘participative decision-making’,
McKinsey, 2008). Moreover, they should spend time teaching, mentoring,
listening to individual needs and concerns (‘people development’,
McKinsey&Company, 2008).

Gender diversity
generally leads to improvements in workers motivation and loyalty (Brammer et
al., 2009), as it helps bring closer the company, its employees, its
shareholders and its customer (McKinsey, 2007). According to a study conducted
by the European Commission (2003), diversity programmes have had a positive
impact on employee motivation for 58% of the companies that have implemented
them. More specifically, the leadership style of women in top management or
executive board positions is conducive to more productive work environment and
values (McKinsey, 2008). For this reason, having three or more women on the
board would help improve the company’s work environment and values. This
appears to be related to the fact that women apply leadership styles such as
people development and participative decision-making more frequently than men
do. The role of female directors as providers of much-needed mentoring for more
junior colleagues has often been cited as a spur for employees endeavour to
reach their career goals within the firm (Brammer et al., 2009).

Direction and Leadership

A company’s
financial performance is driven by the choices and the leadership of its top
management. Executive and non-executive directors should shape and inspire the
action of others to drive better company performance. They should also
articulate where the company is heading, instruct the team on how to get there
and align employees to these goals. In this sense, the leadership style of
executive and non-executive board members can influence company performance. In
particular, directors should a) act as role models, b) present a compelling
vision of the future and inspire optimism about its implementation
(inspiration) and c) communicate effectively and efficiently with charisma
(McKinsey, 2008).

Gender diverse
boards play a more active role in setting the strategic direction of the
company (Brown et al, 2002), thus contributing to better company performance.
It appears that female executive and non-executive directors add organisational
value through the quality of their decision making, because they add (Insync
Survey, 2010): fresh thinking and wider debate; increased
focus on problem solving; more productive discussion and greater unity; increase
conscientiousness; and greater self-reflexivity.

Thanks to their
leadership style, female directors bring specific advantages to board
decision-making, particularly when it comes to boards’ strategic tasks, such as
setting the direction of the company (Nielsen and Huse, 2010). Women in fact
use leadership style such as role model and inspiration more frequently than
men, while men tend to use efficient communication as frequently as women
(McKinsey, 2008).

Compensation Policies

Compensation of
directors and CEO is crucial to company performance, because performance pay in
particular is an important mechanism to ensure that directors and managers act
in the interests of shareholders (Adams and Ferreira, 2009). The remuneration
committee, composed primarily of non-executive directors, is usually in charge
of establishing pay policies, in particular when it comes to bonus structures
for executives and top management.

Evidence
suggests that gender diverse boards are more likely to design remuneration
packages and incentives structures, which drive strategy and performance
(Campbell and Minguez-Vera, 2008 and Insync Survey, 2010). Boards that are
gender diverse have a greater propensity to interrogate the structure of
remuneration packages and the incentive capacity of remuneration packages to
drive strategy and performance (Campbell and Minguez-Vera, 2008). This appears
to be related to the fact that women define expectations and responsibilities
more clearly than men and they also reward the achievement of targets more
consistently than men (McKinsey, 2008). If gender-diverse boards take a more
critical and broader view on remuneration and incentives schemes, one would
expect that, over time, those boards will embed improvements in the alignment of
remuneration with strategy (Insync Survey, 2010). A better alignment of company
goals and employee objectives results in highly incentivised employees helping
the company achieve its targets, and ultimately driving company performance.

Corporate Reputation and Corporate
Social Responsibility (CSR)

Corporate Social
Responsibility (CSR) refers to a relatively broad category of actions for
instance, firm activities benefiting community or social concerns, protecting
the environment and the like (Miller and Carmen, 2009). Reputation is the
perceptual representation of a company’s past actions and future prospects that
describe the firm’s overall appeal to all its key constituents when compared to
other leading rivals (Fombrun, 1996). CSR initiatives are usually promoted by
the board; corporate reputation is influenced by the direction and leadership
style of executive and non-executive board members. Moreover, CSR is usually a
mediator of company reputation (Bear et al, 2010). Both CSR (directly or as a
mediator) and company reputation can affect the company’s attractiveness and
customer loyalty, ultimately affecting market share.

The evidence suggests that there is a
positive relationship between female presence on corporate boards, corporate
social responsibility (CSR) initiatives and corporate reputation. Women on
board are more likely than men to be support specialists or community
influential; hence, having more women on the board may increase the number of
CSR initiatives. This is supported by evidence that firms with a higher
percentage of female board members have a higher charitable giving (Bear et al,
2010). Miller and del Carmen (2009) also confirm this by arguing that, because
female directors care less about power and more about universalism than male
directors, gender diverse boards consider stakeholders interests more broadly.
Finally, female directors embrace values that precede ethical decisions more
strongly than male directors (Miller and del Carmen, 2009).The positive relationship between female representation in corporate
boards and CSR also suggests that a higher percentage of women in the board
might have a positive impact on corporate reputation. CSR is in fact a mediator
of corporate reputation (Bear et al., 2010). While confirming the reputation
effect associated with a female presence at board level, Brammer et al. (2009)
argues that this effect varies across sectors. There is an indication that the
presence of women on the board is favourably viewed only in those sectors that
operate close to final consumers. For instance, the relationship between female
presence in board and corporate reputation is positive in the consumers’ good
sector but negative in the banking sector. This demonstrates the influence of a
firm’s stakeholder environment in determining whether a female presence on the
board enhances or harms the reputation of the firm (Brammer et al., 2009).

Understanding of the Market

The
understanding of the market is a key driver of company performance. In order to
increase the market share, the company governance needs to engage in constant
two way interactions with customers, suppliers and other partners (McKinsey,
2008) to understand needs, requirements and demand trends. Ultimately, this
would affect the company image and its ability to reap market share.

Women may have a better understanding of certain market
segments, which may improve the creativity and quality of the decision-making
(Singh and Vinnicombe, 2004). For
instance, women now have a major
influence on purchase decisions: in Europe, they are the driving force behind
more than 70% of household purchases, including some traditionally
male-dominated fields such as car purchase or PC purchases (McKinsey, 2007). In
order to successfully capture the relevant markets, it would make business
sense to include women in the strategic decision making of the company. This
evidence is also supported by the fact that diversity programmes have had a
positive impact on customer satisfaction for 57% of the companies that have
implemented them, while 69% of the companies noted an improvement in their
brand image (European Commission, 2003).

Board Dynamics

Board dynamics influence the way a company is managed and
run, its direction, leadership, goals and market position. The most relevant board
dynamics include board governance, attendance, motivation, conflict management,
integrity, clarity of roles and responsibilities and, finally, the influence of
board decisions on company management.

As suggested in
the previous paragraphs, the presence of three or more women on the corporate
board might positively impact company non-financial performance, such us accountability,
work environment and values, understanding of the market, etc. This is due to
the fact that female directors exert influence on
board decisions and dynamics through: (a) their non-traditional professional
experiences (Hillman et al., 2002; Singh, Terjesen and Vinnicombe, 2007) and
(b) their different values (Selby, 2000). Accordingly, Nielsen and Huse (2011)
argue that the impact of female board members on board decision-making and
effectiveness depends not on their gender per se but rather on the prior
professional experiences and particularly the values they bring along. In
particular, women’s presence on the corporate board is associated with a lower
level of detrimental conflict in the boardroom (Nielsen and Huse, 2010). Women
have better board attendance record and prepare more thoroughly for board
meetings, possibly leading to better decision making (Adams and Ferreira, 2008).

Table 3: Qualitative Analysis –
Impact of Gender Diversity on Non-Financial Company Performance

Dimension || Definition || Keywords || # Studies || Relationship || Case Study Evidence

Accountability, Risk & Audit || Evaluate individual and company performance to ensure accountability and responsibility for business results. || Accountability, Audit, Risk oversight, Audit fees || 4 || All studies confirm a positive relationship between more gender-diverse boards and accountability. Boards with better gender balance pay more attention to audit, risk oversight and control. A study shows that female auditors’[80] diligence and higher level of preparation are associated with higher audit investment and higher audit fees. The evidence on the relationship between gender diverse boards and risk is mixed. || Three case studies support the secondary research evidence. The responses confirm a positive relationship between more gender-balanced boards and accountability.

Monitoring & Control || Measure and evaluate business performance and risk. || Number of 10K investigations, Monitoring, Control, quality of financial reporting, || 5 || Four out of five studies confirm a positive relationship between more gender-diverse boards and better coordination and control. A positive relationship between firms with female CEOs and CFOs and the quality of financial reporting was also verified. One study shows a negative relationship between gender-diverse boards and monitoring. In some instances, such boards are inclined to overcontrol and ultimately decrease firm’s value. Gender diverse boards appear to be particularly valuable for firms with otherwise weak governance. || Four out of five case studies support the secondary research evidence. The responses confirm that more gender balanced boards can positively affect the monitoring and control of the company. The Norwegian case study respondents think no relationship exists between having more women on board and the monitoring of a company.

Innovation and Creativity || Generate flow of ideas that the company adapt. Identify new market perspectives. || Innovation, Creativity, New perspectives, External Orientation || 5 || All studies confirm a positive relationship between more gender-diverse boards and innovation in the company. Diversity generates new perspective and brings creativity into the board. The innovation sector seems to be particularly positively affected by higher female presence. || Three out of four case studies[81] support the secondary research evidence. The responses confirm that more gender balanced boards can improve company thinking about further market opportunities. The German case study respondents think more gender balanced boards might have a negative impact on innovation.

Work Environment & Values || Shape employees interactions, generate discussions through team work and foster a shared understanding of organizational values. || Work environment and values, team work, discussions , organizational value || 6 || All studies confirm a positive relationship between more gender-diverse boards and work environment. Female managers seem to have different styles of contribution which add value to the team work and foster unity. Having more women on boards can lead to more board agenda discussions and ultimately, enhance the organizational value. || All case studies support the secondary research evidence. The responses confirm that more gender balanced boards can positively affect working relations, working conditions and the communication with employees. The French case study respondents think that women are more emphatic than men, caring more about relationships with employees than men.

Direction & Leadership || Ensure leaders shape and inspire the actions of others to drive better performance. || Direction, board operational control, board strategic control, decision making, esteem for chair, leadership team, leadership || 4 || All studies confirm a positive relationship between more gender diverse boards and greater decision making. Women seem to bring in fresh thinking, different styles of contribution and personal capabilities that build unity. Members of diverse boards are more likely to regard their chair as a better manager of boardroom dynamics, as demonstrating greater personal integrity, having a more effective leadership style and conducting a more effective decision making process. || All case studies support the secondary research evidence. The responses confirm that more gender balanced boards can have positive impact on the strategic direction of a company and leadership. The German case study respondents add that any change in company direction requires the commitment of the top management.

Compensation Policies || Ensure board members’ earnings reflect company’s performance and personal achievements. || Pay, satisfaction with the connection between remuneration and outcomes on gender diverse boards, earnings, earnings management strategies || 3 || All studies confirm a positive relationship between more gender-diverse boards and more equity based pay for directors. Gender diverse boards are more critical of the appropriateness of management remuneration and its alignment with performance and they are more questioning of the effective use of remuneration to drive organisation strategy. One study shows that firms with female CFOs follow less aggressive earnings management strategies. || This dimension was not initially covered by case studies.

Corporate Reputation and Corporate Social Responsibility (CSR) || A broad category of actions including firm activities benefiting community or social concerns, protecting the environment, and the like || CRS control, CSR, philanthropy, female executives, potential female board members, women in top management, corporate reputation || 9 || All studies confirm a positive relationship between more gender-diverse boards and corporate social responsibility strategies. Five studies confirm a positive relationship between more gender-diverse boards and the corporate reputation and the quality of corporate governance. The reputational effect is especially positive in sectors which operate close to final consumers. The effect is negative in producer services and banking sector. Studies show that having gender issues in the CSR strategies positions the organisation in the support for sustained growth, and the payoff extends beyond the company to society. There may also be a feedback cycle in which the presence of more female managers increases the qualified pool of potential female board members leading to greater female board membership and then further increases in female executives. Studies show a positive market reaction to the appointments of female directors. One study shows a negative relationship between more gender-diverse boards and investors’ reactions to the announcement of female CEO. || This dimension was not initially covered by case studies.

Understanding of the Market || To engage in constant two way interactions with customers, suppliers and other partners and to understand needs, requirements and demand trends. || Customers, suppliers, interaction, needs and demand trends || 4 || Studies show that women may have a better understanding of certain market segments, which may improve the creativity and quality of the decision-making. || This dimension was not initially covered by case studies.

Board Dynamics & Governance || The way a company is managed and run, its direction, leadership, goals and market position. Ensure board roles and responsibilities are clearly defined. || Governance, attendance, motivation, conflict, integrity, clarity of roles and responsibilities, influence of board decisions, stock price informativeness, investors' reactions, market reaction to the appointment of female director || 7 || All studies confirm a positive relationship between more gender-diverse boards and board dynamics. Gender diverse boards are more critical to the appropriate codification of roles and responsibilities of members and chairs. Studies confirm that such boards show better attendance records, more motivations and fewer conflicts. || This dimension was not initially covered by case studies. .

Source: Matrix

Scoring the impact on corporate
governance indicators

Table 4: Key Aspects of the Policy
Options on Non-financial Performance

Non-financial Performance Dimension || Corporate Dimension || Group || Strength of Relationship (from 1 to 3)

Executive Directors (or Top Management) (ED) || Non-executive Directors (NED)

Accountability, risk and audit || Accounting || -[82] || √ || 1

Monitoring and Control; || Litigation and Regulatory Problems || - || √ || 2

Innovation and creativity || || √ || - || 1

Work environment and values || || √ || - || 3

Direction and leadership || Shareholders’ Responsiveness || √ || √ || 2

Pay policies || Compensation || - || √ || 2

Corporate Reputation and Corporate Social Responsibility (CSR) || Shareholders’ Responsiveness || √ || √ || 2

Understanding of the market || Shareholders’ Responsiveness || √ || - || 3

Board Dynamics || Board Composition || √ || √ || 3

8.1.4.     Assessing
the impacts on company financial performance

The calculation in this impact assessment was
based on data and results presented by Catalyst in research from 2004.[83]

Catalyst assessed the gender diversity and
financial performance of Fortune 500 companies from 1996 to 2000. Eleven industry sectors were represented in the
sample including: Aerospace & Defence, Consumer discretionary, Consumer
staples, Energy, Financials, Health care, Industrials, Information technology/
Telecommunication services, Materials, Pharmaceuticals and Utilities. This list was narrowed to include only those companies for which there
existed at least four years of data on financial performance (return on equity
and total return to shareholders), as well as the gender diversity of the top
management team. The final sample included 353 companies.

Basis for Comparison: Catalyst
divided the companies into quartiles based on the percentage of female
representation in their top management teams. Eighty eight companies were
categorised as “top quartile” and had an average of 20.3% women in the top
management teams. 89 companies were reported as “bottom quartile” and had an
average of 1.9% women in the top management teams.

Financial Performance Indicator: Financial
performance was measured in terms of return on equity (ROE) – i.e. the profit
on every Euro invested by the company’s shareholders. The average ROE for top
and bottom quartile companies was compared, finding that top quartile companies
financially outperformed bottom quartile companies by 35.1%. Top quartile
companies, on average, had an ROE of 17.7%, whereas bottom quartile companies
had an ROE of 13.1%. The difference between 17.7% and 13.1% was found
statistically significant. Using ROE as a measure for financial performance of
a company indicates how the value of a company is growing. It is also an
accounting indicator, meaning that the inputs to calculate ROE (shareholders
equity and net income) are published in the company accounts, allowing for
accurate measurement of the indicator.

As a result, Catalyst concludes that
companies with the highest representation of women on their top management
teams experienced better financial performance than companies with the lowest
women’s representation. This finding holds for both financial measures
analyzed: Return on Equity (ROE), which is 35 percent higher, and Total Return
to Shareholders (TRS), which is 34 percent higher. In each of the five
industries analyzed, the companies with the highest women’s representation on
their top management teams experienced a higher ROE than the companies with the
lowest women’s representation. In four out of five industries, the companies
with the highest women’s representation on their top management teams
experienced a higher TRS than the companies with the lowest women’s
representation.

The data of this study was then adapted
to this impact assessment.

Calculating the Effect Size: populating
the formula below with the estimates provided above in the ‘Basis for
Comparison’ and the ‘Financial Performance Indicator’ it was estimated that a
1% point increase in women among board members is associated with a 0.25% point
increase in the average ROE. The methodology to obtain this estimate is
described below. To calculate the effect size – i.e. the change in ROE associated
with a change in the percentage of board member who are female – the following
formula was used:

Where:

ROET = ROE of the top quartile = 17.7%

ROEB = ROE of the bottom quartile = 13.1%

WOBT = percentage of women in top management teams for
the top quartile = 20.3%

WOBB = percentage of women in top management teams for
the bottom quartile = 1.9%

The above effect size was multiplied by the
percentage point change in the percentage of board members who are female as a
result of the policy options and then added to the average baseline ROE of the
companies in each Member State (estimates based on data for listed companies
based in the EU27 provided by Standard and Poor’s). The results of this
calculation shows how the average ROE would be affected after the
implementation of the policy options, if all of the differences in performance
between companies could be explained by differences in the share of their
boards who are women. In the main text, the effect on ROE of assuming that
differences in the share of women on company boards account for a smaller share
of observed differences in company performance are also shown.

In order to calculate the impact of the
policy options on companies’ financial performance in terms of the companies’
net income the following method was used:

·
Financial data for all publicly listed
companies in Europe for the period 2005-2010 was obtained from
Standard&Poor’s. Data included total assets, total liabilities and ROE.

·
Financial data reported in currencies other
than Euros was converted to Euros using exchange rates published in the EC
Financial Programming and Budget website.[84]

·
Total assets were subtracted from total
liabilities to estimate the shareholders equity. From there, shareholders
equity was multiplied by ROE to produce an estimate of net income for each company.

8.1.5.     Assessing
the impacts on investment costs

Investment costs reflect the investment in mechanism to
increase participation of women on company boards. Companies can either invest
in broadening the talent pool in their company (training, mentoring etc.), or,
particularly where there are few women, increase the efforts of recruitment of
qualified women from the outside (with the help of executive search companies).
We assume that the overall additional costs of both options are roughly
"equivalent". The calculation focuses on the costs caused by
mentoring and training programs as well as on the costs for more transparency in
the selection procedure in general.

In order to understand the calculation, the factors
allowing a calculation are presented here.

The amount of investment costs incurred in companies by
each country will vary depending on existing
provisions (binding or non-binding) already introduced in each country and on
the policy option and current levels of female participation in corporate
boards in each country. Therefore, in a first step the existing provisions in
Member States related to the policy option will be presented. Furthermore, it
will be explained that investment costs have to be calculated separately for
two periods (until 2020 and after 2020). Moreover, the mechanisms causing
investment costs will be presented and clarified that costs occur as financial
and non-financial investment costs. Finally, the formula of calculation will be
discussed in detail.

Existing provisions in the Member States

In countries where there is already a binding quota in
place, it is unlikely that companies will have to face additional investment
costs in terms of mechanisms to increase female presentation on boards. The
investment costs are likely to be incurred regardless and therefore are not
costs to be related to or caused by the policy option.[85] These costs will therefore not be presented in the
framework of this impact assessment. In comparison, it is likely that countries
with no binding quotas in place will face large investment costs.

An overview as to the Member States that would have to
incur costs to comply with the policy options is outlined in the table below.[86] The assumptions
regarding the Member States for each policy option is based on determining
which Member States would require changes in their current provision in order
to adopt the policy options. For example, Member States, which already have
binding quotas in place, are not included in the costing analysis as these
costs are likely to be incurred regardless of the policy options. Therefore, BE, ES, FR, IT and NL are excluded from the analysis as they
already have binding quotas in place. In addition, for PO2 the Member States
included are based on the assumed compliance with the option for a
recommendation.

Table 5: Compliance costs associated with
each policy option

Policy option || Description || Member States

PO1 || Status Quo – Baseline Scenario || No MS has to take specific action

PO2 || Recommendation to Member states to introduce binding (or non-binding) measures with a target of at least 40% of board members of each gender by 2020 for non-executive boards/and executive board members of listed companies || General assumptions: 5 Member States take non-binding action, 5 Member States take legislative action

PO3 || Binding target of at least 40% of each gender by 2020 for non-executive boards/board members of listed companies || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

PO4 || Binding target of at least 40 % of board members of each gender by 2020 for non-executive boards/board members of listed companies+ flexi target for executive directors: || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

PO5 || Binding target of at least 40% of each gender by 2020 for executive and non-executive boards/board members of listed companies || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

Two time periods for assessing
investment costs

The investment costs have to be measured
separately for two periods, namely until 2020 and from 2020 onwards. Companies will face a one-off investment cost between the
year of adoption and 2020 as by 2020 the targets will need to be met.
For the purpose of the costing analysis, it is assumed that companies will
begin to invest in meeting the target a few years before it is required to be
complied with – that is from 2017. This assumption is based on case studies of
Member States with gender quotas in place which indicate that investment in
meeting quotas occurs 2 to 5 years prior to the year in which targets need to
be met. A conservative estimate of 4 years was chosen, as longer periods of
times would marginally increase investment costs. Therefore, the investment
costs are incurred from 2017 to 2020. After 2020, the percentage of women in
boards will need to be maintained. Therefore, post 2020 there is an on-going
annual investment cost associated with maintaining the participation of women
in company boards going forward. For the purpose of this assessment, the
on-going cost of each policy options is estimated from year 2021 to year 2030.

Mechanisms which will cause investment
costs

The following three mechanisms for increasing female
participation in the boards have been identified:

·
Informal mentoring programs: Informal mentoring programs involve senior executives within
companies providing mentoring support to women in the company who are currently
not part of the board but have the potential to be elected into boardrooms in
the future.

·
Formal mentoring programs: Formal mentoring
programs involve providing women within companies the opportunity to attend structured
networks which focus on helping women position themselves to be elected into
boardrooms.

·
Formal training programs: Formal training
programs involve giving women access to training classes which will provide
them with the skill set required to be elected into boardrooms. Examples of
training courses are: “communication to senior management”, “advanced
negotiation skills”, and “assertiveness for women – how to compete without
being aggressive” (Management Centre Europe,
2012).

·
Costs of more transparency: if selection
procedures or board members are made more transparent, this might contribute to
investment costs for better procedures, more information distributed, external
consultants to advise on the criteria and procedure to follow, etc.

Financial and Non-Financial
Investment Costs

The cost of each of the above mechanisms can be
disaggregated into financial and non-financial costs. Financial
costs represent the monetary costs incurred by the company to pay for the
mechanism – e.g. cost of training program, fees. Non-financial costs represent
the monetary value of the time associated with individuals participating in the
mechanisms – e.g. the value of the time spent by an individual attending a
training program.

Calculation of the investment costs

Calculation of annual financial
investment cost per Member state (2017-2020) =
(number of listed companies in each Member State) \* (conversion factor) \*
(additional number of women required to achieve quota per company by policy
option (2017-2020)/number of years of investment) \* (average unit financial
cost) \* (discount rate).

The factors/elements necessary to
calculate:

The total number of listed companies
(SMEs excluded) in EU27 is 5009. The country data is outlined in the table
below.

Table 6: Listed companies (excluding SMEs) per Member
State

. Member State || Listed companies

AT || 79

BE || 122

BG || 30

CY || 103

CZ || 15

DE || 714

DK || 134

EE || 12

EL || 217

ES || 271

FI || 109

FR || 536

HU || 24

IE || 60

IT || 235

LT || 33

LU || 48

LV || 16

MT || 11

NL || 137

PL || 540

PT || 56

RO || 173

SE || 356

SI || 21

SK || 9

UK || 947

EU 27 || 5009

Source: Matrix calculation

The conversion factor is outlined in
the table below. The conversion factor is used to translate the UK unit
investment costs to Member State specific costs.

Table 7: Conversion factor per Member State

Member state || Conversion factor ||

AT || 1.47 ||

BE || 1.40 ||

BG || 0.21 ||

CY || 0.95 ||

CZ || 0.60 ||

DE || 1.83 ||

DK || 0.47 ||

EE || 1.46 ||

EL || 1.33 ||

ES || 1.32 ||

FI || 0.89 ||

FR || 0.43 ||

HU || 1.28 ||

IE || 1.52 ||

IT || 0.35 ||

LT || 0.36 ||

LU || 3.57 ||

LV || 0.65 ||

MT || 1.54 ||

NL || 2.76 ||

PL || 0.71 ||

PT || 0.25 ||

RO || 0.53 ||

SE || 0.77 ||

SI || 1.00 ||

SK || 1.61 ||

UK || 1.18 ||

Source: Matrix calculation

The number of additional women required to
achieve the quota per policy option (2017-2020) is outlined in the table below.

Table 8: Additional number of women
required to achieve gender quota of 40% (2017-2020) per Member State in an
average company (SMEs included)

Member  State || PO2 ||  PO3 ||  PO4 ||  PO5

AT || 2.2 || 2.2 || 2.2 || 2.5

BE || 0.9 || 0.9 || 0.9 || 1.5

BG || 1.6 || 1.6 || 1.6 || 1.6

CY || 0.0 || 1.9 || 1.9 || 2.6

CZ || 0.0 || 1.1 || 1.1 || 2.1

DE || 1.1 || 1.1 || 1.1 || 2.1

DK || 0.7 || 0.7 || 0.7 || 1.0

EE || 0.0 || 1.9 || 1.9 || 2.0

EL || 2.0 || 2.0 || 2.0 || 3.2

ES || 0.5 || 0.5 || 0.5 || 1.1

FI || 0.0 || 0.0 || 0.0 || 0.3

FR || 0.0 || 0.0 || 0.0 || 0.6

HU || 0.0 || 2.7 || 2.7 || 3.8

IE || 1.8 || 1.8 || 1.8 || 2.5

IT || 0.9 || 1.7 || 1.7 || 2.6

LT || 0.0 || 0.8 || 0.8 || 1.3

LU || 2.6 || 2.6 || 2.6 || 3.3

LV || 0.0 || 0.2 || 0.2 || 0.2

MT || 2.0 || 2.0 || 2.0 || 2.5

NL || 0.2 || 0.4 || 0.4 || 0.7

PL || 1.3 || 1.3 || 1.3 || 1.5

PT || 2.7 || 2.7 || 2.7 || 3.8

RO || 0.0 || 1.2 || 1.2 || 1.5

SE || 0.3 || 0.3 || 0.3 || 0.6

SI || 0.0 || 2.1 || 2.1 || 2.7

SK || 0.0 || 0.6 || 0.6 || 0.6

UK || 0.9 || 0.9 || 0.9 || 1.6

Source: Matrix calculation

It is assumed that investment starts in
year 2017 to achieve the quota in year 2020. Therefore the number of years of
investment is 3 years.

The average unit financial cost is outlined
in the table below:

Table 9: Parameters for Calculation
of Cost of Investment Mechanisms

Parameter || Value || Calculation/Source

Wage of senior level staff per hour (min) || £47.20 || UK (2009) Annual Survey of Household Earnings. These wages are used to estimate the non-financial cost associated with informal and formal mentoring outlined below.

Wage of senior level staff per hour (max) || £74.59

Informal mentoring program || ||

Hours of mentoring per person per year || 24 || Assumption

Total financial cost (min) || €0 || No financial cost

Total financial cost (max) || €0 || No financial cost

Total nonfinancial cost (min) || £1,133 || Total nonfinancial cost (min) = hours of mentoring per person per year \* wage of senior level staff per hour (min) = 24 \* £47.20 = £1,333

Total non financial cost (max) || £1,790 || Total nonfinancial cost (min) = hours of mentoring per person per year \* wage of senior level staff per hour (min) = 24 \* £74.59 = £1,790

Formal mentoring program || ||

Registration fee || £500 || Assumption

Hours of mentoring per person per year || 30.4 || Average time outlined in various mentoring programs (http://www.peer.ca/mentorlinks.html ). Specifically: Commonwealth Institute Program, Peer Power, Global Executive Forum Group, Inner Circle International Peer Mentoring Group)

Total financial cost (min) || £500 || Only financial cost is the registration fee

Total financial cost (max) || £500 || Only financial cost is the registration fee

Total nonfinancial cost (min) || £1,453 || Total non-financial cost (min) = hours of mentoring per person per year \* wage of senior level staff per hour (min) = 30.4 \* £47.20 = £1,1453

Total non financial cost (max) || £2,268 || Total non-financial cost (max) = hours of mentoring per person per year \* wage of senior level staff per hour (min) = 30.4 \* £74.59= £2,268

Formal training programs || ||

Average cost of training program || £4,750 || Average cost of training programs specifically for senior level management (http://www.mce-ama.com/ ).

Average duration of training program (in hours) || 30.4 || Average duration of training programs specifically for senior level management (http://www.mce-ama.com/ ).

Total financial cost (min) || £4,750 || Only financial cost is the fee

Total financial cost (max) || £4,750 || Only financial cost is the fee

Total nonfinancial cost (min) || £1,435 || Total non-financial cost (min) = number of hours in formal mentoring \* wage of senior level staff per hour (min) = 30.4 \* £47.20 = £1,435

Total non financial cost (max) || £2,268 || Total non-financial cost (max) = number of hours in formal mentoring \* wage of senior level staff per hour (min) = 30.4 \* £74.59 = £2,268

Average total unit investment cost || ||

Average financial cost || £5,250 || Average financial cost = (Average financial cost of informal mentoring) + (average financial cost of formal mentoring) + (average financial cost of formal training) = £0 + £500 + £4750 = £5,250

Average non-financial cost || £5,164 || Average financial cost = (Average non- financial cost of informal mentoring) + (average non-financial cost of formal mentoring) + (average non-financial cost of formal training) = £1,461 + £1,851 + £1,851 = £5,164

Source: Matrix calculation

A 4.0 % discount rate is applied according
to the Commission’s Impact Assessment Guidelines. The average number of years
before turnover of directors is assumed to be 5 years.

It should be noted that the same method and
formula is used to estimate the annual non-financial investment costs
per Member State except that the average unit non-financial cost value (see
last row in the table above) is used.

Overview of total investment costs per
Member State

The table below provides an estimate of the total and
national average investment cost of each policy option across EU-27. These
estimates are based on data provided during the cases studies Matrix undertook.
It is evident from the table below that the investment costs vary significantly
by policy option. The variation in investment costs is mainly driven by the
specific population to which each policy option applies. For example, Policy
Option 2 is the least costly due to the fact it is non-binding. Therefore, only
selected Member States adopt the policy option; and within Member States which
adopt the policy option it is assumed only 50 per cent of listed companies
adopt the regulation. In comparison, Policy Option 5 is the most expensive as
it applies to both the executive and non-executive boards in all listed
companies (SMEs excluded). Also, there is a difference between the costs until
2020 and the costs occurring on an annual basis as of 2020. The investment
costs necessary to achieve the target until 2020 are higher than for the later
period when the current level of gender balance only has to be maintained.

Table
10: Annual Investment Costs of
Policy Options in Present Value
Terms – Excluding SMEs (in € and €1’000, 2010 prices)

Total Investment cost || PO2 || PO3 || PO4 || PO5

Avg annual (2017-2020) || Avg annual (2021-2030) || Avg annual (2017-2020) || Avg  annual (2021-2030) || Avg annual (2017-2020) || Avg annual (2021-2030) || Avg annual (2017-2020) || Avg annual (2021-2030)

Avg per company (€) || € 1,125 || € 197 || € 3,327 || € 600 || € 3,673 || € 700 || € 5,311 || € 1,011

Average per Member State || € 168,800 || € 29,600 || € 757,000 || € 136,000 || € 836,200 || € 159,400 || € 1,2 mill. || € 230,200

Total EU || € 3,7 mill || € 651,800 || € 16,6 mill. || € 3 mill || € 18,3 mill. || € 3,5 mill. || € 26,5 mill. || € 5 mill

8.2.        Economic
impact

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

The policy
options lead to an increase in female salaries at board and managerial level.
The table below presents the effect of each policy option on average annual
female salaries in listed companies by Member State in 2020.

Table 11: Average Impact of the
Policy Options on Female Salaries in Listed Companies excluding SMEs – Euros

MS || Level || ||

Baseline (2020) || PO2 || PO3 || PO4 || PO5 ||

EU27 || Board || 73,648 || No estimates possible || 66,895 || 72,690 || 99,316 ||

|| Executive || 161,249 || || 162,984 || 166,870 || 199,471 ||

|| Non-Executive || 65,372 || || 61,279 || 62,508 || 69,319 ||

AT || Board || 95,093 || || 95,409 || 97,021 || 118,498 ||

|| Executive || 276,897 || || 282,886 || 284,873 || 310,938 ||

|| Non-Executive || 92,299 || || 94,295 || 94,958 || 103,646 ||

BE || Board || 85,506 || || 82,967 || 90,920 || 113,037 ||

|| Executive || 223,754 || || 224,790 || 229,251 || 242,554 ||

|| Non-Executive || 74,585 || || 74,930 || 76,417 || 80,851 ||

BG || Board || 27,820 || || 14,401 || 17,448 || 14,699 ||

|| Executive || 27,820 || || 27,820 || 28,630 || 27,889 ||

|| Non-Executive || 9,273 || || 9,273 || 9,543 || 9,296 ||

CY || Board || 83,260 || || 58,438 || 62,492 || 106,130 ||

|| Executive || 127,894 || || 164,932 || 168,382 || 206,924 ||

|| No- Executive || 42,631 || || 54,977 || 56,127 || 68,975 ||

CZ || Board || 33,174 || || 31,266 || 35,339 || 49,685 ||

|| Executive || 80,906 || || 81,384 || 83,808 || 93,268 ||

|| No- Executive || 26,969 || || 27,128 || 27,936 || 31,089 ||

DE || Board || 71,407 || || 66,950 || 74,713 || 113,585 ||

|| Executive || 177,286 || || 178,663 || 183,991 || 212,972 ||

|| Non-Executive || 59,095 || || 59,554 || 61,330 || 70,991 ||

DK || Board || 124,390 || || 119,628 || 134,305 || 136,344 ||

|| Executive || 305,340 || || 306,632 || 311,383 || 312,079 ||

|| Non-Executive || 101,780 || || 102,211 || 103,794 || 104,026 ||

EE || Board || 38,150 || || 32,353 || 34,034 || 37,217 ||

|| Executive || 84,739 || || 91,878 || 92,663 || 94,205 ||

|| Non-Executive || 28,246 || || 30,626 || 30,888 || 31,402 ||

EL || Board || 56,856 || || 41,703 || 45,770 || 101,424 ||

|| Executive || 106,872 || || 115,426 || 119,414 || 174,358 ||

|| Non-Executive || 35,624 || || 38,475 || 39,805 || 58,119 ||

ES || Board || 59,566 || || 59,040 || 63,558 || 83,636 ||

|| Executive || 164,148 || || 164,457 || 167,565 || 182,082 ||

|| Non-Executive || 54,716 || || 54,819 || 55,855 || 60,694 ||

FI || Board || 94,966 || || 94,966 || 106,612 || 106,507 ||

|| Executive || 243,081 || || 243,081 || 246,678 || 246,644 ||

|| Non-Executive || 81,027 || || 81,027 || 82,226 || 82,215 ||

FR || Board || 73,287 || || 73,287 || 80,109 || 110,390 ||

|| Executive || 200,481 || || 200,481 || 205,094 || 226,918 ||

|| Non-Executive || 66,827 || || 66,827 || 68,365 || 75,639 ||

HU || Board || 24,874 || || 23,518 || 24,917 || 41,047 ||

|| Executive || 65,915 || || 67,342 || 68,798 || 85,453 ||

|| Non-Executive || 21,972 || || 22,447 || 22,933 || 28,484 ||

IE || Board || 101,476 || || 84,745 || 96,440 || 123,034 ||

|| Executive || 212,013 || || 216,272 || 222,179 || 237,160 ||

|| Non-Executive || 70,671 || || 72,091 || 74,060 || 79,053 ||

IT || Board || 67,778 || || 67,277 || 69,856 || 108,132 ||

|| Executive || 195,178 || || 196,504 || 199,668 || 245,075 ||

|| Non-Executive || 65,059 || || 65,501 || 66,556 || 81,692 ||

LT || Board || 24,267 || || 20,871 || 24,692 || 28,023 ||

|| Executive || 47,830 || || 48,326 || 49,851 || 51,363 ||

|| Non-Executive || 15,943 || || 16,109 || 16,617 || 17,121 ||

LU || Board || 182,689 || || 191,324 || 191,324 || 266,263 ||

|| Executive || 548,068 || || 573,971 || 573,971 || 573,971 ||

|| Non-Executive || 182,689 || || 191,324 || 191,324 || 191,324 ||

LV || Board || 24,451 || || 24,262 || 27,037 || 25,235 ||

|| Executive || 62,453 || || 62,508 || 63,155 || 62,728 ||

|| Non-Executive || 20,818 || || 20,836 || 21,052 || 20,909 ||

MT || Board || 66,850 || || 45,158 || 48,775 || 62,984 ||

|| Executive || 99,154 || || 124,557 || 126,543 || 134,967 ||

|| Non-Executive || 33,051 || || 41,519 || 42,181 || 44,989 ||

NL || Board || 99,150 || || 97,439 || 107,448 || 115,249 ||

|| Executive || 258,187 || || 258,793 || 262,677 || 265,883 ||

|| No- Executive || 86,062 || || 86,264 || 87,559 || 88,628 ||

PL || Board || 27,549 || || 26,029 || 27,389 || 30,455 ||

|| Executive || 72,388 || || 74,005 || 74,717 || 76,378 ||

|| Non-Executive || 24,129 || || 24,668 || 24,906 || 25,459 ||

PT || Board || 54,530 || || 38,057 || 42,139 || 64,287 ||

|| Executive || 93,979 || || 102,490 || 105,251 || 121,554 ||

|| Non-Executive || 31,326 || || 34,163 || 35,084 || 40,518 ||

RO || Board || 23,441 || || 16,280 || 19,534 || 18,882 ||

|| Executive || 33,464 || || 34,793 || 35,786 || 35,569 ||

|| Non-Executive || 11,155 || || 11,598 || 11,929 || 11,856 ||

SE || Board || 98,578 || || 98,349 || 101,853 || 125,103 ||

|| Executive || 285,670 || || 286,205 || 289,239 || 309,631 ||

|| Non-Executive || 95,223 || || 95,402 || 96,413 || 103,210 ||

SI || Board || 57,552 || || 44,384 || 50,579 || 60,050 ||

|| Executive || 108,555 || || 112,207 || 114,958 || 119,621 ||

|| Non-Executive || 36,185 || || 37,402 || 38,319 || 39,874 ||

SK || Board || 38,726 || || 37,633 || 42,318 || 38,960 ||

|| Executive || 94,905 || || 95,190 || 96,255 || 95,479 ||

|| Non-Executive || 31,635 || || 31,730 || 32,085 || 31,826 ||

UK || Board || 65,989 || || 60,412 || 68,981 || 98,729 ||

|| Executive || 153,488 || || 154,713 || 159,727 || 179,263 ||

|| Non-Executive || 51,163 || || 51,571 || 53,242 || 59,754 ||

Source: Matrix
calculation

The figures
are presented separately for: executive board members, non-executive board
members and managers. For example, in Austria the average salary of a female
board member in listed companies (without SMEs) at baseline (2020) is on
average €95,093 per annum. If PO2 is implemented, a female board member would
be expected to earn on average €109,055 per annum.

Average
salaries in the baseline (2020) were estimated based on salary data for male
and female directors and chief executives of major organisations available for
the UK (Annual Survey of Hours and Earnings 2010, Office for National
Statistics) and adjusted for each Member State based on the GDP ratio between
the UK and the Member State (IMF).

The average
salaries as a result of each policy option capture the one-off effect of the
policy option in the year of implementation (2020) on the number of female
employees and on their average salaries based on evidence drawn from Matsa and
Miller (2011). The impact of the policy options on
the GPG – i.e. the resulting change on the difference between male and female
salaries – was estimated using the following assumptions:

Matsa and Miller (2011) estimated that:

·
a 10% increase in female non-executive
board members increases female top management compensation share by 6%;

·
a 10% increase in female board members, both executive
and non-executive, increases female top management compensation share by
14%.

The figures
above were used to estimate the impact that the policy options would have on
female salaries via the effect on the percentage of women in company boards.
Thus, for instance, for every 10% increase in the percentage of non-executive
female board members generated by the policy options, female salaries at board
and manager level were increased by 6%. The estimates relate to ‘top
management’. It was thus considered appropriate to extrapolate this effect to a
proportion of employees – namely, 25%. Hence, any increase of female
participation in board would impact on 25% of employees at managerial level.

The
resulting female salaries were then compared against male salaries to estimate
the impact on the GPG at board and manager level. Female salaries at junior
level were assumed to remain constant at 2020 baseline levels given that an
extensive search of the literature did not provide evidence on the potential
impact of female board members other than on top level female managers.

In policy
options where the number of female non-executive board members increases whilst
the number of female executive board members remains constant, the weighted
average female salary at board level decreases. At managerial level, however,
the impact of the policy options is always favourable, with no change at junior
level.

The reason
for this reduction is that female salaries at board level are calculated as the
weighted average of the salaries for executive and non-executive female board
members. The average salary for non-executive female members is consistently
lower than the average salary for executive female members. This means that
changes in the relative weights may lead to increases or decreases of the
weighted average at board level. Therefore although for all policy options
(except policy option 1) the average salary for executive and non-executive
increases, the average at board level may decrease.

The policy
options may lead to a reduction in the gender pay gap (GPG). The calculation of
the baseline GPG involved two main steps:

Calculation of the GPG at each level: This was calculated as the
difference between male and female annual salaries, divided by male salaries.
Thus, for example, a GPG of 31% at board level indicates that the difference
between male and female salaries at board level is equivalent to 31% of the
male salaries at the same level.

Calculation of the GPG across all levels: This was calculated as the
weighted average of the GPG at board, manager and junior level where the
weights are given by the proportion of employees at each level relative to the
total number of employees.

The calculation of the effect of the policy
options was done by estimating the average salaries following implementation of
the policy options and the GPG post policy following the same steps described
above. The table below presents the effect in % of the
policy options on the GPG in listed companies (without SMEs) by Member States
in 2020. The figures represent the average change across all levels: board,
manager and junior level.

Table 12:
Impact of policy options on the gender pay gap (percentage point change
compared to baseline)

MS || Baseline Percentage of Women on Board by 2020 Baseline || ||

PO1 || PO2 || PO3 || PO4 || PO5 ||

EU27 || 23.72% || 0.00% || -0.09 (further estimates not possible) || -0.10% || -0.79% || -4.50% ||

AT || 24.34% || 0.00% || || -0.54% || -0.72% || -3.15% ||

BE || 23.02% || 0.00% || || -0.14% || -0.87% || -3.06% ||

BG || 24.34% || 0.00% || || 0.48% || -0.76% || 0.38% ||

CY || 24.86% || 0.00% || || -5.27% || -5.84% || -12.31% ||

CZ || 24.28% || 0.00% || || -0.13% || -1.11% || -4.93% ||

DE || 24.42% || 0.00% || || -0.16% || -0.92% || -5.10% ||

DK || 24.03% || 0.00% || || -0.06% || -0.54% || -0.62% ||

EE || 24.42% || 0.00% || || -4.05% || -4.54% || -5.51% ||

EL || 25.32% || 0.00% || || -2.69% || -4.03% || -22.59% ||

ES || 22.48% || 0.00% || || -0.07% || -0.77% || -4.06% ||

FI || 23.86% || 0.00% || || 0.00% || -0.77% || -0.76% ||

FR || 23.54% || 0.00% || || 0.00% || -0.78% || -4.47% ||

HU || 23.12% || 0.00% || || -0.69% || -1.46% || -10.29% ||

IE || 23.72% || 0.00% || || -0.65% || -1.87% || -4.99% ||

IT || 22.16% || 0.00% || || -0.19% || -0.69% || -7.89% ||

LT || 23.67% || 0.00% || || -0.45% || -2.21% || -3.96% ||

LU || 24.59% || 0.00% || || -0.99% || -0.99% || -1.13% ||

LV || 24.01% || 0.00% || || -0.03% || -0.72% || -0.26% ||

MT || 23.70% || 0.00% || || -7.07% || -7.80% || -10.91% ||

NL || 23.62% || 0.00% || || -0.08% || -0.66% || -1.13% ||

PL || 24.23% || 0.00% || || -0.79% || -1.15% || -1.99% ||

PT || 24.72% || 0.00% || || -2.44% || -3.30% || -8.40% ||

RO || 24.17% || 0.00% || || -0.70% || -1.40% || -1.24% ||

SE || 24.32% || 0.00% || || -0.05% || -0.39% || -2.70% ||

SI || 24.67% || 0.00% || || -1.56% || -1.86% || -2.38% ||

SK || 22.54% || 0.00% || || -0.04% || -1.30% || -0.38% ||

UK || 24.92% || 0.00% || || -0.11% || -1.76% || -8.23% ||

Source: Matrix calculation

The model
provides quantitative estimates of the impact of the
policy options on the following ways in which women can participate in the
labour force:

–
Women who would have been inactive now deciding
to participate in the labour force.

–
Part-time female employees being incentivised to
work for longer hours.

–
Women reducing the amount of time they take out
of employment to have children.

–
The impact of the above dynamics on the
probability that women claim low income benefits.

–
Women being motivated to stay longer in
education, thus increasing their chance of employment.

The timing of these impacts stretches from short-term to
long-term. All impacts occurring in the future have been discounted using a 4%
annual rate.

The
impact of the options on the gender pay gap at EU level is presented in the
table below.

Table13: Impact f policy options on gender pay gap at EU
level

Policy options || Impact on gender pay gap in p.p. compared to baseline in listed companies (without SMEs)

Policy option 1 (baseline) || (23.72%)

Policy Option 2 || - 0.09

Policy Option 3 || - 0.10

Policy Option 4 || -0.79

Policy Option 5 || - 4.50

Source: Matrix calculation

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

In estimating the overall impact of the policy option on
the GEG, a distinction was made between the following two effects:

·
an effect of the policy options on board
composition; and

·
a ‘governance effect’ of the change in board
composition on employment of females elsewhere in the organisation.

An extensive review of the literature on female
participation on company boards was used to identify the best quality evidence
on the ‘governance effect’. Matsa and Miller’s (2011) estimates were used
in the analysis, as the method they employed was considered better than that
available in other studies.[87]
Based on data on US companies’ from 1997 to 2009 Matsa and Miller (2011)
estimated that:

·
a 10% increase in female non-executive board
members increases the average female top manager share by 4%;

·
a 10% increase in female board members (both
executive and non-executive) increases the average female top manager share by
7%.

Based on this model, the impact of the different policy options on
the gender employment gap at EU level is presented in the table below.

Table 14: Impact of options on gender
employment gap at EU level

Policy options || Impact on gender employment gap: % change of females at board and managerial level

Policy Option 1 (Baseline) || (343%/118%)

Policy Option 2 || -18.74%/-0.23%

Policy Option 3 || -58.36%/-0.96%

Policy Option 4 || -62.74%/-2.26%

Policy Option 5 || -76.32%/-8.48%

Source: Matrix calculation

8.2.3.     Calculating
the return on education

Based on the average increase in female salaries across levels, the
impact on return to education was estimated. In the context of this impact
assessment, the impact on return on education is interpreted as the
contribution of the policy options to increasing the individual and public
sector benefits of education. The analysis is thus based on the fact that
increasing participation of women at board level represents an opportunity for
increasing the benefits from education these women already invested in.[88] In this context it is
reasonable to assume that women who will be brought to board level have already
invested in formal education and that they have achieved tertiary education.
The analysis then accounts for the costs and benefits of tertiary education
(compared to secondary education).

The approach and data to estimate the impact of the policy options
on return to education were obtained from the OECD Education at a Glance
2011 report. A summary of the approach and methodology applied in such report
is provided in the Box below. Following OECD (2011), return to education was
defined as the internal rate of return which is given by the rate that makes
the financial benefits equal the costs.

Box 1: OECD Education at a Glance 2011:
Incentives to Invest in Education

The analysis on incentives in education brings together available information on education investments and the benefits that education brings in terms of employment and earnings. Using information on taxes and benefits makes it possible to calculate the net benefits for individuals and for the public sector. The approach is that of an investment analysis from the financial literature. The calculations are made by comparing the specific costs associated with achieving a certain educational level and the benefits that flow from this level over the working life. These cash-flows are then discounted back in time to the start of the investment decision. The basis for an investment approach is the discount rate (the time-value of money), which makes it possible to compare costs or payments (cash flows) over time. The discount rate can be estimated by raising it to the level at which financial benefits equal costs, which is then the internal rate of return. The financial benefits and costs considered are: Direct cost of education. Forgone earnings while in education. Gross earnings benefits given by the difference in earnings between varying educational groups over their lifetimes. Income tax effects applied on earnings. Social contribution effect capturing contributions paid by individuals. Social transfer effect capturing social welfare benefits. Grant effect capturing student loans and grants received by students, often charged at an interest rate. Unemployment effect capturing the effect of how different unemployment rates impact differently on individuals depending on their educational level. Whether the above components constitute a cost or a benefit depends on the perspective of the analysis. For example, whilst the income tax applied on earnings represents a cost to individuals, it is considered a benefit for the public sector. Based on these data, OECD estimated a private internal rate of return for a women obtaining tertiary education across OECD countries of 11.5% and a public internal rate of return of 9.2%.

The effect of the policy options on return to education was
estimated through the following process:

First, the components of the financial net benefits and costs of
investment in education described in the Box above were used to replicate the
calculation of the internal rate of return.[89]
This required making an assumption on the number of years over which those
benefits span (as the information was not available through OECD report, a
period of 40 years was assumed). Following this process it was estimated that
the internal rate of return to tertiary education across the EU member states
included in the OECD for which data was available is 18.20% for private
individuals and 22.11% for the public sector.[90]

Second, as the policy options would lead to the promotion of women
at managerial level to board level, we applied the average difference in female
salaries between board and managerial level to the gross earnings component of
the internal rate of return calculation. A proportional change was applied to
income tax payments and social contribution payments. These changes were then
feed into the calculation of the net present value and the internal rate of
return to education following implementation of the policy options. The
difference in salaries was applied to the last 20 years, thus assuming that
female would be at the mid-point of their professional career (spanning over 40
years).The impact of the different policy options on the return on education
rate at EU level is presented in the following table.

Table 15: return on education for
individuals and for the public sector (EU level)

Policy Options || Return on education in % for individuals/ for the public sector

Policy Option 1 (Baseline) || 18.20% / 22.11% (baseline)

Policy Option 2 || 18.95%/22.87%

Policy Option 3 || 18.91%/22.83%

Policy Option 4 || 19.01%/22.93%

Policy Option 5 || 19.36%/23.28%

Source: Matrix calculation

8.3.        Calculating
the administrative burden

Two types of administrative costs are included in this
analysis:

–
the cost of complying from the perspective
of the companies (costs of compliance, costs or reporting) and

–
the cost of monitoring compliance from
the perspective of Member States (costs of monitoring).

These costs will
be incurred on an annual basis from year 2020. In addition, both of these costs
will be incurred independently of the policy option chosen. For example
changing the quota percentage or changing the board type to which it applies to
(executive or non-executive board) does not change the need of companies to
provide information on compliance and of Member States to monitor compliance.
In this annex it will first have to be defined, in which Member States
administrative burden will be incurred for companies and for public
authorities. Then the calculation for companies' compliance costs will be
presented in detail.

In countries where there is already a binding quota in
place, it is unlikely that companies will have to face additional investments
and costs in terms of mechanisms to increase women in boards and report about
women on boards. The costs of complying are likely to be incurred regardless
and therefore are not costs to be related to the policy option.[91] In comparison, it
is likely that countries with no binding quotas in place will face costs or
reporting.

An overview of Member States in which companies would incur
administrative burdens linked to the policy options is outlined in the table
below. The assumptions regarding the Member States for each policy option is
based on determining which Member States would require changes in their current
provision in order to adopt the policy options. For example, Member States
which already have binding quotas in place are not included in the costing
analysis as these costs are likely to be incurred regardless of the policy options.
Therefore, BE, ES, FR, IT and NL are excluded from the
analysis as they already have binding quotas in place.  In addition, for PO2
the Member States included are based on the assumed compliance with the
recommendation.

Table 16: Administrative burdens linked to the policy
options per Member State

Policy option || Description || Member States

PO1 || Status Quo – Baseline Scenario || No MS has to take specific action

PO2 || Recommendation to Member states to introduce binding (or non-binding) measures with a target of at least 40% of board members of each gender by 2020 for non-executive boards/and executive board members of listed companies || 5 Member States move from no action to non-binding, 2 Member States take binding action

PO3 || Binding target of at least 40% of each gender by 2020 for non-executive boards/board members of listed companies || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

PO4 || Binding target of at least 40 % of board members of each gender by 2020 for non-executive boards/board members of listed companies and flexi –target for executive directors || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

PO5 || Binding target of at least 40% of each gender by 2020 for executive and non-executive boards/board members of listed companies || AT, BG, CY, CZ, DE, DK, EE, EL, FI, HU, IE, LT, LU, LV, MT, PL, PT, RO, SE, SI, SK, UK

(a) Methodology for assessing the cost
of compliance for companies

Case studies were utilised to identify the cost of compliance
from the perspective of companies. Specifically, the cost of compliance
was identified as the cost of reporting on a company level the percentage of
women on boards to a public authority. Data from case studies indicated that
the cost of reporting would be minimal as several existing company reports
could be utilised to report/estimate the percentage of women on boards.

In order to measure the compliance costs
for companies, the time necessary for an employee to establish a compliance
report had to be assessed

Table 17:
Parameters for Calculation of Administrative Burden for compliance costs

Parameter || Value || Calculation/Source

Cost of complying || ||

Time required to compile report on percentage of women in boards by staff type (in hours): || ||

HR Manager || 1.9 || DG MARKT (2007): Study on administrative costs of the EU Company Law Acquis; Matrix Insight (2011) Study to Support an Impact Assessment on further Action at European Level regarding the Pay Gap between Men and Women

HR Personnel || 0.2

Employee representative || 0.9

Wage of HR Manager per hour (min) || £18.6 || UK (2009) Annual Survey of Household Earnings

Wage of HR Manager per hour (max) || £25.3

Wage of HR Personnel per hour (min) || £9.8

Wage of HR Personnel per hour (max) || £11.8

Wage of employee representatives (min) || £9.5

Wage of employee representatives (max) || £10.5

Total financial cost (min) || € 0 || No financial cost

Total financial cost (max) || € 0 || No financial cost

Total nonfinancial cost (min) || £46.3 || Total non-financial cost (min) = ∑(hours per staff type \* wage of staff (min) = (1.9\*£18.6)+(0.2\*£25.3)+(0.9\*£9.5) = £46.3

Total nonfinancial cost (max) || £59.6 || Total non-financial cost (min) = ∑(hours per staff type \* wage of staff (max) = (1.9\*£25.3)+(0.2\*£11.8)+(0.9\*£9.5) = £59.6

Average total unit cost || ||

Average unit non-financial cost of complying || £52.9 || Average unit non-financial cost of complying = (non-financial cost min + non financial cost max)/2 = (£46.3+£59.6)/2=£52.9

The parameters above
(the average unit of non-financial cost of £52.9) were transformed into costs
per Member States via a conversion table (see table above). The conversion factor is used to translate the UK unit investment
costs to Member State specific costs.

Furthermore, the calculation was based on the numbers of
listed companies per Member State, thereby exempting SMEs (see table above).

Cost of Monitoring Compliance for
Member States

It can be assumed that the cost of monitoring compliance
would be minimal, as reviewing a report on the percentage of women in boards
would not be time consuming. However, it is not possible to provide an exact
estimate of the time required to review each company report.

The values used to calculate the monitoring costs are based
on the parameters in the table below.

Table 18:
Parameters for calculation of Administrative Burden Member States' monitoring

Parameter || Value || Calculation/Source

Cost of monitoring compliance || ||

Time required of government officials to review report submission (in hours) || 1.75 || DG MARKT (2007): Study on administrative costs of the EU Company Law Acquis

Wage of government official (min) || £10.7 || UK (2009) Annual Survey of Household Earnings

Wage of government official (max) || £31.6

Total financial cost (min) || £0 || No financial cost

Total financial cost (max) || £0 || No financial cost

Total nonfinancial cost (min) || £19.2 || Total non-financial cost (min) = hours of government officials time required to review report \* wage of government official (min)= (1.75\*£11)= £19.2

Total nonfinancial cost (max) || £55.3 || Total non-financial cost (min) = hours of government officials time required to review report \* wage of government official (min)= (1.75\*£32)= £55.3

Average unit non-financial cost of monitoring || £37.2 || Average unit non-financial cost of monitoring= (non-financial cost min + non financial cost max)/2 = (£19.2+£55.2)/2=£37.2

The above parameters for companies’ compliance were transformed
into costs per Member States via a conversion table (see values in the
conversion table above under the methodology for company compliance costs).

It was assumed that time required to review a report
submitted by companies was constant across Member States. However, the cost of
the time varied by Member State based on variation in wages.[92]

It is evident that the cost of complying and monitoring
compliance varies by policy option. Policy Option 2 has the lowest average
administrative costs as it is only adopted by certain Member States, and within
each Member State is only adopted by 50 per cent of listed companies. In
comparison, binding measures in Policy Option 4, 5 and 6 apply to all Member
States and all listed companies within Member States.

Administrative costs per Member State

Company level costs refer to costs incurred by listed
companies. In comparison, monitoring costs are costs associated with public
authorities. The EU-27 averages refer to the average Member State cost for each
policy option and cost type.

It is evident
that the cost of each policy option varies significantly. As stated before, the
main cause of variation in costs across policy options is due to the population
in which the policy option applies to. For example, Policy Option 2 is the
least costly as it is a non-binding recommendation which will only have effect
in certain Member States and a percentage of listed companies within each
Member State. In comparison, Policy Option 6 is the most expensive as it is a
binding instrument which applies to both executive and non-executive boards in
all listed companies.

Table 19: Average Annual Administrative Burden in
Present Value Terms by Member State – excluding SMEs (€, 2010 prices)

MS || PO2 || PO3 || PO4 || PO5

|| Report || Monitor || R || M || R || M || R || M

AT || N/A || N/A || € 3,409 || € 2,743 || € 3,409 || € 2,743 || € 3,409 || € 2,743

BE || || || € 0 || € 0 || € 0 || € 0 || € 0 || € 0

BG || || || € 180 || € 145 || € 180 || € 145 || € 180 || € 145

CY || || || € 2,842 || € 2,287 || € 2,842 || € 2,287 || € 2,842 || € 2,287

CZ || || || € 269 || € 217 || € 269 || € 217 || € 269 || € 217

DE || || || € 38,279 || € 30,807 || € 38,279 || € 30,807 || € 38,279 || € 30,807

DK || || || € 1,853 || € 1,491 || € 1,853 || € 1,491 || € 1,853 || € 1,491

EE || || || € 507 || € 408 || € 507 || € 408 || € 507 || € 408

EL || || || € 8,459 || € 6,808 || € 8,459 || € 6,808 || € 8,459 || € 6,808

ES || || || € 0 || € 0 || € 0 || € 0 || € 0 || € 0

FI || || || € 2,844 || € 2,289 || € 2,844 || € 2,289 || € 2,844 || € 2,289

FR || || || € 0 || € 0 || € 0 || € 0 || € 0 || € 0

HU || || || € 885 || € 712 || € 885 || € 712 || € 885 || € 712

IE || || || € 2,680 || € 2,157 || € 2,680 || € 2,157 || € 2,680 || € 2,157

IT || || || € 0 || € 0 || € 0 || € 0 || € 0 || € 0

LT || || || € 353 || € 284 || € 353 || € 284 || € 353 || € 284

LU || || || € 5,005 || € 4,028 || € 5,005 || € 4,028 || € 5,005 || € 4,028

LV || || || € 298 || € 240 || € 298 || € 240 || € 298 || € 240

MT || || || € 496 || € 400 || € 496 || € 400 || € 496 || € 400

NL || || || € 0 || € 0 || € 0 || € 0 || € 0 || € 0

PL || || || € 11,137 || € 8,963 || € 11,137 || € 8,963 || € 11,137 || € 8,963

PT || || || € 407 || € 328 || € 407 || € 328 || € 407 || € 328

RO || || || € 2,659 || € 2,140 || € 2,659 || € 2,140 || € 2,659 || € 2,140

SE || || || € 8,050 || € 6,478 || € 8,050 || € 6,478 || € 8,050 || € 6,478

SI || || || € 616 || € 496 || € 616 || € 496 || € 616 || € 496

SK || || || € 424 || € 341 || € 424 || € 341 || € 424 || € 341

UK || || || € 32,765 || € 26,369 || € 32,765 || € 26,369 || € 32,765 || € 26,369

9.           ANNEX
9: Background on the Norwegian case

While several EU Member States and EEA
countries have introduced legislation on targets for achieving gender balance
on company boards, Norway is the only one where the deadline for implementing
gender quotas has already expired and where information and data on the
implementation process and its impact are available. Although each country's
policies have to be considered in their particular context, Norway's experience
can be a useful source of information relevant for the decision on and the design
of any EU-level measures in this context. The relevant law was adopted in
December 2003 and set out the target of 40 % representation of both genders
among the (supervisory) board members.[93] Initially the companies were
given a chance to meet that target on a voluntary basis, but since the
voluntary measures did not result in much progress, the requirements were made
obligatory as of 1 January 2006.[94] The rules now apply to boards
of all publicly limited companies, as well as a range of other
companies, including state and municipality owned companies, and cooperative
companies. Roughly 350-450 companies were concerned by the law with roughly
2400 seats in the boards. In publicly limited companies (mostly big companies)
none of the members are personally liable for the companies' debts. There are
also stricter rules applying to capital stock and board composition.

The rules regarding the composition of the
board are enforced according to general enforcement rules of company
legislation, on equal footing with other requirements such as those for
bookkeeping or accounting and through the normal control procedures of the
Register of Business Enterprises. A company that does not have a board that
fulfils the statutory requirements may be dissolved by a court order.

In December 2003 the Norwegian Parliament
passed an amendment to the Public Limited Liability Companies Act, requiring
public limited companies (PLC – Allmennaksjeselskap / ASA) to achieve
gender balance on their boards, i.e. that at least 40% of each sex should be
represented. The legislation was voted by a large majority of the Parliament,
including both the conservative-centre government coalition and centre-left and
socialist opposition parties[95].

The following rules for the gender
composition of boards were laid down[96]:

–
In boards with two or three members, both
genders must be represented.

–
In boards with four or five members, both
genders should be represented with at least two members each.

–
In boards with six to eight members, both
genders should be represented with at least three members each.

–
In boards with nine or more members, each gender
should be represented with at least 40 per cent each[97].

Moreover, there are special requirements
for employee representatives: Where two or more board members are
elected from among the employees, both sexes must be represented. However, this
rule does not apply in companies where one of the sexes represents less than
20% of the total number of employees on the date of election.

Pursuant to an agreement of the government
with the private business sector, the rules applying to private
companies should not come into effect if the desired gender representation was
achieved voluntarily by 1 July 2005. However, on that date only 13% of PLCs
fulfilled the required targets and only 16% of their board members were women[98].

The rules for privately owned PLCs entered
into force on 1 January 2006, giving already established companies two
years to comply with the rules (i.e. by 1 January 2008), while PLCs
registering as from 2006 had to appoint gender-balanced boards immediately.

The rules applying to state-owned
companies had already entered into force on 1 January 2004. These have
later been extended to include the boards of all municipal and also cooperative
companies. Today all forms of publicly owned enterprises, independently of
their legal form, are covered by similar rules under quota legislation –
including limited liability companies, in which municipalities own two-thirds
or more of the shares.

In the private sector, legislation only
concerns public limited (liability) companies, which usually have many
shareholders and which are governed by strict rules with regard to board
composition and share capital. There are approximately 400 to 450 PLCs today in
Norway (depending on the sources). Not all of them are listed on the Oslo stock
exchange (about 260), but a company applying for listing has to adopt this
legal form.

The other possible legal form for privately
owned companies is the private limited (liability) company. About
215,000 such companies, most of them SMEs, exist in Norway. They are currently
not covered by quota legislation, but the government is considering plans to
cover the largest of them.

Sanctions

No new sanction procedures were
introduced in Norway to enforce the provisions on quotas. These rules were
simply inserted in the company law which contains other requirements regarding
board members and specifies rules on monitoring and sanctions. The monitoring
and enforcement occurs through routine controls. Norway has a central company
registry (Brønnøysund Register Centre), where companies and their boards are
registered.

When a company wants to register board
members, the registry automatically identifies the board members by their
national social security number (which also indicates their sex) and thereby
checks if the board composition fulfils the statutory requirements. If that is
not the case, the registry will refuse to register the board and send a
warning to the company, inviting it to comply with the requirements within a
deadline of four weeks.

After a second notice of four weeks is
given, the case will be submitted to the court which may order to dissolve
the company. However, there is a safety clause applicable to all company
law requirements. If 'substantial public interests' are at stake, the Ministry
of Trade and Industry may decide that a forced dissolution shall not be
executed and impose a fine instead.

Board system

It is important to note that Norwegian PLCs
have a single board. However, contrary to the unitary board system in
many other countries, this board is not a management board with both executive
and non-executive directors, but it has mainly supervisory functions. As
of 2010, the CEO as the main executive director may no longer be a member of
the board. The members of the board are not involved in the daily management
of the company.

According to the Public Limited Liability
Companies Act, the board shall govern and supervise the company, whereas the
general manager (CEO) is responsible for the management on a daily basis. The
board shall set out plans and budgets for the commercial activities, and may
also decide on rules and regulations for the company’s activities. The board
may also take some management decisions or instruct the general manager. This
will vary from company to company. In some companies the board or its chairman
are very active, whereas in others, the board mainly supervises the management
without intervening in the daily activities.

The deadline for (privately owned) PLCs
expired in January 2008. By that date 77 out of the roughly 450 companies
concerned had failed to comply with the legislation on gender representation.
These companies received a letter from the central company registry, giving
them four weeks notice to comply with the rules. In February 2008, 12 PLCs
received a second notice of four weeks with public announcement. In April 2008
it was clear that none of the PLCs would be dissolved.[99]

Figures on gender balance on company
boards

As expected, the quota legislation led to
major changes in the gender composition of company boards in Norway. According
to figures by the Institute of Social Research in Oslo (ISF), the proportion of
women on boards of PLCs gradually increased from 6% in 2002 to 18% in 2006, and
finally reached 40% as from 2009[100] (see graph 1). According to
the Commission database on women and men in decision-making[101], 42% of board members of the
19 largest Norwegian companies (constituents of the main blue-chip index of the
Oslo stock exchange - OBX) were women in January 2012.

Graph 1: Proportion
of women on boards of Norwegian PLCs between 2002 and 2011

Source: Institutt for samfunnsforskning (ISF)

By contrast, the number of women on boards
of private limited companies – not covered by the quota legislation – has
largely remained stable, rising only from 15% in 2004 to 17% in 2009 (ISF
figures).

However, the quota legislation has not yet
led to major changes regarding the hierarchy within the boards. The proportion
of women chairing boards of PLCs has only slightly risen from 3% in 2002-2007
to 5% in 2009 (ISF figures). Within the 19 largest Norwegian companies, women
represented 2 out of 19 chairpersons in January 2012 – i.e. 10.5% against an EU
average of 3.2% (Commission database).

Moreover, the gender quotas for the
(non-executive) boards have not had an immediate influence on reducing the male
dominance of the executive management of companies. According to a survey at
the end of 2008, in the more than 200 companies listed on the Oslo stock
exchange, less than 2% of the CEOs and about 13.5% of the top management were
women[102]. No more recent figures seem
to be available, so that it is not possible to observe whether a trickle-down
effect on the gender composition of the executive management has occurred
since.

Characteristics of male and female board
members

In autumn 2009, ISF conducted a
representative survey of 900 board members of Norwegian PLCs, to enquire about
the characteristics of male and female board members[103]. It found that female board
members were on average younger than their male colleagues (72% of women under
51 years, compared with only 35% of men) and had a slightly better educational
attainment (77% of women had at least 4 years of university or college
education, compared with 69% of men). The type of education was quite similar,
as about 50% of members of both genders had studied business management, 30% of
men and 24% of women had studied scientific and technological subjects and 8%
of men as well as 12% of women were law graduates.

When asked about their main occupation, 55%
of women replied that they were also managers (compared to 43% of men), only
21% said they were owners (compared to 39% of men) and only 11% of women (15%
of men) stated 'board member' as their main occupation. This is confirmed by
the fact that more women (77%) than men (45%) report not having major ownership
interests in the company.

Interestingly, companies did not seem to
need external help to recruit women to board positions. There were no indications
that head hunters or data bases were more commonly used than before the
introduction of the quota legislation. The election committees obviously
managed to recruit the necessary number of female board members by their own
effort.

Similarly there are no indications that
companies complied with the quota rule by recruiting family and friends as
women board members. Only few women reported having family affiliation to major
shareholders or being recruited through a social network of friends or family.

Multiple board memberships

The ISF survey also refuted predictions
that the quota legislation would create a phenomenon of 'golden skirts', i.e. a
few women holding a large number of seats in Norwegian company boards. In fact,
according to the survey, 79% of female board members only hold one board
position in public limited and private limited companies in Norway, compared to
62% of male board members, while 38% of men and only 21 of women sit on two
boards or more. 2% of men are members of at least 10 boards, while none of the
women responding are. Thus multiple board membership is still much more common
among men than among women in Norway.

Consequences on companies

The ISF survey of Norwegian board members
also examined whether the increased presence of women directors had led to
changes in the functioning of the boards. While a majority of board members
believed that nothing had changed (60% of men, 33% of women), a smaller share
of board members (12% of men, 20% of women) had noticed improvements. When
asked about the improvements, those board members noted new perspectives being
brought to their work (57% of men, 66% of women), more discussions during
meetings (33% of men, 59% of women) and the addition of new competences to the
board that were lacking before (39% of men, 30% of women).

A recent survey of 201 Norwegian firms[104] confirmed these findings. It
found the increased ratio of women directors was positively associated with the
board's strategic control. The positive effects of women directors on board
effectiveness could be explained through increased board development activities
and through decreased levels of conflict.

Decrease in the number of public limited
companies

When the quota legislation came into force,
it was widely reported that many companies registered under a different legal
form (notably as a private limited company) to escape the quota rules. Indeed
the number of public limited companies (PLC) dropped from around 600 in 2002 to
505 in 2006 and to 414 in 2008 (ISF figures). However, this strong decrease was
only partly due to the quota law, but also due to other legal changes, notably
as regards legislation covering trade in securities in 2007.

ISF conducted a survey of CEOs and board
leaders of 108 of the 126 companies which had changed their registration during
2007 and the first six months of 2008[105]. When asked about the reasons
for re-registering, companies replied the following: it is more convenient /
practical to be a private limited company (60%); change in laws on financial
companies and requirements to their formal status (36%); restructuring
(mergers, acquisitions) (36%); quota legislation (33%); company was taken off
the stock exchange or not listed anyway due to a change of plans (32%). Only 7%
of the companies reported the quota legislation as being the only reason for
the change of legal form.

[1]               http://ec.europa.eu/justice/newsroom/gender-equality/opinion/120528\_en.htm.

[2]               IP/12/213.

[3]               Due to limited space, not all
individual opinions can be reflected here. This summary necessarily focuses on
the views that could be found in a certain number of replies and tries to
portrait general trends and interesting convergences in views among
stakeholders.

[4]               Weil, Gotshal and Manges, 2002

[5]               Conchon, 2011

[6]               RiskMetrics
Group et al., 2009

[7]               Higgs, 2003

[8]               RiskMetrics Group et al., 2009

[9]               Heidrick and Struggles, 2011

[10]             Heidrick and Struggles, 2011

[11]             Tse, 2009.

[12]             Jungmann, 2008.

[13]             Banginsky & Cohen, 2011.

[14]             Freshfields Bruckhaus Deringer, 2011.

[15]             Jungmann, 2008.

[16]             Governance Commission on the German
Corporate Governance Code, 2010.

[17]             Heidrick and Struggles, 2011.

[18]             Since 2009, the Belgian corporate
governance code advices a clear separation of the role of the chairman of the
board of directors and the CEO.

[19]             Statutory provisions only allow for a
unitary system but in practice the board usually appoints a management
committee that effectively creates a two-tier system.

[20]             Joint stock companies are obliged to have
a two-tier system but limited liability companies can use a one-tier system.

[21]             General shareholder meeting.

[22]             RiskMetrics Group et al., 2009.

[23]             Percentages based on a sample of 216
European companies. .

[24]             RiskMetrics Group et al., 2009.

[25]             Company Law Club, 2011?

[26]             Macarie and Moldovan (2012: 7) have
suggested that women are excluded from formal and informal networks which could
provide the necessary social capital for advancement into senior management
position. This would suggest that selection procedures carried out exclusively
by nomination committee, with no support from external head-hunters, could be
particularly detrimental for women.

[27]             Businesslink, 2012.

[28]             Smith et al. (2006).

[29]             It is difficult to see what such
implications should be since the target as such leaves it entirely to MS and
companies what specific measures are to be undertaken to reach that target at
company level.

[30]             In many countries legislative quotas have
been introduced in 2011 and the deadline for compliance has not passed yet.
Thus, at the time of conducting this impact assessment, there is no information
available yet on the compliance rate of companies with the regulation.

[31]             All the averages in the table are
weighted, i.e. they depend on the number of executive and non-executive
directors in the company. As in general there are more non-executive directors
in a company, the average-figure is more influenced by the figures for
non-executive directors. Figures were estimated by Matrix based on data from EC
Database for Women and Men in Decision-Making and Standard & Poor’s.
Differences with other figures presented in the report are due to recalculation
of raw data in order to provide sufficient breakdown of the figures for the
purpose of the analysis.

[32]             For the purpose of this table
State-owned Companies are companies where the state owns a controlling interest
(>50%); Public Limited Companies are companies listed on the stock exchange;
Private Limited Companies are companies not listed on the stock exchange and
not owned by the state.

[33]             In DK, since 2012 there are is
a law underway which will set targets for 1100 biggest firms. See further
details below in the part on Denmark

[34]             Since March 2012, a ministerial
decision recommended to have more women on boards.

[35]             Law modifying the law of 21
March 1991 on the reform of certain public economic enterprises, the Company
Code and the law of 19 April 2002 concerning the rationalisation of functioning
and management of the National Lottery aiming to guarantee the presence of
women in the boards of autonomous public enterprises, listed companies and
National Lottery, published in Moniteur Belge/Belgisch Staatsblad of 14
September 2011, p. 59600, original texts: Loi modifiant la loi du 21 mars 1991
portant réforme de certaines enterprises publiques économiques, le Code des
sociétés et la loi du 19 avril 2002 relative à la rationalisation du
fonctionnement et la gestion de la Loterie Nationale afin de garantir la
présence des femmes dans le conseil d'administration des entreprises publiques
autonomes, des sociétés cotées et la Loterie Nationale/ Wet tot wijziging van
de wet van 21 maart 1991 betreffendede hervorming van sommige economische
overheidsbedriven, het Wetboek van vennootschappen en de wet van 19 april 2002
tot rationalisering van de werking en het beheer van de Nationale Loterij
teneinde te garanderen dat vouwen zitting hebben in de raad van bestuur van de
autonome overheidsbedrijven, de genoteerde vennootschappen en de Nationale
Loterij; Gesetz zur Änderung des Gesetzes vom 21. März 1991 zur Reform bestimmter Aktiengesellschaften,
des Unternehmensgesetzes und des Gesetzes vom 19. April 2002 zur
Rationalisierung der Funktion und des Managements der Nationallotterie mit dem
Ziel, die Vertretung von Frauen in den höchsten Entscheidungsgremien
eigenständiger Aktiengesellschaften, börsennotierter Unternehmen und der Nationalen
Lotterie zu gewährleiste.

[36]             Loi
n° 2011-103 du 27 janvier 2011 relative à la représentation équilibrée des
femmes et des hommes au sein des conseils d'administration et de surveillance
et à l'égalité professionnelle publiée au Journal Officiel du 28 janvier 2011.

[37]             Act No. 120 of 12 July 2011, published in
Official Journal No. 174 of 28 July 2011 (Legge 12 luglio 2011, n.
120 Modifiche al testo unico delle disposizioni in materia di intermediazione
finanziaria, di cui al decreto legislativo 24 febbraio 1998, n. 58, concernenti
la parita' di accesso agli organi di amministrazione e di controllo delle
societa' quotate in mercati regolamentati, GU n. 174 del 28-7-2011 ).

[38]             Law of 6 June 2011, published in the Staatsblad
2011, 275. (Wet van 6 juni 2011 tot wijziging van boek 2
van het Burgerlijk Wetboek in verband met de aanpassing van regels over bestuur
en toezicht in naamloze en besloten vennootschappen).

[39]             See Art. 2:166 and Art. 2:276 Civil Code
respectively. Only public limited companies (Naamloze Vennootschappen, NV)
can be listed on the stock exchange.

[40]             See Articles 2:166 paragraph 2 and 2:276,
paragraph 2 of the Civil Code read in conjunction with Art. 2:379 of the Civil
Code. There are no specific additional requirements for public limited
companies that are listed on the stock exchange.

[41]             See Art. 2:391 paragraph 7 Civil Code.

[42]             Law 3/2007 of 22 March 2007
on effective equality between men and women; Ley Orgánica 3/2007 de 22 de
marzo, para la igualdad efectiva de mujeres y hombres.

[43]             Companies which are obliged to present the full
accounts of losses and profits, i.e. which is determined by assets, turnover
and number of employees.

[44]             Organic Law 3/2007 of effective
equality between women and men contains also some other provisions related to
women on company boards or in management jobs. Art. 37.2 states that the public
enterprise of radio and television (Radio Televisión Española, RTVE) will
promote women’s incorporation into management jobs. The equivalent requirement
is set out in Art. 38.2 for the Spanish press agency EFE. Art. 54 states that
the General State Administration and the public bodies connected with it will
observe the principle of balance composition in the appointments for company
boards on those companies in whose capital the Administration participates.

[45]             The Royal Decree 1615/2009 of
26 October regulating the grant and usage of the corporate “Equality label”,
article 10.

[46]             Articles 33 and 34 of the
Organic Law 3/2007. See also Article
102 Law 30/2007, of 30
October, regulating the Public Sector Contracts, in.

[47]             Including both Executives and
Non-executives.

[48]             Such rules are set out in several
statutes: Gesetz über die Mitbestimmung der Arbeitnehmer bei einer
grenzüberschreitenden Verschmelzung [Law on the Participation of Employees
in the event of a Cross-border Merger].of 21 December 2006, Official Journal (Bundesgesetzblatt
BGBl), part I p. 3332; Gesetz über die Beteiligung der Arbeitnehmer
in einer Europäischen Gesellschaft [Law on the Participation of Employees
in a European Company] of 22 December 2004, Official Journal (Bundesgesetzblatt
BGBl), part I p. 3675; Gesetz über die Drittelbeteiligung der
Arbeitnehmer im Aufsichtsrat [Law on One-Third Participation of Employees
on Supervisory Boards] of 18 May 2004, Official Journal (Bundesgesetzblatt
BGBl), part I p. 974.

[49]             German Federal Ministry for Family, Senior Citizens, Women and
Youth, http://www.bmfsfj.de/BMFSFJ/gleichstellung,did=172756.html.

[50]             Consolidation Act no. 1095 of 19 September
2007.

[51]             Leena Linnainmaa, Promoting board
diversity in Finland, 2011, in: Aktionärinnen fordern Gleichberechtigung 2011,
djb.

[52]             Law 2839/2000 of 12 September 2000.

[53]             Federal Chancellery/Federal Minister of
Women’s Affairs and Public Service, 14.03.2011, No. GZ
BKA-140.200/0048-II/1/2011, 93/23.

[54]             Uredba o o kriterijih za upoštevanje načela uravnotežene
zastopanosti spolov (Uradni list RS, No 103/04).

[55]             These figures may be slightly different
from those estimated by Matrix due to difference in calculation method and
data-base for calculation.

[56]             Communication from the Commission Strategy
on the effective implementation of the Charter, COM(2010) 573 final, available
at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0573:FIN:EN:PDF.

[57]             Article 52 of the Charter: "Any
limitation on the exercise of the rights and freedoms recognised by this
Charter must be provided for by law and respect the essence of those rights and
freedoms. Subject to the principle of proportionality, limitations may be made
only if they are necessary and genuinely meet objectives of general interest
recognised by the Union or the need to protect the rights and freedoms of
others".

[58]             Article 21(1) draws on Article 19 of the TFEU and Article 14 of the
ECHR. There is no contradiction
or incompatibility between Article 21(1) of the Charter and Article 19 of the
TFEU which has a different scope and purpose: Article 19 confers power on the
Union to adopt legislative acts, including harmonisation of the Member States'
laws and regulations, to combat certain forms of discrimination, listed
exhaustively in that Article. Such legislation may cover action of Member State
authorities (as well as relations between private individuals) in any area
within the limits of the Union's powers. In contrast, the provision in Article
21(1) does not create any power to enact anti-discrimination laws in these
areas of Member State or private action, nor does it lay down a sweeping ban of
discrimination in such wide-ranging areas. Instead, it only addresses
discriminations by the institutions and bodies of the Union themselves, when
exercising powers conferred under the Treaties, and by Member States only when
they are implementing Union law. Article 21(1) therefore does not alter the
extent of powers granted under Article 19 nor the interpretation given to that
Article.

[59]             Including the Universal Declaration of Human Rights whose Article 1
provides that "all human beings are born free and equal in dignity and
rights".

[60]             See, for instance, Article 2 (1) (a) of
Directive 2006/54/EC (equal treatment of men and women in matters of employment
and occupation – recast).

[61]             Case C-409/95 Marschall [1997] ECR
I-6363, paragraph 35. See also case C-450/93 Kalanke [1995] ECR I-3051,
paragraphs 22 to 24, case C-158/97 Badeck [2000] ECRI 2000 p. I-1875, as
well as case C-407/98 Abrahamsson [2000] ECR I-5539.

[62]             Case C-476/99 Lommers, paragraph
39.

[63]             See judgments of 14 May 1974, Case 4/73 Nold
[1974] ECR 491, paragraph 14, and of 27 September 1979, Case 230-78 SpA
Eridiana and others [1979] ECR 2749, paragraphs 20 and 31.

[64]             See, inter alia, judgment of 16
January 1979, Case 151/78 Sukkerfabrikken Nykøbing [1979] ECR 1,
paragraph 19, and judgment of 5 October 1999, Case C-240/97 Spain v
Commission [1999] ECR I-6571, paragraph 99.

[65]             This differentiation between companies
could in itself raise a question of unequal treatment on grounds of legal
status or size and therefore possibly discrimination within the meaning of
Article 21 of the Charter (as its list of possible discrimination grounds is not
limited). However, company law in general applies different rules to different
types of companies, and in particular to listed companies, which generally face
more legal requirements in view of their level of responsibility towards
shareholders and the economy in general. Moreover, the protection of SMEs from
administrative and other burdens in order not to hinder their development is
enshrined in EU law. There is therefore a broad margin in discretion in
defining the precise scope of the instrument in view of both its effectiveness
and proportionality.

[66]             See judgment of 24 November 2011, Case
C-70/10, Scarlet v SABAM .

[67]             See judgment of 16 February 2012, Case
C-360/10, SABAM v Netlog.

[68]             See, inter alia,
judgments of 14 May 1974, C-4/73, Nold, and of 13 December 1979,
C-44/79, Hauer.

[69]             Judgment of 15 December 1995, C-415/93, Bosman.

[70]             See footnote 11. The Court also stressed
that it would be legitimate to set up certain  limits  to  these rights,  justified by goals of
general interest pursued by the Union,  provided  that  the  substance  of these rights was not
affected. The Court distinguished between measures of deprivation of property
and measures of restriction on the use of property. Although the Union could
not be prevented from a possibility to control or restrict the use of property
in a context of common market regulation, the Court examined whether the
restrictions corresponded to the general interest and were not a
disproportionate interference in the rights of the owner.

[71]             Eur. Comm. H.R., Bramelid
and Malmström v. Sweden, (dec.) 1982, DR 29.

[72]             See judgment of 15 May 1986, case 222/84 Johnston [1986] ECR 1651;
see also judgment of 15 October 1987, case 222/86 Heylens [1987] ECR
4097 and judgment of 3 December 1992, case C-97/91 Borelli [1992] ECR
I-6313.

[73]             See judgment of 15 May 1986, case
C-222/84, Marguerite Johnston v Chief Constable of the Royal Ulster
Constabulary; and judgment of 27 November 2001, case C-424/99, Commission
v Austria.

[74]             Changes in Member States' situation have
only been taken into account until December 2011

[75]             These include Cyprus, Czech Republic,
Estonia, Hungary, Latvia, Lithuania, Romania, Slovakia and Slovenia

[76]             From 18 female executive directors to 20
female executive directors between 2010 and 2012 among FTSE 100 companies
(Cranfield University 2012)

[77]             From 117 female non-executive directors to
143 female non-executive directors between 2010 and 2012 among FTSE 100
companies (Cranfield University 2012)

[78]             The effect extrapolated from the UK has
been applied as a one-off in the other Member States. Applying it as an annual
growth rate over a period of 8 years would in fact result in an overestimation
of the effects (e.g. 80% women among non-executive directors by 2020). We have
furthermore decided not to assume full compliance with the EC target (40%)
under Policy Option 2 and 3 for two main reasons: (a) the target set in the UK
Lord Davies report (25%) is different from the EC target (40%) and (b) the UK
corporate governance framework is different from other countries’ and level of
compliance might be higher than in other countries.

[79]             According to Egon Zehnder International
(2010), there has been a declining trend in the average board size over the
last decade. For this reason it is assumed that the companies will leave the
board size unchanged as opposed to increasing it.

[80]             Female board members with audit
specialisation

[81]             No answers were provided by other
countries.

[82]             As discussed in
the previous paragraphs, executive and non-executive board members play
different roles and ultimately have various degrees of influence on the
different indicators of non-financial performance. In some cases, dimensions of
non-financial performance are related to either executive or non-executive
directors only.

[83]             Catalyst, The Bottom Line,Connecting Corporate Performance and Gender
Diversity, 2004.

[84]             http://ec.europa.eu/budget/contracts\_grants/info\_contracts/inforeuro/inforeuro\_en.cfm

[85]             Binding quotas on gender quotas in the
board of listed companies have been introduced in Belgium, France, Italy, Spain
and the Netherlands. In these countries, the quota will come into effect before
2020. For this reason, these countries have been excluded from the costing of
the policy options. Austria has also introduced binding quotas, but only
covering the board of state-owned companies. In order to reflect this, Austria
will be included in the costing.

[86]             Member States' situation is only taken
into account until December 2011.

[87]             The authors tested for endogeneity to
establish whether female boards hire female top managers or vice versa finding
that changes in board composition precede changes in management.

[88]             From this perspective then, the analysis
does not value the returns on formal education itself (as there is no further
educational investment, expect for training and mentoring programmes) but the
increase in private benefits generated by the policy options. The contribution
of the policy options to increasing the incentives to invest in education on
younger women are covered separately as one of the impacts resulting from the
narrowing of the GPG. This analysis accounts for the benefits of education
through higher participation in the labour market.

[89]             For individuals: (a) net benefits are calculated based on gross
earnings, income tax, social contributions, transfers, unemployment benefits,
and grants; and (b) costs are calculated based on direct costs and forgone
earnings whilst in education. For public sector: (a) net benefits are
calculated based on forgone taxes on earnings, income tax, social
contributions, transfers, unemployment benefits, and grants; and (b) costs are
calculated based on direct costs.

[90]             It is likely that the difference with the
rates reported in OECD report is not due to the different sample of countries,
but to the fact that our estimations are based on a number of assumptions not
transparent in the OECD calculation.

[91]             Binding quotas on gender quotas in the
board of listed companies have been introduced in Belgium, France, Italy, Spain
and the Netherlands. In these countries, the quota will come into effect before
2020. For this reason, these countries have been excluded from the costing of
the policy options. Austria has also introduced binding quotas, but only
covering the board of state-owned companies. In order to reflect this, Austria
will be included in the costing.

[92]             Cost estimates have been derived from UK
data on wages, these have then been extrapolated to EU 27. In order to
extrapolate economic costs, ratios of GDP per capita in UK, for which   data
was available, were calculated and applied to the other Member States. For
instance, in order to calculate costs starting from UK estimates, we have (1)
converted the amount into EUR based on current exchange rates) and (2)
calculated the ratio of each Member State GDP per capita, over the UK GDP per
capita.

[93]             The key provision of the Public Limited
Liability Companies Act of 13 June 1997 No. 45 states: ‘§ 6-11a. Requirement of
representation of both men and women on the company board (1) On the board of
Public Limited Liability Companies both genders shall be represented in the
following manner: 1. On boards consisting of two or three members, both men and
women shall be represented. 2. On boards consisting of four or five members,
both genders shall be represented with at least two members each. 3. On boards
consisting of six to eight members, both genders shall be represented with at
least three members each. 4. On boards consisting of nine members, both genders
shall be represented by at least four members each, and if the board consists
of more than nine members each gender shall be represented by at least 40 %
each. 5. The rules as stated in no. 1 – no. 4 equally apply to the election of
deputy members.' Paragraph 2 of the same articles sets specific rules
concerning the workers' representatives on the boards.

[94]             See 'the resolution of enactment' no. 1429 of 9 December
2005.

[95]             Aagoth Storvik/Mari Teigen, Women on Board
– The Norwegian Experience, June 2010, FES, available at: http://library.fes.de/pdf-files/id/ipa/07309.pdf

[96]             Public Limited Liability Companies Act of
13 June 1197, No. 45, §§ 6 – 11a (as amended in 2003)

[97]             These rules also apply to the election of
deputy or alternate members.

[98]             Norwegian Ministry of Children, Equality
and Social Inclusion, Representation of both sexes on company boards, available
at: http://www.regjeringen.no/en/dep/bld/Topics/equality/rules-on-gender-representation-on-compan.html?id=416864

[99]             Information provided by the Norwegian
Ministry of Children, Equality and Social Inclusion: http://www.regjeringen.no/en/dep/bld/Topics/equality/rules-on-gender-representation-on-compan.html?id=416864.

[100]            Mari Teigen/Aagoth Storvik/Vibeke
Heidenreich, Institutt for samfunnsforskning (ISF), 2009/2011, presented in
several publications and presentations. The figures may be slightly below 40%
despite the quota, since in practice the quota is only 33% for boards with
three members and the rules for employee representatives are not as ambitious
and allow for exceptions.

[101]            http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/index\_en.htm

[102]            Vibeke Heidenreich, Kjønn og makt i norsk
næringsliv, 2009, in K. Niskanen and A. Nyberg (eds), Kön och makt i Norden.
Del 1, Landsrapport, Tema Nord, 569: 219–249. København: Nordisk ministerråd.

[103]            Mari Teigen/Vibeke Heidenreich, ISF, 2009,
presentation available at: http://www.boardimpact.com/PDF/MariTeigenogVibekeHeidenreich.pdf

[104]            Sabina Nielsen/Morten Huse, The
Contribution of Women on Boards of Directors: Going Beyond the Surface, 2010,
in: Corporate Governance: An International Review, 18(2): 136-148.

[105]            Mari Teigen / Vibeke Heidenreich, ISF,
2009, presentation (see above).

COMMISSION STAFF WORKING DOCUMENT

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

Accompanying the document

Proposal for a Directive of the
European Parliament and of the Council

on improving the gender balance
among non-executive directors of companies listed on stock exchanges and
related measures

TABLE OF CONTENTS

1........... Procedural issues and consultation of interested parties.................................................... 3

1.1........ Identification, Organisation and
timing.............................................................................. 3

1.2........ Consultations and expertise............................................................................................. 3

2........... Problem Definition.......................................................................................................... 4

2.1........ Female under-representation on
boards and its effects..................................................... 4

2.1.1..... Introduction.................................................................................................................... 4

2.1.2..... Policy context................................................................................................................. 6

2.1.3..... Gender imbalances in company
boards: scale of the problem........................................... 7

2.1.4..... Untapped long-term economic growth
potential............................................................. 12

2.1.5..... Untapped potential for company
performance............................................................... 13

2.2........ Problem driver: the significance
of demand-side barriers................................................ 16

2.3........ Evolution of the problem in
absence of further action (baseline scenario)......................... 21

2.4........ The EU's right to act and EU's
added-value................................................................... 23

2.4.1..... Political foundations of the right
to act: Europe 2020...................................................... 23

2.4.2..... Legal basis: Article 157(3) TFEU.................................................................................. 24

2.4.3..... Subsidiarity and proportionality..................................................................................... 24

2.4.4..... Compliance with the EU Charter of
Fundamental Rights and CJEU case-law................. 29

3........... Policy Objectives.......................................................................................................... 30

4........... Policy Options.............................................................................................................. 31

4.1........ Discarded policy options............................................................................................... 32

4.1.1..... More self-regulation...................................................................................................... 32

4.1.2..... Increased transparency of the
board selection processes as a stand-alone measure......... 33

4.1.3..... Increasing female participation in
decision-making beyond the private sector.................. 34

4.2........ Framing the remaining policy
options............................................................................. 35

4.2.1..... Scope of the options: which
companies should be covered?........................................... 35

4.2.2..... Level of ambition.......................................................................................................... 37

4.2.3..... Deadline for compliance................................................................................................ 38

4.2.4..... Requirements of the CJEU case law.............................................................................. 39

4.3........ Retained policy options................................................................................................. 39

5........... Impact Analysis............................................................................................................ 40

5.1........ Methodology to assess the impacts............................................................................... 40

5.1.1..... Effectiveness................................................................................................................. 40

5.1.2..... Economic impacts......................................................................................................... 40

5.1.3..... Social impacts.............................................................................................................. 45

5.2........ Option 1: No new action at EU
level (baseline scenario)................................................ 45

5.3........ Option 2: Recommendation........................................................................................... 46

5.3.1..... Effectiveness................................................................................................................. 46

5.3.2..... Economic impacts......................................................................................................... 47

5.3.3..... Social impacts.............................................................................................................. 48

5.4........ Option 3: Directive with a 40%
target for non-executive board members........................ 48

5.4.1..... Effectiveness................................................................................................................. 50

5.4.2..... Economic impacts......................................................................................................... 50

5.4.3..... Social impacts.............................................................................................................. 52

5.5........ Option 4: Directive with a 40%
target for non-executive board members and a flexible target for executive
board members...................................................................................................................... 52

5.5.1..... Effectiveness................................................................................................................. 53

5.5.2..... Economic impacts......................................................................................................... 53

5.5.3..... Social impacts.............................................................................................................. 55

5.6........ Option 5: Directive with a 40%
target for both non-executive and executive directors..... 55

5.6.1..... Effectiveness................................................................................................................. 56

5.6.2..... Economic
impacts......................................................................................................... 56

5.6.3..... Social impacts.............................................................................................................. 57

6........... Comparison of policy options........................................................................................ 58

7........... Monitoring and evaluation
arrangements........................................................................ 62

8........... List of Annexes............................................................................................................. 64

9........... List of Figures and Tables............................................................................................. 65

1.           Procedural
issues and consultation of interested parties

1.1.        Identification,
Organisation and timing

The Commission
Work Programme 2012 (CWP) foresees a legislative measure in order to improve
the gender balance in the boards of companies listed on stock exchanges. DG
JUST is the lead DG who prepared this Impact Assessment (IA).

An Impact Assessment Steering Group (IASG) was set up in February 2012
and met twice. Of the Commission Directorates-Generals (DGs) that were invited,
the following DGs participated in the IASG: the Legal Service, the
Secretariat-General, DGs Internal Market, Employment, Enterprise, and Eurostat.
The last IASG meeting took place on 7 June 2012.

The Impact
Assessment Board (IAB) meeting took place on 18 July 2012. Following the IAB's
recommendations, the following main changes were made to the IA: the problem
definition has been reinforced, in the baseline scenario more details about
Member State's individual situation and the situation in different sectors have
been added, subsidiarity and proportionality issues have been assessed more
extensively, the explanation of the choice of the policy options and the scope
of potential measures has been expanded, the description of the methodology for
the calculation of possible benefits has been substantiated, the feasibility of
the different options has been analysed in greater detail, the impact analysis
and the part on monitoring have been adapted. Following the IAB's second
opinion issued on 28 August 2012, the assessment has further been refined,
particularly in relation to the need for action at EU level, the choice and the
content of the policy options with regard to some common parameters and the
detailed reflection of the views of stakeholders as expressed in the public
consultations.

A wide range of
internal[1]
and external studies were used to prepare this IA. A full list is in Annex 1.
In August 2011, Matrix Insight Ltd was commissioned to carry out a study on
possible EU measures on gender quotas in boardrooms, which was finalised in
June 2012 (hereinafter: Matrix study). The methodology used in this IA to
calculate the impacts and all the quantified data are based on this study.

1.2.        Consultations
and expertise

A 2011
Eurobarometer survey[2]
revealed that the overwhelming majority of Europeans think that women should be
equally represented in company leadership positions (88%) and that the European
business community is dominated by men who do not have sufficient confidence in
women's abilities (78%). The survey found that when given the possibility to
choose between three options to achieve gender balance on company boards,
opinion is divided between self-regulation by companies (31%), binding legal
measures (26%), and non-binding measures such as Corporate Governance Codes and
Charters (20%). Nevertheless, 75% of Europeans are in favour of legislation on
the condition that it takes into account qualification and does not
automatically favour members of one sex.

In March 2012,
the Commission organised a public consultation to gather stakeholders' views on
whether and what kind of action should be taken to tackle the current gender
imbalance on corporate boards. The consultation ran until 28 May 2012. The
feedback received showed the considerable amount of interest and the
significance of the issue for a large variety of stakeholders.

Of the total
number of 485 replies, 161 were sent by individual citizens and 324 were sent
by organisations. These included 13 Member States, 3 regional governments, 6
cities or municipalities, 79 companies (both large listed companies and SMEs),
56 business associations at EU and national level, 53 NGOs (most of them
women's organisations), trade unions, professional associations, political
parties, associations of investors and shareholders, actors involved in
corporate governance and others.

There was a
large consensus on the urgency to increase the share of women on company
boards. The vast majority of respondents agreed that a gender-diverse workforce
and board structure is a driver of innovation, creativity, good governance and
market expansion for companies and that it would be short-sighted to leave untapped
the economic potential of qualified women who constitute half of the talent
pool. Views varied among stakeholders on the appropriate means to bring about
change. While some, predominantly the business stakeholders, favoured continued
self-regulation, corporate governance codes, recommendations or corporate
initiatives, other stakeholders, including trade unions, other NGOs and a
number of regional and municipal authorities, considered that non-binding
measures and self-regulation had shown their limits and advocated a more
ambitious approach in the form of binding objectives for the gender composition
of corporate boards. Some stakeholders also expressed concerns about the often
obscure and impenetrable recruitment processes within company boards. Further details on the replies to the public consultation are
provided in Annex 2.

2.           Problem
Definition

2.1.        Female
under-representation on boards and its effects

2.1.1.     Introduction

Company boards
in the EU are marked by persistent and manifest gender imbalances, as evidenced
by the fact that only 13.7% of corporate seats in the largest listed companies are
currently held by women. This means that men outnumber women by approximately 7
to 1. Compared to other areas of society, notably the public sector, the female
under-representation in boards of publicly listed companies is particularly
significant as follows from the table below. Therefore, this Impact Assessment
focusses on the female under-representation in boards of listed companies.

Figure 1: Gender-Balance
Across Key Institutions in Different Areas[3]

Source: Database: Women and Men
in Decision Making based on data from 2011 and 2012

Given that women
do not only possess the educational[4] and professional[5] credentials to participate in
the highest economic decision-making bodies, but are also willing[6] and available in sufficient
number[7]
to do so, their under-representation suggests that the market fails to make
full use of its highly skilled workforce.

As an efficient
use of human capital constitutes the most important determinant of an economy’s
competitiveness, it is clear that underutilising the skills of highly qualified
women is a loss of economic potential for individual companies as well as the
economy as a whole. This view was also endorsed by the public consultation,
which demonstrated consensus across stakeholder groups that the under-representation
of women on company boards is a problem and that empowering women to take
leadership positions is important for company performance. Fully exploiting
human capital is also key for addressing the EU's demographic challenges,[8] for competing successfully in a
globalised economy and for ensuring a comparative advantage vis-à-vis third
countries.[9]
In short, it is a necessary means to reignite economic growth as laid out in
the Europe 2020 Strategy.

Furthermore, the
systematic under-representation of women in economic decision-making positions
is both a cause and an effect of persistent gender inequalities and is not in
line with the EU's fundamental values enshrined in Article 3 TEU and Article 8
TFEU.

2.1.2.     Policy
context

Promoting
equality between women and men is one of the EU's main objectives, as reflected
in its Treaties (Article 3(3) TEU, Article 8 TFEU, Article 157 TFEU) as well as
in the Charter of Fundamental Rights (Article 23).

The EU
institutions have undertaken various efforts over several decades to promote
gender equality in economic decision-making, notably to enhance female presence
in company boards, by Recommendations and by encouraging self-regulation.

The Council of
the European Union has adopted two Recommendations (in 1984 and 1996)
encouraging the private sector to increase the presence of
women at all levels of decision-making, notably by positive action programs,
and called upon the Commission to
take steps to achieve a balanced gender participation in this regard.[10]

The Commission reaffirmed its support for an increased participation
of women in positions of responsibility, both in its Women's Charter[11] and made in one of its priorities
in the Strategy for Equality between Women and Men 2010-2015.[12] The Commission published
several reports in order to take stock of the situation.[13] In March 2011, Commission
Vice-President Reding launched the “Women on the Board Pledge for Europe”. The pledge
called on companies to voluntarily increase women’s
presence on corporate boards to 30% by 2015 and to 40% in 2020. However, only 24 companies have signed the pledge.

The European
Parliament called upon the Member States to
increase female representation of women in decision-making bodies and called
upon the Commission to propose legislative quotas to increase female
representation in corporate boards to 30% by 2015 and 40% by 2020.[14]

In the recent
past, the issue of enhancing female participation in economic decision-making
has become increasingly prominent in the national, European and international[15] arena. A particular focus has
been placed on the economic dimension of gender diversity and the contribution
that more balanced boards could make to a more productive and innovative
working environment, to improved company performance and thus ultimately to
growth and to the attainment of the objectives of the Europe 2020 Strategy.

However, it
should be noted from the outset that gender imbalances in corporate leadership
positions are only the 'tip of the iceberg' of a more widespread situation on
gender inequalities in our society stemming from traditional gender roles and
division of labour, women's and men's educational choices, women's concentration
in few occupational sectors, unbalanced care responsibilities etc. Furthermore,
despite progress being made, gender inequalities also persist at political
decision-making level. The EU has recognised this and has taken various
measures to redress those inequalities. The current Impact Assessment should be
seen in this wider policy context.

2.1.3.     Gender
imbalances in company boards: scale of the problem

In the EU,
listed companies have different board structures depending on the country in
which they are located. They either belong to the single board system (also
called monistic or unitary board system), to the two-tier (or dual board)
system or to some form of mixed system. In this impact assessment, reference to
the functional distinction between the two categories of executive directors
and non-executive directors should be understood as including respectively
members of the management board and members of the supervisory board. Annex 5
gives an overview of different board structures and appointment practices in
the EU. An average board of a publicly listed company
in the EU has 7.8 members, or 8.3, excluding SMEs.

The figure below presents the distribution of females and
males across levels. The probability for a man to be a manager is twice as high
as the probability for a woman to be at that level (60% versus 27%).
Significantly, the probability for a man to be sitting on a corporate board
eight times the probability for a woman to be in that position (0.8% versus
0.1%).

Figure 2: Career Progression for Women and Men in Listed Companies (2011)

Source: Matrix own calculations based on
data from EC Database for Women and Men in Decision-Making, S&P’s and
Eurostat.

As the charts
below show, both the share of women on company boards and the changes in this
share in the recent past differ greatly between Member States. In some Member
States, such as Finland, Latvia and Sweden, women occupy a quarter of the seats
on boards of large companies, whereas in others, such as Ireland, Greece, Estonia, Italy, Portugal, Luxembourg, Hungary, Cyprus and Malta, less than one in ten board members are women. In some cases, this figure even falls
to less than one in twenty. In nearly a third of Member States (Malta, Estonia, Luxembourg, Cyprus, Hungary, Lithuania, Bulgaria and Slovakia) more than half of the
largest companies have no women on their boards at all.

Figure 3:
Share of Women among Members on Boards for Listed Companies in EU Member States
and some other countries (Iceland, Norway, Australia, Canada and the US) , January 2012 [16]

Source: European Commission. Database: women &
men in decision making, [Online] Available from: http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/business-finance/quoted-companies/index\_en.htm and Catalyst, Women on Boards, Quick takes, [Online] Available from: http://www.catalyst.org/publication/433/women-on-boards

Unsurprisingly, female board participation tends to be particularly
low in traditionally male-dominated sectors. As demonstrated by the figure
below the sectors with the highest percentage of women
directors are retail and media whereas the lowest representation can be found
in the automobile sector.

Figure 4: Female Board Participation by
Sector

Source: Governance Metrics International (2011),
2011 Women on Boards Report, March 8, 2011

In recent years,
an increasing number of Member States (11 up to the end of 2011) have adopted
laws establishing quotas or targets for gender representation on company
boards.[17]
France, Italy and Belgium have adopted legislation setting quotas for company
boards, including sanctions for non-compliance. Spain and the Netherlands have adopted quota laws without sanctions,[18]
while Denmark, Finland, Greece, Austria and Slovenia have enacted rules
covering only the boards of state-controlled companies; Germany’s existing legislation affects the gender balance on boards via rules governing
workers' representation on boards. The deadlines for compliance, the scope and
the concrete obligations however differ widely. In France, for instance, all
listed companies and companies with more than 500 employees are covered. In the
Netherlands and Spain the law applies to listed and non-listed companies with
more than 250 employees. In Italy and Belgium, the scope comprises listed and
state-owned companies. In Spain and France, 40% female presence is required
(like in Iceland and Norway), whereas in the Netherlands 30% and in Belgium and Italy 33% are required. In Italy, the measure is temporary (three board renewals). In
view of these differences the effectiveness of legislative measures varies
significantly across Member States.  Unsurprisingly, progress has been much
faster in Member States where stronger sanctions, more transparent monitoring
systems and shorter compliance periods are in place.

Austria, Belgium, Denmark,[19]
Finland, France, the Netherlands, and Spain have
developed – either on top of legislative measures or as stand-alone measures –
voluntary initiatives such as corporate governance codes or charters that
companies can sign. The United Kingdom, Germany, Poland, Sweden and Luxembourg have developed voluntary initiatives.
The remaining 15 Member States have taken no action.[20]

The figure below shows the percentage point change in
female presence on company boards between 2004 and January 2012, thereby
grouping countries[21]
into categories which correspond to the different types of measures taken[22].

Figure 5: Percentage Point Change in Female Presence
in Corporate Boards between 2004 and January 2012

Source: European
Commission. Database: women & men in decision making. Available from: http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/business-finance/quoted-companies/index\_en.htm

Despite some improvements where governments have
recently introduced measures, the pace of change remains very slow. In all
Member States that have introduced legally binding gender quotas for listed
company boardrooms, female presence in company boards has significantly
increased. For the most recent period from 2010 to the beginning of 2012, the
largest increase has been registered in France (+10 percentage points). In Belgium, Italy and Spain the effects of legislative quotas have been smaller. In Spain, where the quota has been introduced in 2007, female presence in boardrooms has
increased by less than 2 percentage points in the same period. This might be
related to the fact that the Spanish measure comes closer to the character of a
recommendation since no sanctions are foreseen. In Belgium and Italy instead, the measures have been introduced only very recently (June and July 2011
respectively) which explains the limited progress to date. The share of women
in corporate boardrooms also increased in Member States that have introduced
non-binding measures to improve gender equality in business leadership
positions. However, compared to Member States that have introduced binding
quotas, the positive change has generally been more limited. In Member States,
where no action has been taken to support female presence on company boards,
the trends differ. In some countries female participation on company boards has
increased; in others it has declined. Overall, between 2003 and 2012, the share
of women in boardrooms in the EU27 has risen from 8.5%
to 13.7%, an increase of 5.2 p.p. over eight years at an average rate of 0.6
p.p. per year (see chart below). The percentage of women among non-executive
directors in January 2012 was 15%.

Figure 6: Women and men on corporate boards
in the EU, 2003-2012[23]

Source: European Commission, Database on women and men
in decision-making. Note: Data cover all 27 EU Member States except in 2003
when data for CZ, LT, MT & PL are not available. Small discrepancies
between the percentage shown in consecutive years and the change in percentage
points derive from rounding. Data are normally
collected in the final quarter of the year but the data for 2012 was collected
in January, just 3 months after the 2011 data, and should therefore not be
treated as part of the annual time series.

Progress in the
number of women on boards of the largest companies picked up slightly in 2011,
but this can be attributed to the new quota laws in France (which contributed
to almost half the increase), Belgium and Italy, as well as the threat of
legislation and the enhanced level of debate and interest in other Member
States (mainly the UK and Germany). This recent development is, however,
limited to a few Member States, and cannot be considered as sustainable in the
long run.

2.1.4.     Untapped
long-term economic growth potential

As an efficient
use of human capital constitutes the most important determinant of an economy’s
competitiveness, it is clear that underutilising the skills of highly qualified
women is a loss of economic potential.  This is underpinned by several
national and international studies. According to the OECD (2008), the increase
in women’s participation in the labour market has accounted for a quarter of
economic growth since 1995. Research commissioned by the Swedish presidency of
the EU (2009)[24]
concluded that labour market equality – meaning equal
levels of employment, equal pay, and equal shares of part-time work and
self-employment – could in an optimistic scenario boost
the GDP of Member States by an average of 27%, particularly if women reach the
same rate of labour market participation as men. In the same vein, the Global
Gender Gap Index 2011[25]
shows the relation between more gender equality in general and a higher GDP in
specific countries, thereby showing that countries with more gender equality in
general have higher GDP per capita. By failing to offer women more attractive
career prospects, EU economies are limiting their growth potential. According
to the Lord Davies report[26]
for instance, to compete globally the UK would need an additional 2 million
highly qualified workers within the next 10 years, a target that could only be
achieved by increased incentives for female labour force participation.

Increased female
participation in company boards will have positive spill-over effects on
all levels of female employment within a company and to the wider economy,
which in the current situation are missed out on.

Increasing the share of women on company boards is expected to have
“pull” and “push” effects on the numbers of women employed in listed companies
at all levels of responsibility. The “pull” effect should emerge as more
balanced boards are expected to lead to greater numbers of women being
appointed to senior management positions below board level: the presence of
greater numbers of women on boards will help to change male perceptions about
women’s ability to exercise senior positions, while the additional female board
members should be inherently less likely to have such preconceptions. An
increased share of women in senior positions should in turn lead to a greater
share of middle and junior management positions being filled by women, and so
on, through all levels of the organisation. By providing role models, the
presence of greater numbers of women on boards and in senior positions in
general should have a “push” effect on women in junior positions by helping to
break down their perceptions of the qualities required by those who occupy more
senior positions. This will help to increase the potential pool of future
senior female managers.

In this way, the “vicious circle” explained below, will be
transformed into a virtuous circle, in which greater numbers of women on boards
will lead to an increase in the number of women appointed to senior positions,
which will in turn encourage more women to seek management positions and help
to increase the supply of potential future senior managers and board members.

Matsa and Miller data (2011) analysed the effect of increases in the
number of female board members on the subsequent recruitment of senior female
managers in a company. They estimated on the basis of the existing available
data that a 10% increase in female non-executive board members increases the
average female top management share by 4% and a 10% increase in female
executive and non-executive board members increases the average number of
female top managers by 7%.

Increasing the share of women on company boards will also have a
positive impact on female salaries. When promoted to the board, women will earn
more. Increase female board members and their increased pay levels will also
impact female salaries throughout the whole company. Matsa and Miller (2011)
concluded that a 10% increase in female non-executive board members increases
the average female top management pay by 6% and a 10% increase in female
executive and non-executive board members increases the average number of
female top managers by 14%.  Matrix also found wider societal impacts linked to
the increase in female salaries due to the fact that women who would have been
inactive would decide to participate in the labour force, part-time female
employees would be incentivised to work longer hours, women would reduce the
amount of time they take out of employment to have children, and women would be
motivated to stay longer in education, thus increasing their chances on
employment.  In addition, higher rates of female labour force participation and
pay entail a higher return on education for both individuals and the public sector.[27]

2.1.5.     Untapped
potential for company performance

Gender imbalance
in the boards of publicly listed companies in the EU is also a missed
opportunity at company level both in terms of corporate governance and
financial company performance.

Corporate
governance

Numerous indicators
of the quality of corporate governance point to the benefits of more gender-diverse
company boards. Academic studies and business research have confirmed that the
presence of women contributes to improving corporate governance, team
performance and the quality of decision-making. A more diverse team is likely
to consider a wider range of perspectives and therefore to reach more balanced
and better decisions. The value added of a gender-diverse board can also be
traced back to traits of leadership behaviour which are observed more
frequently in female decision-makers and among well-performing companies and
directly affect key indicators of good corporate governance and organisational
performance.

These
observations are shared by the vast majority of stakeholders which responded to
the public consultation, including the business community and its European and
national umbrella organisations. Diversity in boards, including gender, is seen
as a 'synonym for innovation, creativity, good governance and can reflect a
company's customer base more accurately' (BUSINESSEUROPE). Most stakeholders
agree that 'it would indeed be
short-sighted to limit recruitment to 50% of the available talent pool and not
tap into the full potential of women' (UEAPME).

Financial company performance

 Furthermore, there is a
growing body of literature showing that companies with more gender-diverse
boards not only have better corporate governance but also are more profitable,
and that the differences are statistically significant, provided that the level
of representation of women reaches a sufficiently high level in order to
influence the behavioural patterns in decision-making.[28]  Many stakeholders who responded to the public consultation
see 'better business results' as an outcome of greater gender diversity on
corporate boards (e.g. European Round Table of Industrialists). Few
organisations (e.g. Confederation of Danish Industry) reject the idea that
there is a 'business case' for more women on boards.

McKinsey (2007),
Catalyst (2004) and Credit Suisse (2012) came to the result that there is a
positive correlation between the share of women on boards and financial company
performance. The McKinsey series of
“Women Matter” reports focus on women’s contribution to companies’ performance. Their “Women Matter 3” study reported that companies that scored in
the top quartile of organisational performance – which were the companies with
more women in top management – tended to have an operating margin at least
twice as high as those in the bottom quartile. In their 2010 study, “Women at the
top of corporations: Making it happen”, they report a 41% higher return on equity (ROE) for
companies with the highest share of women on their boards compared to companies
with no women on their boards.

Catalyst designed the “Bottom Line” report series to
establish whether an empirical link exists between gender diversity in
corporate leadership and financial performance. They
found that the ROE of companies with higher gender diversity on their board or
among top management is higher than the ROE of companies with lower gender
diversity. More specifically, Catalyst ranked 353 companies
from the Fortune 500 index according to women in top management (bottom
quartile: 0% to 5.1% women in top management; top quartile: 14.3% to 38.3%
women in top management) and then compared their ROE. Companies in the top
quartile had a ROE that is 34.1% (or 4.6 percentage points) higher than
companies in the bottom quartile.

In a very recent
study (August 2012), Credit Suisse[29]
compiled a database on the number of women – since 2005 – sitting on the boards
of the 2,360 companies constituting the MSCI AC World index. The outcome shows
that, over the past six years, companies with at least one female board member
outperformed those with no women on the board in terms of share price
performance. This rate of outperformance was 26% for companies with a market
capitalisation greater than USD 10 billion, and 17% for small-to-mid cap
stocks. Interestingly this performance pattern is particularly noticeable since
the onset of the global financial crises in the second half of 2008. The study
has also shown a positive correlation on a number of other indicators: The
average return on equity (ROE) with at least one woman on the board over the
past six years is 16% - 4 percentage points higher than the average ROE of
companies with no female board representation (12%). The aggregate price/book
value (P/BV) for companies with women on the board is on average a third higher
than the ratio for those with no women on the board. And net income growth for
companies with women on the board has averaged 14% over the last six years
compared to 10% for those without female board representation.

Already in 2001
Adler[30]
started scoring companies according to the number of women in executive
positions and then evaluated the profitability of 31 companies that scored the
highest. These firms outperformed the corresponding industry medians by 69% in
terms of ROE (26.5% versus 15.7%). A consistent statistically significant
correlation between ROE and companies with female directors was also found by
Lückerath-Rovers (2010), who relied on a regression analysis of 116 companies
listed on the Dutch stock exchange. Adams and Ferreira (2009) found that
diversity has a positive impact on companies' performance. Carter et. al. (2003),
examined the relationship between board diversity and firm value for Fortune
1000 firms, found that Tobin's Q (the ratio of the market value of a firm
divided by the replacement cost of its assets) is positively related to the
percentage of female directors. Research carried out by
Smith et al (2005) on 200 of the largest Danish firms confirmed that there is a
positive relation between women on boards and company performance.
Ernst&Young (2012) showed that companies with higher female presence have
better financial performance indicators. Knorbel and Evans (2012) confirmed the
positive impact of female directors on performance and corporate governance
among Fortune 500 companies.[31]
The existence of a "business case" is also supported by Lord Davies
Report[32]
assessing the situation in UK and Deutsche Bank Research.[33]

Despite increasing acceptance of the 'business case' for gender
diversity among scholars, major stakeholders and a broader public, empirical
evidence on the issue also points to other results: other studies have found
the opposite or no significant relationship between gender diversity and better
performance.[34] For instance, in 2009, Adams and Ferreira
studied a sample of firms from 1996-2003 and found a negative relationship
between gender diversity and two indicators for financial performance. A 2011 study
of 400 leading U.S. corporations between 1997 and 2005 by Dobbin and Jung[35] found that increases in board
gender diversity had no effect on subsequent profitability but were followed by
marginally significant decreases in stock value.[36]

The different results can be explained by difference of methodology,
the different time periods, countries, economic environments, types of
companies, and measures of diversity and financial performance selected. The
relationship between board characteristics and firm performance varies by
country because of the different regulatory and governance structures, economic
climate and culture, and size of capital markets.

However, as shown above, the overwhelming majority of studies find a
positive correlation between increased female presence on boards and better
performance, even if a causal link between more female presence in boards and
better performance has not been established. The studies particularly by
Catalyst and McKinsey which have been conducted over the years have again and
again found similar positive results if more women are on the boards which
leads to the conclusion that positive performance results are to be expected if
the share of women on boards will increase.

In sum, although
there is research coming to different conclusions, there is a high plausibility
of a direct correlation evidenced by a wealth of research. This result is
further strengthened by the unequivocal positive outcome of the research on
more female presence and better corporate governance, since better corporate
governance performance in relation to a number of crucial aspects for a
company's success is likely to be ultimately reflected in the financial
results. Finally, this correlation is further underscored by the replies to the
public consultation from which a broad consensus emerged about the positive
impact of improved gender balance on company performance, including replies by
Member States and in particular also by business stakeholders.[37]

As to the share
of women which is necessary to make a substantive change, it has to be noted,
that one or two women are easily marginalised when their presence in a larger
group is modest and they are viewed as a token. Only if the size of the female
group increases to the point that it is no longer a token minority this can
this cause a fundamental and sustainable change in the boardroom and enhance
corporate governance. Only then are women no longer seen as outsiders and are
able to influence the content and process of board discussion more
substantially. Studies have shown that only after a 'critical mass' of
about 30% women has been reached – or where the board size permits where at
least three board members are female -, gender diversity can produce
significant effects in terms of catalysing board activities and better
corporate governance and performance. [38]
The research on the 'critical mass' suggests that there are two elements to the
critical mass, first the percentage share of directors of the under-represented
sex and second the absolute number of persons from the under-represented sex holding
a director's post. There is a high degree of consensus among scholars that for
the benefits of gender diversity to fully materialise it is preferable to reach
the critical mass in both respects where the board size so permits.

2.2.        Problem
driver: the significance of demand-side barriers

According
to the findings of a 2012 Eurobarometer report, ‘the majority (69%) of
Europeans believe that women are just as interested as men in positions of
responsibility’ (Eurobarometer 2012, p. 11). Despite this and although women
account for 60% of new university graduates, existing research highlights
multiple barriers women face on their way to the top positions of corporations.
Those barriers can be divided into so-called "supply-side" and
"demand-side" explanations.

'Supply-side' barriers are linked to
potential female candidates. They explain for example that women may shy away
from competition for promotions (Niederle and Vesterlund 2009) or choose to
avoid the stress and work-life imbalance associated with company board
positions. Career interruption due to childbearing may also limit women's
ultimate advancement (Miller (2010), Bertrand, Goldin and Katz (2010). Reconciliation
of work and private life, insufficient childcare and segregation of the labour
market are general problems which women have to master when they want to stay
in the labour market, have children and make progress in their career.

Statistics
reveal that the supply side has undergone considerable changes since women have
been increasingly outnumbering men among those qualifying from tertiary
education. From 1998 to 2002 the proportion of women graduates compared to
their male counterparts in the majority of Member States increased over 10
percentage points.  The latest available figures show that between 2002 and
2006 the proportion of women graduates was stable, representing approximately
three women graduates for every two men. In spite of the fact that considerably
more qualified women than men have been entering the labour market and that in
the last ten years 50% more highly qualified women than men are available this
has not translated into more equal representation of women at higher levels of
responsibility. This is underscored by the fact that the rate of women with
tertiary education who work in roles below management level for which they are
over-qualified is considerably higher than that of men. This culminates in the
current situation in company boards where women hold only 13.7% of the seats
(an increase of 5.2 percentage points in a little over 8 years) and progress
over recent years has not remotely corresponded to the long-standing
availability of higher numbers of qualified women.

In
spite of the continued existence of supply-side barriers blocking the career
advancement of highly qualified women as set out above, particularly in
relation to the reconciliation of professional and private life[39] which still represents a
challenge predominantly for women (the so-called "double-burden
syndrome")[40],
it is also evident that there are enough women out there having the
professional skills for a board position and wanting to move up. The European
Business School initiative to promote women on boards has quickly identified
more than 7000 'boardable' women who are highly qualified, professionally
experienced and ready to take over a board position[41] thus indicating that there is
no general shortage of supply that could explain the current levels of female
under-representation of women on company boards. For these women who are just
one step below board positions, supply-side barriers play no significant role
any more. Women who have made their way up to the management level of companies
have overcome these problems; otherwise they would not have been able to
achieve these positions. These women do not make it to board positions because
companies do not consider them as potential candidates and not because of
lacking childcare, for instance. This is illustrated by the Norwegian example: Norway has very good reconciliation and childcare facilities which allow women to stay in the
labour market while having children and there is generally a high level of
gender equality. However, the policies successfully tackling supply-side
barriers did not translate into higher levels of female board representation.
On the contrary, a persistent striking problem of female under-representation
in board rooms finally led to the adoption of a quota law in Norway. This shows that measures tackling supply-side barriers, while remaining essential,
are not sufficient in and of themselves to solve the problem of female
under-representation at the highest levels of economic decision-making.

The
combination of factors explaining the fact that the existing female talent pool
is not exploited can be referred to as the 'demand-side' barriers
concerning the readiness of companies to appoint available qualified female
candidates to board positions, which are evidenced by ample research.[42] This research shows that women
have significantly more difficulties than men to make it to top leading
positions even where their career developed just as well before they reached
the threshold of selection for a board position. At this watershed, regardless
of their willingness to advance and their academic and professional
qualifications, women are prevented from realising their full professional
potential. The "demand-side" barriers are illustrated by a 'glass
ceiling' blocking women to advance to company board positions and manifest
themselves

for
instance through gender stereotypes barriers, a male-dominated business culture[43] and recruitment processes
barriers.[44]
Such obstacles to women's career progression to the top and their causes have
been highlighted by a considerable number of contributions to the stakeholder
consultation. Tackling this dimension of demand-side barriers appears to be
indispensable to bring about more gender balance on company boards as well as
complementary and mutually reinforcing in relation to other gender equality
policies aiming to overcome supply-side obstacles.

An important
element of these demand-side barriers lies in the current recruitment and
promotion practices which prevents the labour market for top management from
working properly. EU and national provisions in the field of company law and
corporate governance tend to leave companies a very broad margin of discretion
concerning the board recruitment process and at the most only require
the disclosure of some general information relating to boards.[45] There is currently a lack
of transparency in the process leading to the appointment of new board
members. The procedure tends to rely heavily on personal and professional
contacts of current board members, which some stakeholders in the public
consultation have argued to be one of the reasons for the persistent
under-representation of women in boards. A UK survey on non-executive board
members confirmed that a high level of informality surround the appointment
process. Almost half of the non-executive directors surveyed were recruited to
their role through personal contacts and friendships. Only 4% had had a formal
interview, and 1% had obtained their job through answering an advertisement.[46]  Companies and head-hunters are
not required currently to prepare shortlists that go beyond the 'usual suspects'.[47] Moreover, the relatively
dispersed ownership of the shares of many listed companies makes it difficult
for shareholders to effectively monitor the nomination processes that precede
the appointment of board members.

Monitoring
progress in complying with the recommendations of the Lord Davies report,[48] the UK Equality and Human
Rights Commission reached the conclusion that the board appointment process
remains "opaque and subjective, and typically driven by a corporate elite
of predominantly male chairmen who tend to favour those with similar characteristics
to themselves".[49]
The lack of transparency of appointments for board positions was also
highlighted by stakeholders responding to the consultation, with some suggesting
that companies could contribute to a better gender balance on boards by
developing clear job descriptions, profile criteria and transparent selection
procedures.

The current lack of women in boardrooms
implies a high likelihood of perpetuating the “vicious circle”. The current
board composition affects the attitude of a company towards gender equality and
negatively influences the readiness to appoint more female board members.
Women’s under-representation at board level contributes to a repeated unequal
screening at every promotion level,[50]
based on perceptions that women are either not interested or incapable of
performing these functions.[51]
For example, Eurochambres interviewed women
entrepreneurs (41%) and managers (59%) in six EU Member States and concluded
that the perception remains that women should primarily be homemakers, and that
this would undermine their capacity to adequately pursue a career, especially
at senior management level.[52]

The lack of female board members also
implies a lack of adequate mentors, sponsors and role models. Research shows
that mentoring and sponsorship confers a statistical benefit for men of up to
30% in terms of promotion and increased remuneration.[53] Thus the lack of female role
models, mentors and sponsors undermines women's’ career progression and reduces
the number of potential female board members.[54]

Figure 7: The
Vicious Circle: How the current under-representation of women on company boards
contributes to their future under-representation

The demand-side
or institutional barriers also explain the failure of the market to
make full use of its human capital and the failure to profit from better
performance: systematic female under-representation in company boards is a
cause of labour market failure and a source of inequality in the distribution
of income and wealth also in other respects. Market failure occurs for
instance, if the market is "monopolised" or a small group of
businesses hold significant market power without adequate competition. For the company
boards this means that only a narrow circle of candidates is taken into
consideration whereas boards would worker better with more gender diversity.

There are models
to explain such a market failure, namely by the 'Taste-Model' (employers and
workers have a distaste for working with people from different backgrounds or gender
i.e. people prefer to associate with others from their own group) or the
'Ignorance-Model' (people are unable to directly observe the productive ability
of individuals and therefore rely on other easily observable characteristics
such as gender).[55]
Although decision-makers in companies should be driven exclusively by the objective
of maximising company performance these models explain why in spite of the
benefits of gender diversity in that respect which is generally acknowledged in
principle, the still almost exclusively male company boards tend to reproduce
themselves in terms of gender composition. In recent years, some Member States
have taken action and the share of women on boards in these Member States is
increasing (see below under point 2.4.). This trend shows that the market
corrects its stance generally not of its own initiative but as a reaction to
policy measures.

The comparison
with other sectors of society with a significantly less manifest gender balance
in decision-making positions, notably in the public sector (administration,
judiciary, parliaments) illustrates the particular strength and persistence of
demand-side barriers in the private sector and specifically in listed
companies. Apart from other structural differences the public sector is more receptive
to the increasing demand from civil society and the media to ensure improved
gender balance in decision-making positions. Member States that have actively
participated in the adoption of recommendations or have encouraged
self-regulation at EU as well as at national level are by definition under
greater pressure to set an example. The public sector is also in a
fundamentally different position concerning the transparency of recruitment
processes since, unlike in the private sector (in particular for board
positions), all vacant posts including at the highest level generally have to
be published including a job description and the qualification requirements.

It also needs to
be taken into consideration that in spite of these factors weakening the demand-side
barriers at least in relative terms, many Member States, even many of those
currently opposed to binding targets in the private sector, have introduced a
wide range of measures, often including positive action similar to what is
contemplated under the binding options of this impact assessment, to ensure
accelerated progress in approaching gender balance. It is instructive in that
respect that all the cases referred to the CJUE to clarify the requirements for
positive action measures concerned binding measures in the public sector
applicable in particular to higher management positions.[56] The better representation of
women in the public sector is explained by the entirety of these factors
notably including a different attitude on the part of Member States to positive
action measures in this area and the effects of such measures.

2.3.        Evolution
of the problem in absence of further action (baseline scenario)

The extent and
the direction of changes in female presence in board differ across Member
States and have been influenced by national level policies. In particular, it
is possible to distinguish trends in Member States where there is no
regulation, trends in Member States with non-binding regulation or
self-regulation and trends in Member States with legislative quotas which are
set out in more detail above under point 2.1.3.

On the basis of these
past trends and taking into consideration the recent introduction of national
measures, it can be estimated how female presence on company boards will evolve
in the future. As far as the effects of self-regulation are concerned this estimate
includes the experience with previous and existing self-regulation and
corporate governance codes in place in Member States. The table below presents
the estimates of the level of female presence on company boards, distinguishing
between executive and non-executive positions. The methodology for the
calculation of the baseline is outlined in more details in Annex 6.

Table 1: Estimated Percentage of Women in Board by 2020[57]

MS || 2004 (Estimated) || 2011 (Estimated) || 2020 (Predicted)

ED || NED || Average || ED || NED || Average || ED || NED || Average

AT || 1% || 6% || 6% || 2% || 12% || 11% || 3% || 15% || 15%

BE || 3% || 8% || 7% || 4% || 13% || 11% || 9% || 29% || 25%

BG || 55% || 0% || 18% || 47% || 0% || 15% || 37% || 0% || 12%

CY || 12% || 5% || 7% || 8% || 3% || 5% || 4% || 1% || 2%

CZ || 4% || 14% || 11% || 6% || 20% || 16% || 8% || 25% || 20%

DE || 4% || 15% || 12% || 5% || 19% || 15% || 6% || 23% || 18%

DK || 8% || 12% || 11% || 12% || 17% || 16% || 20% || 30% || 28%

EE || 28% || 14% || 15% || 13% || 6% || 7% || 11% || 5% || 6%

EL || 6% || 8% || 7% || 5% || 7% || 6% || 3% || 4% || 4%

ES || 1% || 5% || 4% || 3% || 13% || 11% || 7% || 35% || 29%

FI || 9% || 17% || 16% || 15% || 28% || 26% || 22% || 40% || 38%

FR || 1% || 7% || 6% || 4% || 27% || 22% || 7% || 40% || 40%

HU || 3% || 11% || 9% || 2% || 6% || 5% || 3% || 14% || 12%

IE || 5% || 7% || 6% || 7% || 10% || 9% || 10% || 14% || 13%

IT || 0% || 2% || 2% || 1% || 7% || 6% || 3% || 26% || 23%

LT || 9% || 12% || 11% || 11% || 15% || 14% || 15% || 20% || 18%

LU || 0% || 5% || 4% || 0% || 7% || 6% || 0% || 8% || 7%

LV || 8% || 10% || 10% || 22% || 27% || 27% || 31% || 37% || 37%

MT || 5% || 1% || 2% || 6% || 1% || 2% || 7% || 2% || 3%

NL || 3% || 5% || 5% || 9% || 19% || 18% || 16% || 34% || 31%

PL || 6% || 9% || 9% || 9% || 12% || 12% || 10% || 15% || 14%

PT || 5% || 4% || 4% || 7% || 5% || 6% || 6% || 4% || 5%

RO || 33% || 11% || 17% || 20% || 7% || 10% || 24% || 8% || 12%

SE || 3% || 23% || 21% || 4% || 27% || 25% || 5% || 35% || 32%

SI || 23% || 19% || 19% || 17% || 14% || 14% || 12% || 10% || 10%

SK || 9% || 9% || 9% || 15% || 15% || 15% || 33% || 33% || 33%

UK || 6% || 17% || 13% || 7% || 21% || 16% || 8% || 22% || 17%

EU || 9% || 9% || 9% || 7% || 17% || 15% || 8% || 24% || 20%

 Average = overall presence of women in
corporate boards; the average is weighted, i.e. it depends on the number of
executive and non-executive directors; ED = Executive Directors; NED =
Non-executive Directors

Source: 2004 and 2011 figures were estimated
by Matrix based on data from EC Database for Women and Men in Decision-Making
and Standard & Poor’s; 2020 data have been extrapolated by Matrix on the
basis

Under this baseline scenario – despite
projecting an increase in female representation on company boards until the
year 2020 that is somewhat higher than the increase measured over the past 8
years[58]
– the female representation in boards of publicly listed companies is expected
to evolve from 13.7% in 2012 to 20.4% (20.84% excluding SMEs) in 2020 for the
EU. The female representation among non-executive directors will evolve from around
15% in 2012 to around 24% in 2020, which is still below the critical mass of
30%.

Thus, in the absence
of EU action, progress in achieving more equitable gender
representation in company boards will remain very slow, both as regards
executive and non-executive director positions. It will depend on
self-regulation and regulatory initiatives taken at national level. In some Member States there will be more progress than in others, in
others there will be no progress at all or the even a decline in the
representation of women on boards. This has been the case for Hungary, Slovakia and Romania in the time period from 2010 to 2012. But even in Member States, where the issue is currently under intensive discussion, like in Germany, and where DAX30 companies have decided in March 2011 to increase the female share
in leading positions, progress remains slow. For instance, of all 34 executive
board members of the DAX30 companies appointed between January 2011 and
February 2012, 27 are men and 7 are women.[59]

Only one Member State (France) will have achieved a 40% female representation in boards by 2020. Only 7 more
Member States - Finland, Latvia, the Netherlands, Slovakia, Spain, Denmark and Sweden - are estimated
to reach 40% before 2035. This would not be sufficient to bring about the “critical
mass” of women on boards that the research referred to in section 2.1.5 shows
is needed to generate positive effects on company performance.[60] Based on this scenario, the EU
as a whole is not expected to even achieve 40% of women on boards by 2040.

2.4.        The
EU's right to act and EU's added-value

2.4.1.     Political
foundations of the right to act: Europe 2020

The Europe 2020
Strategy for Smart, Sustainable and Inclusive Growth[61]
established that an "increased female labour force participation is a
precondition for boosting growth and for tackling demographic challenges in Europe". As a result of demographic change, such as the
ageing of the workforce and the EU's low average birth rates, Europe’s workforce is shrinking and a smaller number of
workers are supporting a growing number of inactive people. The economic
crisis has exacerbated this precarious situation, as it has brought forth high
youth unemployment rates of over 21%,[62]
which effectively reduces the number of those entering the workforce and
reinforces the demographic challenges ahead.

Improving gender
equality is essential for the EU’s response to the current economic crisis,
which has magnified Europe’s ever-growing need to rely on knowledge, competence
and innovation. With an employment rate reaching 75.1% for men and 62.1% for
women, it has become mainstream thinking that the EU can only reach the Europe
2020 headline target (75% of the population aged 20-64 should be employed by
2020) if there is a clear commitment to gender equality.

The Commission had already strengthened its political commitment to the
need to enhance the balance between women and men in economic decision-making
positions with the adoption of the Strategy for Equality between Women and Men
(2010-2015) in 2010, in which the Commission announced that it was considering
using "targeted initiatives to get more women into top jobs in
decision-making". The Strategy builds on the
priorities of the Women's Charter,[63] signed by President Barroso,
which reaffirms the Commission's commitment to ensure the full realisation of women’s potential and the full use of their skills,
to facilitate a better gender distribution on the labour market and more
quality jobs for women.

In June 2012, in
the context of the Europe 2020 Strategy, the Commission proposed
country-specific recommendations to the Council, highlighting the need to
enhance female labour market participation rates to make full use of the pool
of available talent. Enhancing female participation in economic
decision-making, notably in company boards, is expected to have a positive
spill-over effect on female employment in the companies concerned and throughout
the whole economy. The need to act for a better balance between women and men
in economic decision-making is thus fully endorsed by the current political
agenda.

2.4.2.     Legal
basis: Article 157(3) TFEU

The EU's right
to act in issues of gender equality in employment and occupation follows from
Article 157 (3) TFEU.[64]
This provision is the specific legal basis for any binding measures aiming at
ensuring the application of the principle of equal opportunities and equal
treatment of men and women in matters of employment and occupation. If a
measure took the form of a Recommendation, the legal basis could also be
Article 292 TFEU.

Article 50(1) TFEU is the legal basis for adopting EU measures aimed
at achieving an Internal Market in company law. Minimum harmonisation measures
on selection procedures for non-executive members of boards of listed companies
with a persistent under-representation of one sex concern the internal
organisation of companies and therefore company law. This provision could be an
additional legal basis, completing Article 157 (3) TFEU.

2.4.3.     Subsidiarity and
proportionality

The principle
of subsidiarity requires that the Union shall act only if and in so far as
the objectives of the proposed action cannot be sufficiently achieved by the
Member States (necessity test), but can rather, either by reason of the scale
or effects of the proposed action, be better achieved at Union level (test of
EU value added).

The baseline
scenario, taking into account current trends in Member States, shows that the objectives
of achieving a higher percentage of women in boards of listed companies and the
inherent gender equality and economic and business benefits will not be attained
if this issue is dealt with at Member State level only. Based on these observations,
the baseline scenario projects an increase in female representation on company
boards until the year 2020 that is higher than the increase measured over the
past 8 years. Yet these projected further improvements will not lead to a sustainable
gender balance on boards in the foreseeable future.

The projections in
this report based on comprehensive information on existing or planned
legislative and self-regulatory initiatives in this area in all Member States
show that without EU action the female representation in boards of publicly
listed companies is expected to evolve from 13.7% in 2012 to 20.4% (20.84%
excluding SMEs) in 2020 for the EU and from around 15% in 2012 to around 24% in
2020 for non-executive directors. Only one Member State (France) will have achieved a 40% female representation in boards by 2020 as the result of
national binding quota legislation. Only 7 more Member States - Finland, Latvia, the Netherlands, Slovakia, Spain, Denmark and Sweden - are estimated to reach 40%
before 2035. This would not be sufficient to bring about the “critical mass” of
women on boards across the Union that research shows is needed to generate
positive effects on company performance. Based on this scenario, the EU as a
whole is not expected to even achieve 40% of women on boards by 2040.
Irrespective of the general possibility for Member States to act efficiently,
the concrete indications of Member States as to their intentions, including in
their replies to the public consultation, and the projections based on all
available information, clearly demonstrate that action by Member States
individually will not achieve sufficiently significant progress towards a more
balanced gender representation on company boards by 2020 or at any point in the
foreseeable future.

As described
above, the measures introduced by some Member States vary broadly, and 15
Member States have not taken any action in this area. The level of debate on
the issue is rather unbalanced across Europe, as demonstrated by the results of
the stakeholder consultation: half of the 485 contributions came from only two
Member States (DE and UK), whereas no or less than five replies were received
from 14 Member States (BE, BG, CY, EE, EL, HU, LU, LT, LV, MT, PL, RO, SI, SK).
Among these are 6 of the 8 Member States where the share of women on company
boards is at an extremely low level, at 7% or less.

The lack of
debate on this issue in many Member States suggests that no action to increase
gender balance on company boards is likely to be taken there and that the
discrepancies between Member States already apparent today will widen further. The
conflicting situation in Member States are illustrated by the changes in the
share of women on corporate boards from October 2010 to January 2012: while the
share in France grew by 10 percentage points (p.p.), it dropped by 11 p.p. in
Romania and roughly 8 p.p. in Hungary and Slovakia (see table below).

Figure 8: Change in the share of women on
corporate boards in the EU, October 2010-January 2012

Source: European Commission, Database on women and men
in decision-making.

Some
stakeholders, mainly from the business community and including some Member
States, argue that different non-legislative approaches have also been
successful in achieving a better gender balance on company boards, including
voluntary initiatives e.g. in Finland and Sweden, and no action at all in
Latvia. They conclude that the decision on the approach to achieve more
gender-balanced company boards should entirely be left to the national level.

However, first
of all, the three Member States mentioned as examples have so far only achieved
a female share of about a quarter of all board seats (while three quarters are
still occupied by men), and their recent progress is not remarkable or even
negative (see figure 8 above). The relatively good performance of the two
Nordic countries with an exceptionally good record and tradition of gender
equality measures can be explained by a real debate on the issue and a credible
'threat' to legislate in case of failure of voluntary action. This 'threat' is,
however, difficult to maintain over a longer period of time, and the level of
current efforts cannot be realistically expected to be maintained at company
level if such a credible 'threat' no longer exists. Moreover, in both countries
the legal or de facto obligation to ensure gender parity on boards of
state-owned companies also contributed to the good figures. Finally, the case
of Latvia must be regarded as an 'outlier', to be explained by the Member State's
specific socio-economic situation, in particular the high level of female
entrepreneurs (36.5%) and the exceptional long-term predominance of women among
higher education graduates (around 70%)[65]
– figures against which the share of 26% of female board members does not
appear to be outstanding.

These examples
confirm that Member States can sometimes improve the gender balance on
corporate boards through their own non-legislative means – albeit under rather
exceptional circumstances. There they cannot serve as models which other Member
States can easily reproduce. Moreover, many Member States have not shown any
interest so far to take action, neglecting the business and economic benefits a
greater presence of women can bring to their companies and economy.

While Member
States have the legal possibility to act in order to counter the under-representation
of women in economic decision-making, many of them do not show any willingness or
face resistance from the business community to act at their own initiative[66], in particular those where the
share of women among non-executive and executive directors and managers in
general is particularly low..

This situation
entails a certain number of risks for the attainment of the fundamental
objective of gender equality across the Union. Although the Treaty objective of
equality between women and men in the EU is not directly related to the
establishment of an internal market (as demonstrated by the wording of Article
3(3) TEU) and does not require any transnational or cross-border problem to
establish the EU's right to act[67],
the current situation denotes at the same time important internal market
aspects that call for the EU intervention and justify the use of minimum
harmonisation measures for the promotion of the internal market.

The Founding
Treaties intended to create a competitive level-playing field between Member
States by enshrining the principle of equal pay and of gender equality on the
labour market, to avoid any downward competition between Member States in
labour and equal treatment matters. Member States may indeed hesitate to
regulate in this area on their own, as they could perceive a risk of putting
their own companies at a disadvantage with companies from other Member States[68]. This perception, reinforced
by pressure from the business community, represents a major obstacle preventing
Member States from taking adequate action. An EU-level initiative in this area is
needed to ensure a comparable level of promotion of gender equality throughout
the Union, as required by the EU Treaties.

Furthermore, the
economic repercussions in terms of the quality of corporate governance and its
impact on company performance as well as the other economic indicators analysed
in this report will vary considerably and even to an increasing extent. The
potential for competitiveness and growth inherent in fully exploiting the
talent pool of the best qualified women for board positions can better be
realised, by reasons of scale, if all Member States engage in that direction,
in particular those where figures are currently low and no action has been
taken or even envisaged. Similarly to the objective of raising employment rates
where Member States start from different positions, a common effort by all
Member States will be the best guarantee to reach the objective of more
balanced decision-making on company boards across the entire Union within a
reasonable period of time.

At the same
time, discrepancies in terms of numbers of women on boards are growing in
Member States, with the key indicator ranging from 3% to 27% (from 2.7% to
27.9% as regards non-executive directors). Scattered and divergent regulation
at national level is bound to create practical problems in the functioning of
the internal market, as different company law rules and sanctions for not
complying with a binding quota, such as exclusion from public procurement,
could lead to complications in business life and have a deterrent effect on
companies' cross-border investments and the establishment of subsidiaries in
other Member States.

Similarly, the
specific objectives of reducing the "demand side" barriers women face
when aiming for board positions and improving corporate governance cannot be
sufficiently achieved by Member States and could be better achieved through EU
action.

An important
element of these demand side barriers lies in the current selection procedures
for board members which often lack transparency. A binding EU level initiative
would need to comply with the CJEU's positive action case-law, which requires
that preference can only be given to a candidate of the under-represented sex
in case of equally qualified candidates and that all candidacies are subject to
individual assessment taking account of all criteria specific to individual
candidates. In order to establish whether two candidates are equally qualified
the selection processes needs to be made transparent, e.g. by the definition of
qualification criteria. Binding EU measures would thus as a minimum need to be
accompanied by an obligation for companies without gender-balanced
representation among non-executive directors to make selection procedures more
transparent, notably by making appointments to these posts on the basis of a
comparative analysis of the qualifications of candidates and applying
pre-established clear, neutrally formulated and unambiguous criteria.

In the absence
of EU action, the current divergent situation will continue and further
deteriorate. Some Member States may impose transparency and other requirements
on companies for their selection procedure, whilst others would not. Even
though the costs of rendering selection procedures transparent (and consistent
with the CJEU's case law on positive action) are estimated to be minimal, different
requirements on the transparency, criteria and conduct of selection procedures
(i.e. comparative assessment of qualifications) could lead to potential
distortions of competition.

The current lack of transparency of the selection
procedures and qualification criteria for board positions in most Member States
represents an important barrier to more gender diversity of board members and
negatively affects both board candidates' careers and freedom of movement, as
well as investor decisions. Such lack of transparency prevents potential
candidates for board positions from applying to boards where their
qualifications would be most required and from challenging gender-biased
appointment decisions, thus restricting their freedom of movement within the
internal market.

The lack of transparent selection procedures may make it
even more difficult for "boardable" women to find a place in the
board of a company in another Member State. Egon Zehnder International Board Diversity Analysis[69] looked at the nationality
background of directors.  In the sample of companies they surveyed, the average
board in Europe includes 27.8% non-national directors. There
were, however, great disparities among European countries. Non-national women directors account for a higher proportion of the
female total than is the case for their male counterparts: 32.1% or almost
every third woman on a European board is a non-national, compared to 27.8% for
all directors. But again great disparities among Member States were found.

On the other hand, investors have different investment
strategies that require information linked also to the expertise and competence
of the board members. More transparency on qualification criteria and the
selection procedure for board members enables investors to better assess the
company's business strategy and to take informed decisions. Obliging companies
to make their selection procedures transparent could therefore have a positive
impact on the internal market.

To conclude, the objective of reducing demand side
barriers can be better achieved at EU level, since the EU has the competence to
harmonise the requirements for the selection procedures for companies across
the EU, including (and in the current case limited to) companies characterised
by the gender imbalance among their non-executive directors. In addition, such
a minimum harmonisation at EU level of certain requirements relating to selection
procedures would avoid potential distortions of competition and make it easier
for companies to reap the benefits of the internal market in their search for
the most qualified candidate.

It can therefore
be concluded that the objectives can be better achieved through coordinated
action at EU level rather than through national initiatives of varying
scope, ambition and effectiveness.

However, the
rationale for EU action in this area only exists as long as the maintenance of
EU measures is necessary and indispensable to redress continuing female under-representation.
EU action would no longer be justified if the participation of female board
members in publicly listed companies across the EU has reached a sufficiently
high level and has changed business culture and recruitment patterns to such
degree that the withdrawal of the measure would not lead to a reconstruction of
the glass ceiling and that the economic potential resulting from gender balance
in company boards would be exploited in a sustainable way without further
regulatory intervention. Features ensuring, from the outset, the temporary
nature of the instrument and its expiry or repeal therefore could underpin
its compliance with the principle of subsidiarity.

Under the principle
of proportionality, the content and form of Union action shall not exceed
what is necessary to achieve the objectives of the Treaties. In particular,
this principle requires that the considerable differences among Member States and sectors with respect to the current level of female participation be
taken into account in the design of any EU-level measure aiming at a higher
degree of gender balance among company directors.

As demonstrated
by the problem definition and the baseline scenario above, the current and
envisaged measures, which include EU-level recommendations and calls for
self-regulation as well as a patchwork of national regulatory, non-regulatory
and company initiatives, have not achieved and cannot be expected to achieve
the objective of improving gender equality in economic decision-making
throughout the EU.

Further-reaching
action to be taken at EU-level is therefore necessary to attain those aims. It
should, however, not go beyond what is strictly required to achieve sustainable
progress in the share of women on company boards and its scope should be
restricted as far as possible in order not to impinge on the functioning of
private companies and the market economy.

In particular, Member
States' different starting points require that any EU measure be limited to
setting common objectives and general rules – in line with the approach of
minimum harmonisation – thereby giving Member States sufficient freedom to
determine how these common objectives should be best achieved at national
level, taking into account national, regional or local circumstances including
national company law and company board recruitment practices. Such EU-level
measures should therefore not require undue changes to national company law and
should in particular respect the different board structures across Member
States. They should further not require companies to appoint less qualified
board members and should not cover small and medium-sized enterprises (SMEs),
for which such measures could represent a disproportionate burden in relation
to their size and resources.

Moreover, Member
States with currently low levels of female board participation need to be given
a realistic timeframe to be able to achieve the common objectives, taking into
account the usual cycles of board elections and renewal. In Norway, it was possible to increase the share of women non-executive directors from 18% to
40% within two years; however, that short deadline was criticised for being too
short. A longer time horizon of at least five years would seem more
proportionate and realistic even for the least advanced Member States[70].

The availability
of highly qualified female managers differs among sectors of industry, and some
sectors might face more difficulties in filling board positions with women –
even within a long timeframe. The likelihood of such problems depends on the
precise content of a measure and generally appears to be significantly lower
for non-executive than for executive members.[71]
Any binding EU measure should therefore not establish rigid quotas, but should allow
companies to justify the non-compliance with the objectives where it has not
been possible to find a suitable person of the under-represented sex for a
board position, in order to guarantee that the best qualified persons are
selected. Such binding measures would thus fully respect the requirements of
the relevant positive action case-law of the Court of Justice of the European
Union (CJEU), the specific purpose of which is to ensure compliance with the
principle of proportionality, as set out in the next section.

All policy
options will therefore be assessed on their compliance with the proportionality
principle and options that would not be in line with this principle will be
discarded (see below).

2.4.4.     Compliance
with the EU Charter of Fundamental Rights and CJEU case-law

The EU's right to act also needs to be examined in the light of the
Charter of Fundamental Rights of the European Union ('Charter'). It would help to promote some fundamental rights,
particularly those related to equality between women and men (Article 23) and
to the freedom to choose an
occupation (Article 15). On the other hand it would imply a restriction on the freedom to
conduct a business (Article 16) and on the right to property (Article 17).

First, any positive action measure is characterised by the tension
between the purpose to promote de facto gender equality and the need to prevent
preferential treatment given to members of the under-represented sex from
turning into a prohibited discrimination against members of the other sex. This
tension is reflected in the Charter, which in principle prohibits any
discrimination based on sex in its Article 21(1), but also recognises in
Article 23 that the principle of equality does not prevent the adoption of
measures providing for specific advantages in favour of the under-represented
sex. The CJEU has established the criteria that need to be met in order to
reconcile the two concepts of formal equality of treatment and de facto equality,
both of which are recognised in the Charter as well as in Article 157 TFEU and in Article 3 of Directive 2006/54.[72] Any EU initiative in this
field would have to be in compliance with these requirements.

These requirements
are:

(1)
The measures must concern a sector in which
women are under-represented.

(2)
Priority to a female candidate can only be given
in case this female candidate is at least equally qualified as the male
candidate.

(3)
They must not give automatic and
unconditional priority to equally qualified candidates, but must guarantee
that the individual situation, notably the personal situation of each candidate,
is taken into account.

In order to enable companies to make an objective assessment as
required according to CJEU jurisprudence, companies would have to establish
objective selection criteria for the specific post before starting the
procedure. As these criteria are shaped according to the area of business and
the specific skills needed for the respective board position, these criteria
cannot be specified by an EU measure. However, in order to comply with the case-law
it would be sufficient that an EU measure requires such criteria to be defined
before the selection procedure starts.

In addition, an EU initiative restricting the rights of shareholders
to freely choose board members would have an impact on some other fundamental
rights of shareholders and candidates for board positions, most notably the
freedom to conduct a business pursuant to Article 16 of the Charter. Such a
restriction can be justified, particularly with a view to promoting other
fundamental rights, but the justification requires compliance with the
principle of proportionality. The assessment of proportionality is influenced
by a range of elements, most notably the degree of interference (binding or
non-binding measure, coverage of non-executive or also of executive board
members, guarantee of the maintenance of qualification as the key criterion for
the selection), the scope of the measure in terms of the companies that have to
observe the quota (including or excluding SMEs) and further individual features
of the measure such as the time allowed for reaching the objective, the
possibility of derogations in sufficiently justified cases and the temporary or
indeterminate nature of the restriction.

A detailed analysis of the impact of the different policy options on
the affected fundamental rights is carried out in the assessment of the impact
of the policy options and in more detail in Annex 7.

3.           Policy
Objectives

The policy response
to the persistent gender imbalance in corporate board rooms needs to meet
certain general objectives:

1.           To promote gender equality
in economic decision-making, specifically in the boardrooms of listed
companies, in line with Article 3 (3) TEU;

2.           To fully exploit the existing
talent pool for more equal gender representation on company boards thereby
contributing to the proper functioning of the internal market and to the Europe
2020 objectives.

In order to meet
these general objectives, the following specific objectives have been
identified:

(1)
To reduce the "demand side" barriers
women face when aiming for board positions ;

(2)
To improve corporate governance and enhance
company performance;

The
operational objective would be to introduce a common (non-binding or
binding) objective for the share of each sex in boards of publicly listed
companies in the EU.

4.           Policy
Options

This section
gives an overview of the policy options which have been discarded and those
which have been considered and retained for addressing the problem and meeting
the objectives outlined above.

The results
of the stakeholder consultation demonstrate highly divergent views of
stakeholders with regard to the most suitable policy options. The majority of
the business community and some Member States (CZ, HU, NL, SE) advocate a
voluntary approach, notably through corporate governance codes and industry or
individual corporate initiatives – which would be consistent with the scenario
of no further EU action. 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, 'comply-or-explain'
rules and awareness-raising. Some actors, including Member States (FI, LV), specifically mention the possibility of an EU-level Recommendation.

Finally, a
substantive share of contributors, including shareholders associations (e.g.
Euroshareholders/EuroFinuse), women organisations (including of women managers
and lawyers), trade unions as well as some Member States (AT, FR) consider that
the current gender imbalance on boards can at least partly be explained by the
male-dominated business culture, where many appointment decisions are taken informally
and through personal networks. In their view, binding legal targets at EU level
are necessary to break the glass ceiling that many women in middle-management of
companies currently face.

As regards the type of board members to be
covered, there was no clear trend in the replies to the public consultation.
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 others
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,
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.

4.1.        Discarded
policy options

Several policy
options have been discarded at an early stage of the impact assessment process,
as being either unrealistic, unable to meet the objectives or disproportionate.

4.1.1.     More
self-regulation

As regards the
form of the measure, various types of self-regulation[73] could be contemplated to
increase the female representation on company boards, either at European or at
national level.

In the
stakeholder consultation, the majority of the business community, i.e.
companies and industry associations, and some Member States (CZ, HU, NL, PL)
saw self-regulation (by which they often understand voluntary initiatives by
individual companies) 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. Several stakeholders in the UK highlighted the change brought about
by the self-regulatory approach suggested by the Lord Davies Report.

Other stakeholders, including some Member
States (AT, FR) 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 (such as in the UK and
in Germany) to impose a higher share of women business leaders has triggered
some change, but this change is not sustainable and 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.
DE, PT, IE, NL).

Self-regulation, i.e. agreements, common
guidelines or codes of practice adopted by the business community, is
theoretically possible at EU level. However, none of the stakeholders who would
be able to spearhead such an initiative (e.g. BUSINESSEUROPE, ERT,
EUROCHAMBRES) called for a self-regulatory approach at European level, but
rather advocated voluntary measures mainly by companies. In addition, experience
at the national level appears to show that where self-regulatory initiatives only
produce noteworthy results, as for example in Finland or currently to some
extent in the UK, if they are tied to constant monitoring combined with a
credible threat of legally binding measures if no significant progress is made.
At EU level, various attempts have been made to encourage self-regulation, most
recently in Vice-President Reding's call for businesses to pledge to increase
the share of women on their boards combined with the announcement that in case
of insufficient improvements legislative action would be considered. Judging by
the meagre response to this initiative and by business stakeholders' responses
to the public consultation, the prospects for success of such an initiative removing
the threat of legally binding measures remain very low in the light of past
experiences. Therefore, further self-regulation initiatives at EU level were
not regarded as likely to come into being and to achieve the policy objectives.

As regards the national level, the
effectiveness of self-regulation by business associations or companies,
possibly supported by awareness-raising campaigns, has proven to be very limited.
Several such initiatives have been taken in Member States[74] for an extended period of
time, particularly since the 1996 Council Recommendation. In Germany, for example, the commitment of the business community in 2001 to enhance the share
of women in decision-making positions has not been followed by significant
improvements: from 2004 to 2012 female presence has increased from 12% to 16%. In
Norway, the government had tried to improve the gender balance on company
boards through a self-regulatory approach for several years without any
success, before finally turning to regulatory measures in 2002.

Similarly, corporate governance initiatives
for more gender diversity on boards in a number of Member States have not led
to noticeable changes in the figures where they were not combined with a threat
of legislation. In Denmark, for instance, a corporate governance code of 2008
recommending gender equality in boardrooms and a 'Charter for More Women in
Management' (2010) recommending gender diversity in boards exist for some years
already. However, in Denmark the female presence in boards of big companies has
decreased by 2% between October 2010 and January 2012.

Therefore recommending, by an EU measure,
more self-regulation in Member States is not considered appropriate to achieve
the policy objectives either.

4.1.2.     Increased
transparency of the board selection processes as a stand-alone measure

Some
contributions to the stakeholder consultation suggested that the share of women
on company boards could be raised by regulating and improving the transparency of
selection procedures for board positions. It has been argued that the gender
imbalance on corporate boards is mainly due to intransparent selection and
appointment of candidates, not necessarily on the basis of objective
qualification criteria, but rather through personal networks of key
shareholders and current board members. Measures to increase the transparency
and competition of such appointments have been proposed either as stand-alone
initiatives or flanking measures.

In most Member
States, the procedure for nominating and electing the board members is largely
left for the company to regulate in its company statutes or articles of
association. Even where such rules exist in national company law, 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. This lack of regulation can be
explained by the fundamental, although not absolute, freedom to conduct a
business. Any attempt to regulate the procedures for recruiting board members
at EU level in more detail than necessary to achieve the aim of improving the
gender balance in decision making could therefore be a considerable
interference in the freedom granted by national company law and would have to
be well justified.

It is
questionable whether a stand-alone measure on the appointment process could lead
to a sufficient increase of women on boards of publicly listed companies in
order to bring about a change in business culture and would lead to more gender
equality and whether it would be suitable to achieve the objectives. For
example, measures simply obliging companies to define in advance the qualification
criteria for individual board positions would not per se imply any
enhanced necessity for companies to pro-actively look for candidates, notably
including female candidates, meeting those requirements outside the usual
circles and thus not be suitable to achieve the objectives. Measures with a
clear focus on producing an impact on gender balance indirectly through more
transparent recruitment processes without setting gender targets for the
composition would thus have to regulate these processes by binding rules in
much greater detail[75]
and in ways that are likely to be disproportionate in view of a number of the
very different settings of companies that require a certain flexibility and
justify the discretion left to undertakings by company law in that respect[76] and may even be equally or
even more intrusive than a gender balance objective as such. If such measures are
not related to specific targets for the representation of both sexes
transparency measures alone also imply a considerable risk that in spite of
intense interference the results of the process will not significantly change.[77] Therefore, as a measure
regulating selection procedures for board members risks to disproportionately
interfere with a company’s individual recruitment processes and with national
company law it has been excluded as a stand-alone option.

However, it should be underlined that
whilst as stand-alone measure, this option has been discarded, greater
transparency in recruitment processes is included in the binding policy options
(numbers 3 -5). In fact, any binding measure should comply with the CJEU’s
positive action case law requirements from which it follows that preference can
only be given to a woman in case of equally qualified candidates. In order to
establish whether two candidates are equally qualified the recruitment
processes need to be made transparent, e.g. by the definition of qualification
criteria[78].
If in the future a requirement will oblige companies to achieve a certain
target of female presence in the board, the process will thus have to become
more open and transparent automatically. At the same time, a very detailed
binding regulation of the different steps of that process would not appear to
be necessary and the exact shape and form of the transparency of that process
can be determined by companies themselves in the light of their specific
circumstances in line with the general approach taken in company law.

4.1.3.     Increasing
female participation in decision-making beyond the private sector

Since the under-representation of women is
not only a phenomenon of the private economy, but also in other areas of public
life, an option would be measures to improve the gender balance in
decision-making in a wide variety of sectors, ranging from companies, to the
public administration, the judiciary, NGOs, associations, social partners etc.

However, several
arguments plead against such a wide-ranging measure. First, as shown by the
figures presented in the problem definition, the female under-representation in
decision-making positions is a less acute problem in other sectors such as
public administration, the judiciary and NGOs. These sectors seem to have a
better ability of promoting highly qualified women to top management positions.
Second, the management structure of many of these sectors is different from
companies, as many of them are not governed by collective bodies such as management
and supervisory boards, but often by a more hierarchical structure, making it
more difficult to define gender objectives without violating the restrictions
of CJEU case-law regarding positive action. Finally, due to the organisational
autonomy of Member States, the competence for the EU to intervene in matters of
management appointments in the public sector will be heavily contested, even if
it can be argued that these positions are covered by the legal basis for equal
treatment in the labour market (Article 157(3) TFEU). This is supported by the
results of the public consultation, as none of the stakeholders identified the
public sector as a problem area that requires action. For these reasons this
option has been discarded.

4.2.        Framing
the remaining policy options

Having discarded a number of policy
options, measures aiming at a minimum harmonisation of measures to improve
gender diversity in company boards across the EU appear to be the most
appropriate way to tackle the identified problems. It will, however, be
necessary to further focus and narrow down the remaining policy options, taking
into account the principles of subsidiarity and
proportionality, as well as consistency with the EU Charter of Fundamental
Rights and other Commission policies. This initial
screening examines which companies should be covered by the retained options,
the degree of ambition of the retained options, and the timeframe for achieving
the objective in the retained options.

4.2.1.     Scope
of the options: which companies should be covered?

In response to the public consultation,
stakeholders 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,
irrespective of their legal form or size. Quite a number of 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.

In order to
adequately respond to the policy objectives as defined above, in line with the
principles of subsidiarity and consistent with other EU policies, policy
options under consideration should focus on publicly listed companies[79] with the exception of SMEs.

The turnover of
publicly listed companies is equivalent to 68% of EU GDP.[80] In addition to their economic
importance, listed companies are also highly visible. Important developments in
relation to board composition are communicated and discussed in the media and
are likely to have an impact by setting standards for the private sector at
large. Listed companies can be described as the heart of national business.
Their importance and the fact that the female representation on boards is one
of the lowest compared to other areas have been the decisive criteria to choose
listed companies for an EU measure.

Out of the 7424
publicly listed companies in the EU in 2011, 33% or 2415 companies are small
and medium-sized enterprises (SMEs).[81]
These companies generally have less staff, a smaller turnover and smaller
boards. SMEs, even when publicly listed, are often family-owned and rely on
family members to serve as board directors, thereby reducing flexibility in the
recruitment of board members.[82]
After consulting relevant stakeholders, therefore, the inclusion of SMEs was
considered to represent a disproportionate interference with the right of
freedom to conduct a business as enshrined in Article 16 of the EU Charter of
Fundamental Rights. In line with the Council Conclusions of June 2011[83] recommending that SMEs should
be exempted from certain regulations, the Commission's Review,
in 2011, of the "Small Business Act" for Europe,[84] and the Commission's 2011 report
on minimizing regulatory burden for SMEs,[85]
it is important to allow SMEs to pursue their business goals without imposing
any disproportionate compliance costs.[86]
As SMEs frequently have no own human resources
department and would have to rely on the assistance of executive search firms,
it would be inconsistent with Commission policies to oblige SMEs to incur
additional costs to find new directors an expansion of their recruitment pool,
particularly at a time of economic distress. However, it has to be noted that
an EU measure would not 'exclude' SMEs. Of course SMEs are encouraged to apply
the targets required by any EU measure - but they will not be obliged to do so.

In a similar vein,
any policy option targeting large companies which are not listed on the
stock exchange would also be difficult to justify in terms of subsidiarity and proportionality
and would have an increased impact on the freedom to conduct a business. Like
SMEs, unlisted companies tend to be owned by single individuals or families who
play a crucial direct role in the management of the company. The diversity of
company types and the multiplicity of various different legal regimes for
unlisted companies within and across Member States, furthermore, would make it
a complex exercise to determine the appropriate decision-making body or level
of management where the objective for more gender diversity would have to be
observed. In addition, unlisted companies are not necessarily bound by the
reporting obligations that already exist for listed companies throughout the EU,
as a result of which their inclusion would subject these companies to a newly
established reporting regime which could significantly increase red tape. Also,
in general non-listed companies are less important economically, receive less
media attention and measures for non-listed companies are less likely to have
the broader economic effect for the society as a whole. However, Member States
could consider extending a measure to big unlisted companies in the light of
the specific national circumstances.

It is
nevertheless anticipated that enhanced female participation in the boards of
the remaining approximately 5000 publicly listed companies could generate a
spill-over effect on other companies, including SMEs and companies which are
not listed on the stock exchange, owing to listed companies’ visibility in the
economy and their influence in terms of setting standards for industry.

4.2.2.     Level
of ambition

Initiatives to
increase female representation on boards of publicly listed companies in the EU
should be able to bring about a sustainable change in business culture and
truly break the glass ceiling with lasting effect. This raises the questions
which objectives for female participation on company boards should be set,
taking into account the need for sufficient flexibility to select board
members. In the stakeholder consultation, proponents of a more ambitious
approach supported binding objectives for company boards at levels generally
ranging from 30% to 50%.

For the purpose
of this impact assessment, the level of the objective in the retained policy
options is assumed to be 40%. This working assumption is in line with
the targets currently under discussion and with the demands made by the
European Parliament. It lies between the minimum that has been found (see
below) necessary to have a sustainable impact on board performance (30% women, which
roughly corresponds on average to 3 women given the average size of listed
company boards) and full gender parity (50%).

As indicated
above under point 2.1.5, several studies have identified the need to create a
"critical mass" of women on individual company boards in order to
break the glass ceiling and significantly affect company performance. Women are
easily marginalised when their presence in a larger group is modest and due to
their under-representation they are viewed as a token. Only if the size of the
female group increases to the point that it is no longer a token minority, a
fundamental and sustainable change in the boardroom can be brought about. As a
result, a "critical mass" of women would enhance corporate governance,
as women would no longer be seen as outsiders and would able to influence the
content and process of board discussion more substantially. These studies have
concluded that the critical mass of women directors is reached when boards of
directors have at least 30% women and also have pointed out that where possible
the threshold in terms of absolute numbers of at least three persons should be
reached.[87]
Several Member States and EEA countries in their national legislation have also
applied the target of 40% (FI, FR, IS, and NO).[88]

The average size
of company boards varies significantly between Member States (from 5.9 to 14.4).
As the average number of non-executive board members is 6.39,[89] a target of 30% would mean a
share of roughly 2 women which would lead to female presence below the
'critical mass'-level as identified in relation to the preferable absolute
number of at least three persons of the under-represented sex where the size of
the board so permits. Setting a working assumption of 40% will, on the basis of
the average size of boards and thus in the majority of cases, correspond to having
at least three women on boards and thus meet the critical mass both in relation
to the percentage (more than 30%) and the absolute number (at least three) of
women on company boards. However, any working assumption above 40% approaches
full parity and would be too rigid and disproportionate with respect to the
objectives.

A lower ambition
level, for instance 35% or 30% would reduce proportionately the effects shown
below for the different options. While for the reasons mentioned above an
objective of 40% has been chosen as a working assumption, the appropriate
target level achieving the objectives identified and reaching at least the
critical mass level of 30% is left to political judgment in view of these
proportionately varying impacts.[90]

4.2.3.     Deadline
for compliance

For the purpose
of this impact assessment, compliance by 2020 is taken as a working assumption.[91] 2020 is a date also taken into
account for the Europe 2020 Strategy. The positive effects of the initiative
will strengthen growth and thus support the Europe 2020 Strategy. Furthermore,
in addition to the
fact that this timeline corresponds to the one currently discussed at EU level
and called for by the European Parliament, this deadline appears to be
ambitious yet realistic and in line with the request by a majority of the public consultation respondents that companies
should be given sufficient time to identify,
train and select the most qualified women to be promoted to their boards. In the public consultation, the proposed timeframe varied 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 years.

Considering the
divergent situations across Member States, with levels of female representation
ranging from 3% to 27%, a compliance period until 2020 would enable a
harmonised effort to increase the number of women on company boards throughout
the EU duly taking account of the different points of departure of each Member State.[92] However, by setting the date
for compliance at 2020, it was assumed that a (binding) instrument will be
adopted at EU level by 2013 and transposed by the Member States by 2015, so
that companies would have 5 years from the transposition deadline until the end
of 2020 to comply. It also has to be taken into consideration, however, that
the determination of a (binding) objective at EU level from which Member States
could not derogate would already provide companies with full legal certainty
that they will have to reach this objective by 2020 irrespective of the details
of national transposition and would incentivise them to take the necessary
preparatory measures. Therefore the effective period for companies to make the
required adjustments would be 7 rather than 5 years. This is close to the upper
end of the range of timeframes suggested by stakeholders in the public
consultation (8 years) and should therefore allow compliance across Member States and sectors, even where female participation in boards, top management or the
workforce at large is currently below average.

This is illustrated
by the fact that an individual company, in order to reach the targets of policy
options 3 and 4, would only have to replace one or two men by women in the
non-executive board. Given that on average there are 8.31 directors on boards
(1.91 executive and 6.39 non-executive directors) and that the recommended
mandate of a board directorship lasts 3.1 years, the requested dimension of
change seems achievable without serious problems over a period of 5 (or
effectively 7) years. Even for option 5, only four Member States would be
required to replace between three and four men by women in boards. In those four
Member States the total number of directors exceeds the average, meaning that
there is more fluctuation in general.

Against this
background compliance within the given timeframe is considered feasible even in
Member States or sectors with a particularly low current level of female
representation. The plausibility of this assumption is further corroborated by
the fact that all the Member States which have taken the most ambitious
(binding) measures in this field have set deadlines that are tighter even where
these Member States start from a very low level of female presence on boards[93]. The instrument would not
impose an objective in those cases where an individual company can show that it
is unable to reach the target for reasons beyond that company's control. Based
on the expectation that such cases will be rather exceptional this solution
appears to be more suitable than a more generous deadline for all companies
hampering the effectiveness of the measure in achieving its policy objectives and
going beyond the upper end of the range considered reasonable by most
stakeholders[94].

Delays in the
adoption process could have an impact on the deadlines with a view to
guaranteeing a comparable period for companies to adapt to the measure. For the
reasons set out above, it has been excluded to set a longer compliance period.

4.2.4.     Requirements
of the CJEU case law

In line with the
requirements of the CJEU's case law, priority can only be given to a female
candidate if she is at least equally qualified as the male candidate. In order
to meet the objective and establish whether two candidates are equally
qualified, companies not having gender-balance among their non-executive
directors will need to define the qualification criteria and look for candidates
of both sexes who meet the qualification profile thus making the recruitment
processes more open and transparent.

Furthermore, the
retained policy options cannot impose rigid quotas but should respect the CJEU
case-law on positive action and the principle of proportionality, allowing for
companies to justify under special conditions why they could not comply with
the target, in particular in cases of a lack of equally qualified female
candidates for board positions or the under-representation of women among the
workforce.

Finally, also in
line with the case-law and the principle of proportionality, it was also
assumed that the retained policy options will only be taken on a temporary
basis until sustainable change has been achieved. This would imply that the
legal instrument would be automatically repealed after the expiration of a
defined period of time, unless the legislator votes to prolong the measure
after a thorough review by the Commission.

4.3.        Retained
policy options

The following 5
policy options have been retained for further impact analysis:

Option 1: No further action at EU level (baseline scenario).

Option 2: A Commission Recommendation encouraging Member States to achieve an
objective of at least 40% of board members of each gender by 2020 for both
executive and non-executive directors of publicly listed companies in the EU.

Option 3: A Directive introducing an objective of at least 40% of each gender
by 2020 for non-executive directors of publicly listed companies in the EU.

Option 4: A Directive introducing an objective of at least 40% of board
members of each gender by 2020 for non-executive directors of publicly listed
companies in the EU and, in addition to option 3, also a flexible objective for
executive directors which would be set by the publicly listed companies
themselves in the light of their specific circumstances.

Option 5: A Directive introducing an objective of at least 40% of board
members of each gender by 2020 for both executive and non-executive directors
of publicly listed companies in the EU.

5.           Impact
Analysis

Each retained
policy option has been assessed in terms of its social, economic and
environmental[95]
impacts compared to the baseline and the extent to which it meets both the
policy objectives and the broader EU objectives. Further details on the
methodology for all the impacts as outlined below are provided in Annex 8.

5.1.        Methodology
to assess the impacts

5.1.1.     Effectiveness

              Impact
on female representation on company boards

Most straightforwardly,
the effects in terms of the percentage of board seats held by women are
projected on the basis of full compliance in the case of fixed binding
objectives and additional assumptions for non-binding or flexible targets which
are explained in the assessment of the different options. If in individual
cases companies are not able to achieve full compliance upon the deadline, the
benefits for them and for the national economy would fully show only some time
later when compliance is achieved.

As indicated above[96]
studies have shown that only after a 'critical mass' of about 30% women
has been reached – and where the board size permits where at least three board
members are female - gender diversity can produce significant effects, notably
in terms of  corporate governance and performance. It has not been possible to
estimate exactly how benefits will develop in options which do not lead to a
'critical mass' level of women on boards. As a general statement it can be said
that the full potential of benefits identified can only be exploited if the
critical mass is reached and that benefits will be smaller than calculated if
results stay below this critical mass. This effect is mentioned in the
evaluation of the different options. The question only arises for option 2, the
Recommendation, as in all other options the 'critical mass' level will be
reached.

5.1.2.     Economic
impacts

              Impacts
on company performance

The impacts on company performance are further sub-divided into (i)
impacts on corporate governance, and (ii) impacts on financial performance.

Corporate governance

As stated above, companies with more women on their boards have
better corporate governance. A methodology was developed to score
qualitatively the impact of the different policy options on corporate
governance. Two factors have been taken into consideration to establish this
scoring: (i) the effect each policy option has on the increase of female
presence in board rooms and (ii) the impact female board members have on
selected corporate governance indicators.

To score the effect of each policy option on the
presence of women on boards, it is assumed that the
impact of the policy options on corporate governance indicators increases in
direct proportionality with the increase of female presence. The following
“effect size” score is used: policy options that do
not increase female presence on boards have "no impact" (score 0),
policy options that increase female presence of women on boards receive a score
which corresponds to the extent of the percentage point change, as follows:
score 1: 0-5 percentage point increase; score 2: 5-10 percentage point
increase; score 3: 10-15 percentage point increase, score 4: 15-20 percentage
point increase, score 5: 20-25 percentage point increase, score 6: 25-30
percentage point increase and score 7: 30-35 percentage point increase.

The following
nine corporate governance indicators, which have been developed by governance
rating firms, have been selected. Evidence on
the link between the selected indicator and the presence of female board
members is detailed for each indicator in Annex 8. Based on a model developed by McKinsey (2008), each indicator
has received a score to indicate the strength of the relationship between increased female
presence in company boards and corporate governance (“indicator score”). As executive
and non-executive board members play different roles and ultimately have
various degrees of influence, some indicators are only relevant for either executive
or non-executive directors.

Table 2: Overview of corporate
governance indicators

Accountability, Risk & Audit: to evaluate individual and company performance and to ensure accountability and responsibility for business results. This indicator only applies to non-executive directors. The indicator score is 1.

Monitoring & Control: to measure and evaluate business performance and risk. This indicator only applies to non-executive directors. The indicator score is 2.

Innovation and Creativity: to generate flow of ideas that the company adopts and to identify new market perspectives). This indicator only applies to executive directors The indicator score is 1.

Work Environment & Values: to shape interactions between employees, generate discussions through team work and foster a shared understanding of organizational values. This indicator only applies to executive directors and the indicator score is 3.

Direction & Leadership: to ensure leaders shape and inspire the actions of others to drive better performance. This indicator applies to both non-executive and executive directors. The indicator score is 2.

Pay Policies: to ensure board members’ earnings reflect company’s performance and personal achievements. This indicator only applies to non-executive directors. The indicator score is 2.

Corporate Reputation and Corporate Social Responsibility (CSR). This indicator applies to both non-executive and executive directors and the indicator score is 2.

Understanding of the Market: to engage in constant two way interactions with customers, suppliers and other partners and to understand needs, requirements and demand trends. This indicator only applies to executive directors. The indicator score is 3.

Board Dynamics: to manage and run a company, to determine its direction, leadership, goals and market position. To ensure that board roles and responsibilities are clearly defined. This indicator applies to both non-executive and executive directors and the indicator score is 3.

The total
scoring of the impact of the policy options on each of the corporate governance
indicators has been obtained by multiplying the “effect size” score by the
“indicator” score. This combined score gives an indication of the relative qualitative
ranking of each of the options in terms of improved corporate governance; it
should not be interpreted as measuring their impact on the quality of corporate
governance on some absolute scale. It has been decided to refrain from such a quantitative
estimate of the impact on corporate governance because of the lack of evidence
that would link each of the indicators described above to company performance
directly and separately and to avoid double-counting of the positive impact of
female presence on company financial performance.

Financial
performance

Notwithstanding the large amount of research
(see section 2.1 and Annex 3) showing that companies with more gender-diverse
boards outperform companies with less gender-diverse boards, these studies do
not give precise estimates of the scale of the impact on company performance that is directly due
to increasing the gender-diversity of the company board.

To nevertheless provide an indication of the
potential scale of such impact, the results of the 2004 Catalyst study[97] already referred
to have been used as a starting point. Catalyst designed the 'Bottom Line' report
series to establish whether an empirical link exists between gender diversity
in corporate leadership and financial performance. Based on 353 Fortune 500
companies, this study provides the broadest sample[98] and the most
complete information to quantify the impact that an increased presence of
female board members in publicly listed companies could have on financial
performance as measured in terms of return on equity (ROE) – i.e. the profit on every Euro invested by the company’s shareholders. In 2011,[99]
based on the same model, Catalyst found that the ROE[100] in companies with
three or more women was 46% higher compared to companies with no women on
boards. This is similar to the result in the 2010 McKinsey “Women Matter”
report,[101]  which found a 41% higher ROE for companies
with the highest share of women on board compared to companies with no women on
board. These results are confirmed by numerous other studies.[102]

The Catalyst results suggest that a 1 percentage point increase in the female share of a company's
board members is associated with a 0.25 percentage point increase in its ROE on
average. This provides a way of illustrating the
potential improvement in company performance that could result from the various
policy options.[103]
However, many factors determine company financial performance, and it is likely
that the difference in performance that was demonstrated in numerous studies is
only partly due to a greater share of women on the board. In this impact
assessment, for the purposes of enabling a comparison of the relative impact of
the different policy options, it has been assumed that one-tenth of the
difference in ROE found in the Catalyst survey between firms in the top and
bottom quartiles in terms of the gender-diversity of their boards is directly due
to these differences in gender diversity. That is, every 1 percentage point
increase in the share of a company’s board members who are female is assumed to
lead to a 0.025 percentage point increase in its ROE. In the light of the
difficulty to quantify the exact influence of a multiplicity of factors on
company results this approach represents an estimate demonstrating the
potential effects of enhanced gender balance on boards for company performance.
However, given the magnitude of the correlation found in numerous studies and
the resulting plausibility of a link this estimate appears to represent a rather
conservative assumption even in the absence of an empirically proven causality.

As the Catalyst results are based on a
comparison between firms with the most gender-diverse boards and those firms
that have fewest women on their boards, the differences in performance they
report can be interpreted as reflecting the “critical mass” effect. In the
calculations below, no adjustment of this effect is made for policy options
that do not achieve a “critical mass” in terms of gender diversity.
Accordingly, the impact on company performance of options that fail to achieve
a critical mass of women on company boards is likely to be overstated relative
to those options that do achieve this critical mass, and this should be kept in
mind when interpreting the results.

              Impacts
on long-term economic growth

An increase in
female board members of publicly listed companies will have a spill-over effect
on (i) the numbers of women in senior and middle management positions, with
consequences for, (ii) female earnings and (iii) the return on education (see
section 2).

Therefore, each
policy option would have a positive impact on reducing the gender employment
gap and the gender pay gap.

A methodology
has been developed to score the impact of the policy options on the spill-over
effect on the gender employment gap and the gender pay gap.  The quantitative
evidence on the impact of the number of female board members on the number of
female employees at other management levels of the company and on the female
earnings is based on the US study (Matsa Miller, 2011) providing the best available
quality of evidence. However, no evidence has been found to quantify the
spill-over effect on female employment at junior level.  Furthermore it has not
been possible to quantify the positive feedback impact that a larger pool of
female top management would have on the gender composition of the board.  Due
to those limitations, it has been decided to only qualitatively score the
policy options' spill-over effect in this impact assessment report. A
quantitative score is provided in Annex 8.

Each policy option would also have an impact on the return to
education. Given that approximately 60% of the
university graduates in Europe are women and substantial investments are made
publicly and privately to educate these female students, the current GEG and
GPG also generate limited returns on education. The
concept of the rate of return on investment in education is very similar to
that of any other investment: it is a summary of the costs and benefits of the
investment incurred at different points in time, and it is expressed in an
annual (percentage) yield, similar to that quoted for savings accounts or
government bonds. For the purpose of this IA, it has been assumed that women
who will be brought to board and managerial level have already invested in
formal education and that they have achieved tertiary education.

If more women
were to occupy positions of economic decision-making, the reasoning goes, it is
expected that investment in education would yield a higher return at both an
individual and societal level.[104]
In line with OECD indicators, the degree to which the
costs of attaining higher levels of education translate into higher levels of
earnings is estimated on the basis of the average increase in female
salaries across levels. The impact on return
on education is interpreted as the contribution of the policy options to
increasing the individual and public sector benefits of education. A
quantitative estimate is provided in Annex 8.

Investment
costs

In order to comply with a target, companies are
expected to invest in mechanisms to ensure that the most qualified women are
identified, selected and trained, for instance through (in)formal mentoring or
training programmes for internal candidates or through the use of executive
search firms to find external candidates, to fully reap the associated
micro-economic benefits. Investment costs will also cover costs for more
transparency in selection procedures. The costs related to such mechanisms
('investment costs') are analysed for each option, based on their financial
(monetary) costs and non-financial costs (value of time spent by an individual
attending such a programme). It was assumed that companies will face annual
investment costs between 2017 – 2020 (from 2017, as the year when it is assumed
that companies will begin to invest in meeting the target until 2020, the year
it is assumed the target will have to be met) as well as annual investment costs
from 2021 to 2030 in order to maintain the target. It is also assumed that the
time required to provide each programme was constant across Member States.

The total amount of investment costs incurred in each Member State will depend on the current level of female participation in corporate boards in
each Member State, the existing provisions already introduced in each Member State and the policy option in place.

              Administrative
burden

Following the introduction
of any of the policy options other than the baseline, companies that are
obliged to implement a binding measure or choose to implement a non-binding
measure will have to provide information on compliance, for example in their
annual reports.[105]
It is assumed that those information obligations would occur annually as of
2020 and would roughly be equivalent for each company concerned on average so
that differences between the policy options are explained by the number of
companies concerned. Data from case studies indicate that the administrative
burden would be minimal as the only additional information requirement that
companies would face would be to report the percentage of women on their
boards. They could do this in the annual reports that listed companies in all
Member States have to make available to their shareholders and to the public.
Indeed, Article 46 (a) of the Accounting Directive 78/660/EEC[106] already requires companies to
include in their annual report a corporate governance statement which contains
in particular information on the composition of their boards.

Member States'
review of such reports was also not regarded as very time-consuming. In
addition, it is assumed that the time required to produce (by a company) and
assess (by a Member State) a report was constant across Member States and would
remain the same for all binding options. However, the costs in time varied by
Member States based on variation in salary levels.

5.1.3.     Social
impacts

Measures to
increase female representation on boards of publicly listed companies in the EU
will have a positive effect on society as a whole in terms of enhanced gender
equality, and it will bring specific benefits on associated elements such as company
reputation, the development of role models, changes in recruitment policies and
employees' identification with a company. Beyond the immediate impact of the
policy measures on board representation as result of a Recommendation or even a
legal obligation it is the entirety of these factors that ensure the demand
side barriers are not only moderately reduced while measures last but bring
about a sustainable change in business culture and significantly reduce the
demand side barriers with a lasting effect.

Depending on the policy
options it can be expected, to different degrees, that companies'
representatives will make less use of stereotypes and preconceptions when it
comes to identifying candidates for posts on boards. Companies will have to engage
more in a serious all-encompassing search for the best qualified candidates
including the female talent pool and organise the selection process accordingly.
Companies will build up and train their own female staff better in order to
establish their own recruitment pool. Companies will also enhance the number of
role-models,[107]
mentors and sponsors for other women. All this will lead to more
well-performing women on boards which again will lead to stereotypes
diminishing and ultimately to a different business culture thus sustainably
tackling the problem drivers underlying the current under-representation of
women.

To qualify these social benefits, it is assumed that the social
impacts proportionally increase with the effect that the policy option has on
female presence among both executive and non-executive board members. The effects of the options are scored as follows: score 1: 0-5 percentage point increase; score 2: 5-10 percentage
point increase; score 3: 10-15 percentage point increase, score 4: 15-20
percentage point increase, score 5: 20-25 percentage point increase, score 6:
25-30 percentage point increase and score 7: 30-35 percentage point increase.

5.2.        Option
1: No new action at EU level (baseline scenario)[108]

Since this policy option is identical with
the baseline scenario it can obviously not produce any impacts compared to the
baseline.

The developments of female presence on
company boards, estimated under the baseline scenario to increase to 20.84% in
2020, were fed into the economic models in order to calculate the following
benchmarks against which the other policy options are assessed:

·
On average, 20.84% female board members and 34.84% female
managers.

·
The ROE is on average
10.78% for listed companies in the EU-27. Based on data from Bloomberg and
Capital IQ (Standard and Poors) and 2011 values, this is equivalent very
roughly to net income of about €600 billion, or an average of €125 million per
listed company.

·
The gender employment gap at board level in 2020 is
343% at board level and 118% at managerial level.[109] This means that
men are more than four times as likely as women to occupy a board position, and
more than twice as likely to be managers.

·
The unadjusted gender pay gap[110] in listed
companies is 23.72% on average.

·
The average return on education for individuals
is 18.20% and 22.11% for the public sector.

This is the policy option favoured by a majority
of business stakeholders as well as a number of Member States (CZ, HU, NL and
SE). They consider that the choice whether to take measures to increase the
female presence on boards and what kind of measures should be entirely left to
individual companies, and that no EU measures are needed. These stakeholders
are optimistic that, due to the business and image benefits to be expected,
companies will indeed take action and appoint more women to their boards. Other
stakeholders (e.g. women associations, shareholder associations, trade unions)
hold, on the contrary, that this approach of self-regulation and voluntary
measures – which has been pursued over more than 10 years now – has failed and
that strong action at EU level is now needed.

This policy option would obviously have the
smallest impact on the fundamental rights enshrined
in the Charter, or even no impact at least as far as the EU level is concerned.
There would neither be a beneficial impact on equality between women and men
(Article 23) and the freedom to choose an occupation and right to engage in
work (Article 15), nor would there be any negative impact on the freedom
to conduct a business (Article 16) and the right to property (Article 17). Binding measures or soft regulation in Member
States do have an impact on those fundamental rights, but as they would not be
implementing Union law, the Charter would not be applicable pursuant to
its Article 51(1).

5.3.        Option
2: Recommendation

The impact of
option 2 depends on whether and how Member States will take action. This option
could lead to additional – more focussed – soft-law measures and
self-regulation at national level, additional binding measures at national
level, or have no effect at national level. In case of non-binding measures,
the effect will also depend on companies' compliance.

Two Member States (FI and LV) expressed their preference for an EU-level Recommendation. Some companies and
business-related stakeholders stated that they would also accept a recommendation
or some form of 'soft' targets to be set by an EU-level initiative. The
effectiveness of such 'soft' measures is, however, put into question by a
number of stakeholders advocating stronger measures.

5.3.1.     Effectiveness

A Recommendation, due to its
non-binding nature and in the light of past experience (Recommendations have
been used in this field since 1984),[111]
is assumed to be limited in its effects and to have a potential impact mainly
by tipping the balance in favour of non-binding/ binding action only in those
Member States where such measures are currently under considerable discussion
but have not yet received the necessary support[112].

Accordingly, under this
option, by 2020 the presence of females on boards of publicly listed companies
increases to 23.57% (8.47% executive and 28.09% non-executive board members),
which is a 2.73% point increase at board level compared to the baseline
scenario. As the 'critical mass' is not reached for board members, the effects
as described below might be slightly lower.

5.3.2.     Economic
impacts

              Impact
on company performance

As option 2
covers both executive and non-executive directors, it has an impact on all 9 corporate
governance indicators.

Option 2 leads to an increase in female presence among both
executive and non-executive directors of 0.66
percentage points and 3.35 percentage points respectively, leading to an effect size of 1 for both executive
and non-executive directors. Multiplying the “effect size” score with the
“indicator score” for each indicator leads to the following score:

Table 3: Corporate governance score for
policy option 2

Indicator || Target group & Indicator score || Effect size score || Score

Accountability Risk & audit || Non-executive Directors: 1 || Executive Directors: 1 Non-executive Directors: 1 || 1

Monitoring & control || Non-executive Directors: 2 || Executive Directors: 1 Non-executive Directors: 1 || 2

Innovation & creativity || Executive Directors: 1 || Executive Directors: 1 Non-executive Directors: 1 || 1

Work environment & values || Executive Directors: 3 || Executive Directors: 1 Non-executive Directors: 1 || 3

Direction & Leadership || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 1 Non-executive Directors: 1 || 4

Pay Policies || Non-executive Directors: 2 || Executive Directors: 1 Non-executive Directors: 1 || 2

Corporate Reputation & CSR || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 1 Non-executive Directors: 1 || 4

Understanding of the Market || Executive Directors: 3 || Executive Directors: 1 Non-executive Directors: 1 || 3

Board Dynamics || Executive Directors: 3 Non-Executive Directors: 3 || Executive Directors: 1 Non-executive Directors: 1 || 6

Total score || || || 26

Option 2 thus
has a moderate impact on improving all aspects of corporate governance. Due to
the expected slight increase in the number of female executive and
non-executive directors, in particular the board dynamics and corporate
reputation and CSR will be slightly positively affected.

Under option 2, the illustrative
calculation described in section 5.1.2 shows an increase in average return on
equity by 0.07 percentage points or 0.67% compared to the baseline. Following the approximate calculations shown for the baseline, these
percentage changes would be equivalent to an increase in the net income of
listed companies of about €4 billion.

This increase
would be concentrated in those Member States and firms that take action
following the recommendation.

Investment costs

Investment costs
arise only in Member States following a Recommendation and, in the case of
non-binding national measures, only for companies that respond. On that basis,
the total annual investment costs in the EU will be €3.7 million for the period
2017 – 2020 and €651,800 for the period 2021 – 2030.

              Impact
on long-term economic growth

Compared to the
baseline, the increased female presence at board level will also imply a higher
representation at the managerial level. Therefore, the gender employment gap and
the gender pay gap in listed companies in option 2 will be moderately reduced
compared to the baseline scenario.

Option 2 will also have a moderate impact
on the return on education for employment in listed companies both for
individuals and for the public sector.

Administrative burden

Under the assumption that all Member States
taking measures - also those that only take non-binding options - will monitor
progress, the total annual average annual administrative burden for the costs
of monitoring in the EU-27 is estimated at €93,005. The total costs of
reporting for all companies affected will be €115,563.

5.3.3.     Social
impacts

Since option 2
leads to a roughly 3 percentage point increase of women on company boards
compared to the baseline, this option will have a fairly small impact on gender
equality and the associated elements (score: 1). Consequently, this option is
expected to only have a limited impact on reducing the influence of the demand
side barriers.

To the extent that the Recommendation will achieve its
objective of increasing the proportion of women on company boards and in
managerial positions in the economy and thereby reducing gender gaps, it will
positively contribute to the promotion of
the right to equality between women and men in the labour market (Article 23) and of women's freedom to choose an occupation
and right to engage in work (Article 15).

Inasmuch as action by Member States following up to the
Recommendation has to be considered as implementing EU law within the meaning
of Article 51(1) of the Charter, Member States would have to ensure that the
negative impact on the freedom to conduct a
business (Article 16) and the right to property (Article 17) is
minimised as far as possible in order to respect the essence of these
fundamental rights. The proportionality of
these limitations can be ensured.

5.4.        Option
3: Directive with a 40% target for non-executive board members

This policy option is binding on listed
companies across the EU, which will have to take necessary measures to ensure
that, by 2020, at least 40% of their non-executive board members will be female
while executive members would not be covered.

This kind of binding option is favoured by a
large group of stakeholders, ranging from women organisations, shareholder
associations, NGOs, a few business stakeholders to some Member States (AT and
FR), even though some of these organisations suggest a lower (30%) or higher (50%)
threshold, a shorter timeframe or the inclusion of all (i.e. also executive)
board members (and sometimes also higher and middle management). The majority
of business associations and companies are opposed to any binding measures.

As to the feasibility of this option, even if
there are considerable differences among Member States and sectors with respect
to the current level of female participation on boards and in the workforce at
large, a timeframe of 5 (or effectively 7[113])
years seems sufficient to comply.

As can be seen from table 8 in Annex 8, the
highest replacement obligation exists in two Member States where on average 2.7
additional women are required. In 11 Member States  on average less than 1 woman
is required to replace a male board member, in 9 Member States on average
between 1 and 2 women have to replace male board members and in 6 Member States
between 2 and 3 women are required. As far as sectoral differences are
concerned, it has to be taken into account that for most positions non-executive
directors do not have to have specific knowledge of the sector the company is
working in. A non-executive director has a supervisory task requiring general knowledge
and experience and an overview of market developments or for example financial
and accounting skills that are not related to one specific sector. Therefore,
it should be possible in general to find qualified female persons with these
qualifications within the timeframe.

As far as differences between Member States are
concerned the long timeframe should put even the companies in those with a
currently very low female board representation in a position to comply. In that
context it needs to be taken into account that most of the listed companies in
question operate internationally and that even in the event of a limited pool
of candidates in the same Member State they could consider recruiting
non-executive directors from abroad.

A binding objective would oblige companies to
pro-actively look for qualified female candidates, to expand beyond the usual
and often opaque recruitment procedures and thus automatically bring about an
improvement to the transparency of these processes[114]. Transparency
obligations imposed under such an instrument would not have to regulate the
selection and appointment process in detail. They could essentially be limited
to a requirement to pre-define the qualification standards for the board
positions in order to ensure that choices between candidates can be measured against
these standards. Companies would then have to make a sincere effort to find a
sufficient number of female candidates with the required profiles. At the same
time, this rather non-intrusive requirement would enable the application of the
case-law of the CJEU on positive action ensuring full compliance with the
principle of proportionality[115].

Finally, any binding option would allow
derogations for companies that could not find qualified female candidates, in
order to ensure that sectors in Member States where it has not been possible to
identify at least equally qualified women for board positions are not penalised
(although it is expected that this possibility will be less relied on for
non-executive director positions, where sector-specific experience is often not
indispensable). Therefore compliance with this option seems feasible[116].

5.4.1.     Effectiveness

Based on
the assumption that all companies comply with the target due to the existence
of sufficiently deterrent sanctions,[117]
option 3 generates by 2020 an increase to 32.58% of
women on boards, an increase by 11.74% points compared to the baseline scenario
(20.84%). This is due to the fact that that female non-executive directors'
presence will increase to 40%. The critical mass level is reached by this option;
therefore the predicted benefits are expected to fully materialise.

5.4.2.     Economic impacts

              Impact
on company performance

As option 3 only
covers non-executive directors, it has an impact on 6 corporate governance
indicators.

Option 3 leads to an increase in female presence among non-executive
directors of 15.25 percentage points, leading to an
effect size of 4 for non-executive directors. Multiplying the “effect
size” score with the “indicator” score, leads to the following score:

Table 4: Corporate governance score for
policy option 3

Indicator || Target group & Indicator score || Effect size score || Score

Accountability Risk & audit || Non-executive Directors: 1 || Non-executive Directors: 4 || 4

Monitoring & control || Non-executive Directors: 2 || Non-executive Directors: 4 || 8

Innovation & creativity || Executive Directors: 1 || Non-executive Directors: 4 || -

Work environment & values || Executive Directors: 3 || Non-executive Directors: 4 || -

Direction & Leadership || Executive Directors: 2 Non-executive Directors: 2 || Non-executive Directors: 4 || 8

Pay Policies || Non-executive Directors: 2 || Non-executive Directors: 4 || 8

Corporate Reputation & CSR || Executive Directors: 2 Non-executive Directors: 2 || Non-executive Directors: 4 || 8

Understanding of the Market || Executive Directors: 3 || Non-executive Directors: 4 || -

Board Dynamics || Executive Directors: 3 Non-Executive Directors: 3 || Non-executive Directors: 4 || 12

Total score || || || 48

Option 3 thus has a visible impact on improving corporate
governance. Due to the expected increase in female non-executive directors, in
particular the board dynamics will be positively affected.

Under option 3, the illustrative
calculation described in section 5.1.2 shows an increase in average return on
equity by 0.28 percentage points or 2.61% compared to the baseline. Following the approximate calculations shown for the baseline, these
percentage changes would be equivalent to an increase in the net income of
listed companies of about €15.7 billion. For an average company this would mean
an increase in net income of about €3.1 million compared to the baseline.

While the potential for improved financial
company performance in general has been estimated on the basis of experience
gained with company performance in cases of higher female representation
achieved without binding obligations imposed by law there is a discussion as to
whether the same results could be expected following the introduction of a
binding quota or whether one would even have to reckon with a lower positive or
even a  short-term negative impact on company results due to the imposition by
law. Several studies analysing the effect of the Norwegian legislation as the
only precedent until 2011 have looked into its impact on financial company
performance and come to diverging results concluding that there was either a
positive, a neutral or a negative short-term impact on company performance. The
evidence on this point is by no means conclusive. One of them (Ahern and
Dittmar)[118] identified a short-term risk of negative impact on financial
performance while others (e.g. Nygaard) came to more positive results as
regards investor's anticipation.[119] Ahern
and Dittmar looked into reactions of shareholders of 166 Norwegian companies
after the announcement that binding quotas were introduced in Norway and found that companies saw their market value decline around the time of the
announcement of the law and they found a drop in Tobin's Q in the following
years. They stressed that the loss of value was not caused by the sex of the
new board members but rather by their lack of high level work experience and
lack of the necessary competencies and skills. However, there is ample evidence
acknowledging a positive effect on company performance of more gender balance
on boards.

It should be noted that in Norway the situation was very
different from a binding measure which could be adopted in the EU.[120] In Norway, the 40% objective had to be met in a short deadline of two years and companies had
not enough time to prepare. The Norwegian law does not provide for any
justification for companies that do not comply with the objective and are
therefore threatened with dissolution, even in the event of a lack of qualified
female candidates. Therefore any risk, should it exist, could be mitigated or
excluded in an EU measure by ensuring that priority to a female candidate can
only be given in case of better of equal qualification, and giving enough time
for compliance. In addition, the investment costs assessed in this report
estimate the expenses that would be necessary to train or identify candidates
for board positions with sufficient qualifications to mitigate or eliminate any
such risk.

Furthermore, it should be underlined that in option 3, the
potential risk would in any case already be limited from the outset since this
option only applies to non-executive directors. Due to their tasks of a
supervisory nature, they need general skills more than specialised professional
experience in the particular domain where the company is active. Executive
members in comparison tend to need more experience and expertise in the
specific sector concerned since they have to run the day-to-day management.

It has not been possible to quantify any potential short
term risk for option 3 but on the basis of the above considerations it can be
assumed to be very limited at the most.

Investment costs

In option 3 all
the covered listed companies in all Member States have to ensure the constant
availability of (female) candidates to comply with a binding target. For this
option, the total annual investment costs in the EU for the period 2017-2020
will amount to roughly €16.6 million and roughly €3
million for the period 2021-2030.[121] These
investment costs are not negligible but they are very modest in relation to the
benefits at company level presented above, even leaving aside the macroeconomic
considerations.

              Impacts
on long-term economic growth

Compared to the
baseline, the impact on gender employment gap and gender pay gap in
option 3 will be good.  The impact on the return on education of the
option 3 for both individuals and for the public sector will be moderate
compared to the baseline

              Administrative
burden

Based on the
model described above, policy option 3 leads to a total annual burden of
monitoring for all Member States of €100,000 and a total annual cost of
reporting for all companies in the EU of €124,000.

5.4.3.     Social
impacts

Since policy
option 3 leads to a 11.74% points increase of women on company boards of women
on board, this option will have a quite good impact on gender equality and the
associated elements (score: 3). Consequently, this option is only expected to
have a moderate impact on reducing the influence of the demand-side barriers.

As far as impacts on fundamental rights are concerned,
Option 3 would have a clear beneficial
impact on equality between women and men (Article 23) and on women's freedom to
choose an occupation and right to engage in work (Article 15).  It clearly also represents a limitation to the
freedom to conduct a business (Article 16) and the right to property (Article
17) of owners and shareholders of companies in that it restricts their
right to determine by whom the company is managed and supervised. However, such limitation still respects the principle of
proportionality and safeguards the essence of those rights since it
leaves a sufficiently wide margin of choice for selecting board members. Companies
do not face restrictions in defining qualification requirements and in the
appointment of the best qualified candidates and the instrument only affects
the overall gender composition of the body. Moreover, the limitation is much
lighter if the binding objective only covers non-executive directors who are
not involved in day-to-day management tasks.

5.5.        Option
4: Directive with a 40% target for non-executive board members and a flexible
target for executive board members

With respect to
non-executive boards, option 4 does not differ from option 3. With respect to executive boards or board members, option 4
introduces a "flexi-quota", which means that listed companies will be
required to set their own individual targets for female presence in the
executive board. Once the target has been communicated to the relevant national
authority, should the company not comply with it, sanctions will apply. As
companies set their own targets for the 'flexi-quota' and otherwise there is no
change compared to option 3, as regards feasibility of compliance. The
explanations given for option 3 in relation to non-executive directors apply
accordingly.

Stakeholder views are obviously very similar to those for
option 3. The flexible target[122]
for executive directors would be favoured by a number of stakeholders that
advocate an initiative starting with non-executive board members, to be
followed later by executive directors.

5.5.1.     Effectiveness

It is assumed
that in order for companies to do the minimum to signal compliance and
ambition, amongst others for reputational reasons under a flexi quota, each
company would replace one man with one woman (leaving the average board size
unchanged). This represents an increase of 85% (nearly doubling the number of
executive female board members from 1.1 to 2.1). As there has been a declining
trend in the average board size over the last decade, it is assumed that the
companies will leave the board size unchanged as opposed to increasing it.

Based on
these assumptions, option 4 generates 34.11% of women on boards by 2020, an increase of
13.27% points compared to baseline scenario. This is due to the fact that on
top of a 40% target for non-executive directors, female presence among
executive directors will change to 14.44% (an increase of 6.63 % points compared
to the baseline scenario). This option achieves the 'critical mass' level and
it can thus be expected that the predicted benefits will fully materialise.

5.5.2.     Economic impacts

              Impact
on company performance

As option 4
covers both executive and non-executive directors, it has an impact on all 9
corporate governance indicators.

Option 4 leads to an increase in female presence among non-executive
directors of 15.25% points and to an increase in female executive directors or
6.63% points, leading to an effect size of 4 for non-executive
directors and of 2 for executive directors. Multiplying the “effect size” score
with the “indicator” score, leads to the following score:

Table 5: Corporate governance score for
policy option 4

Indicator || Target group & Indicator score || Effect size score || Score

Accountability Risk & audit || Non-executive Directors: 1 || Executive Directors: 2 Non-executive Directors: 4 || 8

Monitoring & control || Non-executive Directors: 2 || Executive Directors: 2 Non-executive Directors: 4 || 8

Innovation & creativity || Executive Directors: 1 || Executive Directors: 2 Non-executive Directors: 4 || 2

Work environment & values || Executive Directors: 3 || Executive Directors: 2 Non-executive Directors: 4 || 6

Direction & Leadership || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 2 Non-executive Directors: 4 || 12

Pay Policies || Non-executive Directors: 2 || Executive Directors: 2 Non-executive Directors: 4 || 8

Corporate Reputation & CSR || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 2 Non-executive Directors: 4 || 12

Understanding of the Market || Executive Directors: 3 || Executive Directors: 2 Non-executive Directors: 4 || 6

Board Dynamics || Executive Directors: 3 Non-Executive Directors: 3 || Executive Directors: 2 Non-executive Directors: 4 || 18

Total score || || || 80

Option 4 thus has a large impact on improving
all aspects of corporate governance. Due to the expected increase in both
female executive and non-executive directors, in particular, the board
dynamics, corporate reputation & CSR and direction & leadership will be positively
affected.

Under option 4, the illustrative
calculation described in section 5.1.2 shows an increase in average return on
equity by 0.32 percentage points or 2.92% compared to the baseline. Following the approximate calculations shown for the baseline, these
percentage changes would be equivalent to an increase in the net income of
listed companies of about €17.5 billion. For an average company this would mean
an increase in net income of about €3.5 million compared to the baseline.

As regards a
potential short-term risk for company performance due to the binding nature of
the measure, in principle the considerations set out for option 3 apply here as
well. While the same general safeguards as under option 3 apply here it has to
be taken into account that option 4 also covers executive directors. The
flexible nature of the binding objective for those directors enables companies
to avoid any negative impact through the setting of a self-imposed target.
Therefore any possible additional short-term risks for this option have to be
considered very limited. This limited risk could not be quantified.

Investment
costs

For option 4,
the total annual investment costs in the EU for the period 2017-2020 will
amount to roughly €18.3 million and roughly €3.5
million for the period 2021-2030.[123] These investment costs are not
negligible but they are very modest in relation to the benefits at company
level presented above, even leaving aside the macroeconomic considerations.

              Impacts
on long-term economic growth

Compared to the
baseline, the impacts on the gender employment gap and the gender pay
gap of option 4 will be significant.

The impact on
average return on education in the option 4 both for individuals and for
the public sector compared to the baseline scenario is quite good as well.

              Administrative
burden

Based on the
model described above, policy option 4 leads to a total annual burden of
monitoring for all Member States of €100,000 and a total annual cost of
reporting for all companies in the EU of €124,000. The burden is not assumed to
change significantly as compared to option 3 since in both options all listed
companies are obliged to provide short information.

5.5.3.     Social
impacts

Since policy
option 4 leads to a 13.27% points increase of women on company boards, this
option will have a quite good impact on gender equality and the associated
elements (score: 3). Consequently, this option is expected to have a positive
impact on reducing the influence of the demand-side barriers.

As far as impacts on fundamental rights are concerned, Option
4 would have a clear beneficial impact on
equality between women and men (Article 23 Charter) and on women's freedom to
choose an occupation and right to engage in work (Article 15).  It clearly also represents a limitation to the
freedom to conduct a business (Article 16) and the right to property (Article
17) of owners and shareholders of companies in that it restricts their
right to determine by whom the company is managed and supervised. However, such limitation still respects the principle of
proportionality since it leaves a sufficiently wide margin of choice for
selecting board members and does not go beyond what is necessary to achieve the
intended objective. Companies do not face restrictions in defining
qualification requirements and in the appointment of the best qualified
candidates and the instrument only affects the overall gender composition of
the body. Moreover, the limitation is much lighter if the binding objective
only covers non-executive directors who are not involved in day-to-day
management tasks.

5.6.        Option
5: Directive with a 40% target for both non-executive and executive directors

Option 5 would oblige Member States to introduce
a binding target of 40% for executive and non-executive board members.

As the farthest reaching option covering also
executive directors, it would be considered by the vast majority business
stakeholders as an unacceptable interference in the daily management of
companies. The coverage and the level of the target correspond, however, to the
requirements of the French Law of 27 January 2011 (with a deadline already in
2017). On the other side of the spectrum, a number of stakeholders hold that,
only by including the executive level of management, can real follow-on effects
through the lower ranks of management and the entire workforce be expected.
However, even some women's organisations[124]
consider that only the supervisory positions should be covered by a binding
objective – at least in a first stage.

As to the feasibility of the measure, this
option is the most difficult for the companies to comply with. In four Member
States companies will on average have to change from 3.2 to 3.8 persons in
their boards. In these Member States, the average size of boards of listed
companies (SMEs excluded) is between 8.73 and 13.45 directors, meaning that in
these Member States companies will have to make a big effort to replace
significant parts of their male board members by qualified women. In 9 Member
States companies will have to change more than 2 directors on boards; in 8
Member States companies will have to change more than one director on boards
and in 4 Member States the mathematical 40% level would be achieved with a
change of less than one person.[125]
These figures cover the total number of executive and non-executive directors,
which on average in EU27 stands at 8.31 directors (SMEs excluded).

In the light of a bigger need for
sector-specific knowledge and experience for executive directors in charge of
the day-to-day management of a company difficulties to comply with the
objective for these directors may arise in areas where the female talent pool
is particularly restricted. In sectors such as the mining, metal or automobile
industries, qualified female staff and managers may sometimes be in short
supply. However, given that a binding instrument would allow for derogations for
companies that could not find a qualified female candidate in particular for
executive positions, compliance with this option still seems feasible.

5.6.1.     Effectiveness

Based on
the assumption of full compliance, option 6 generates by 2020 a 40% female presence among both executive and non-executive
directors, an increase of 19.16% points at board level compared to the baseline
scenario.

5.6.2.     Economic impacts

              Impact
on company performance

As option 5
covers both executive and non-executive directors, it has an impact on all 9
corporate governance indicators.

Option 5 leads to an increase in female presence among non-executive
directors of 15.25% points and to an increase in female executive directors of
32.19% points, leading to an effect size of 4 for non-executive
directors and of 7 for executive directors. Multiplying the “effect size” score
with the “indicator” score, leads to the following score:

Table 6: Corporate governance score for
policy option 5

Indicator || Target group & Indicator score || Effect size score || Score

Accountability Risk & audit || Non-executive Directors: 1 || Executive Directors: 7 Non-executive Directors: 4 || 4

Monitoring & control || Non-executive Directors: 2 || Executive Directors: 7 Non-executive Directors: 4 || 8

Innovation & creativity || Executive Directors: 1 || Executive Directors: 7 Non-executive Directors: 4 || 7

Work environment & values || Executive Directors: 3 || Executive Directors: 7 Non-executive Directors: 4 || 21

Direction & Leadership || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 7 Non-executive Directors: 4 || 22

Pay Policies || Non-executive Directors: 2 || Executive Directors: 7 Non-executive Directors: 4 || 8

Corporate Reputation & CSR || Executive Directors: 2 Non-executive Directors: 2 || Executive Directors: 7 Non-executive Directors: 4 || 22

Understanding of the Market || Executive Directors: 3 || Executive Directors: 7 Non-executive Directors: 4 || 21

Board Dynamics || Executive Directors: 3 Non-Executive Directors: 3 || Executive Directors: 7 Non-executive Directors: 4 || 33

Total score || || || 146

Option 5 thus has a significant impact on
corporate governance. Due to the expected increase in both female executive and
non-executive directors, in particular direction and leadership, corporate
reputation & CSR and board dynamics will be positively affected.

Under option 5, the illustrative
calculation described in section 5.1.2 shows an increase in average return on
equity by 0.43 percentage points or 3.95% compared to the baseline. Following the approximate calculations shown for the baseline, these
percentage changes would be equivalent to an increase in the net income of
listed companies of about €23.7 billion. For an average company this would mean
an increase in net income of about €4.7 million compared to the baseline.

Investment
costs

Under option 5
it is expected that total annual investment costs in the EU for the period
2017-2020 will amount to roughly €26.5 million and roughly €5 million for the
period 2021-2030.[126] These investment costs
are not negligible but they are very modest in relation to the benefits at
company level presented above, even leaving aside the macroeconomic
considerations.

As regards a
potential short-term risk for company performance due to the binding nature of
the measure, in principle the considerations set out for option 3 apply here as
well. While the same general safeguards as under option 3 apply here, it has to
be taken into account that option 5 also covers executive directors who are in
charge of day-to-day management and therefore might be required to have
experience in the specific sector in which the company operates. Candidates of
the under-represented sex might be more difficult to find in some
circumstances, particularly where there is severe under-representation in the
workforce throughout that whole sector. A potential risk should be manageable
in view of the safeguards set out under option 3 but is appreciably higher than
in any other policy option. However, it is very difficult to quantify as it
will depend to a large extend on previous preparations of companies, on the
general share of women in high management positions and human resource policy
but also on the number of companies making use of the flexibility afforded
under the safeguard measures aimed at containing or eliminating such risks.

Impacts on
long-term economic growth

Compared to the
baseline, the gender employment gap and gender pay gap in option 5 will
be very significantly reduced. The impact on the average return on education
in option 5 for individuals and the public sector compared to the baseline
scenario is also significant.

              Administrative
burden

Based on the
model described above, policy option 5 leads to a total annual burden of
monitoring for all Member States of €100,000 and a total annual cost of reporting
for all companies in the EU of €124,000.

5.6.3.     Social
impacts

Since policy
option 5 leads to a 19.16% points increase of women on company boards and thus
to 40% share of women on boards, this option will have a quite good impact on
gender equality and the associated elements (score: 4). Consequently, this
option is expected to have a very significant impact reducing the influence of the
demand-side barriers.

The positive impact on gender equality (Article 23) and on
women's freedom to choose an occupation and right to engage in work (Article
15) would undoubtedly be strongest for this
option. It would achieve the
furthest-reaching and most sustainable change
in management and business culture, with the strongest positive effects for the
position of women on the labour market. The limitation to the
fundamental freedom to conduct a business (Article 16) and the fundamental
right to property (Article 17) of owners and shareholders of companies would be
more significant if gender equality considerations
would limit the choice of those persons who run the enterprise on a daily basis
and decide on important business transactions.

Nevertheless, other restrictions of
these fundamental rights in areas such as company law, labour law and environmental law would not
make this limitation appear disproportionate, especially given the importance of
the intended aim of gender equality which is recognised both in the Charter and
the Treaties. It can, however, be argued that such limitation needs in any case
to be mitigated by a 'saving clause' which allows departing from the binding
gender objective where equally
qualified candidates of the under-represented sex cannot be found, e.g. in
sectors where female participation in the workforce and management is
particularly low and for executive positions which require specific expertise
and experience in that sector.  Policy makers would have to consciously take
into consideration the extent of the restricting
shareholders' fundamental rights when choosing this option.

6.           Comparison
of policy options

All policy
options are expected to address the main drivers of the problem and would help
to reduce the importance or even to break the "vicious circle"
explaining and maintaining female under-representation in corporate board rooms.
The demand-side barriers that "boardable" women are facing will be reduced
due to an increase of female representation on board of listed companies.

The comparison
of the consequences of the different policy options yields the result that (i)
binding measures are more effective in meeting the policy objectives than
non-binding measures, (ii) measures that target both executive and
non-executive board members are more effective than measures only targeting one
group and (iii) binding measures will generate more societal and economic
benefits than non-binding measures.

At the same
time, binding measures will entail comparatively larger costs and
administrative burdens. Furthermore, the degree of effectiveness of the
different policy options is directly linked to the extent of interference with
the rights of the companies and the shareholders as their owners. Compared to a
non-binding measure with a tangible yet limited effect a substantial increase
of the impact in terms of the policy objectives would require an instrument
with binding force prescribing minimum requirements for the composition of
company boards. While the consequences of all the different policy options on
fundamental rights are justifiable and in line with the principle of
proportionality in view of the legitimacy of the policy objectives and the
in-built safeguards, those that establish binding targets for executive board
members, the persons directly responsible for the operative day-to-day
management of a company produce the most beneficial effects but also represent
the most significant interference.

The choice of
the preferred option will therefore require a political judgement to be made as
to whether the increased cost of binding measures and their greater degree of
interference with fundamental rights of binding measures can be justified by
their wider socio-economic benefits, or whether, on the contrary, non-binding
measures are to be preferred because, although they generate less significant
socio-economic benefits, and are less effective in terms of meeting the policy
objectives, they also entail fewer constraints on the exercise of fundamental
rights. Should preference be given to a legally binding option, the envisaged
features of such an option (such as the length of the implementation period or
a "saving clause" allowing derogations on certain conditions) should
be sufficient to effectively eliminate or mitigate any possible short-term
risks for company performance, considering that this potential risk is more
likely to occur in case of legally binding measures also targeting executive
board members.

The
administrative burden linked to all policy options assessed is expected to be
minimal, and identical per company and Member State for all retained policy
options. These options would cover only publicly listed companies which are
expected to be able to use existing reporting mechanisms to provide the
necessary information on their compliance to the Member States. During the
preliminary screening exercise of policy options, the policy options which were
likely to entail higher administrative burden were discarded at an early stage.

As can be
concluded from the overview table below, the policy options differ in terms of
their impact on the objectives.

The baseline
scenario means continuing at a very slow pace
towards a better gender balance in board rooms. In light of the fundamental
values of gender equality in the EU and the missed opportunity in terms of
micro- and macro-economic benefits, "business as usual" is a scenario
the EU cannot afford. The impact analysis of options 2-5 confirms the added
value of EU action.

Option 2 is estimated to only slightly increase the participation of women in
company boards by 2.73 percentage points compared to option 1 (baseline).
Although the investment costs and administrative burden are estimated to be
higher compared to the baseline scenario, the illustrative calculation in
section 5.3 indicates that ROE could increase by up to 0.07 percentage points
to 10.85%. For all EU listed companies, therefore administrative burden costs
of €12,000 and the investment costs of €3,7 million and €651,800 for the
periods 2017-2020 and 2021-2030 respectively can be considered negligible
compared to a possible benefit of about €4 billion in increased net income.  The
benefits of this option translate into a slight reduction of the gender
employment gap and the gender pay gap compared to baseline.

Option 3 is estimated to further increase the participation of women in
company boards by 11.74 percentage points. This increase will have a visible
positive influence on corporate governance of companies, too. Although the
investment costs and the administrative burden for the total EU are estimated
to be higher compared to option 2, the illustrative calculation in section 5.4
indicates that ROE could increase to 11.06%. For all EU listed companies,
therefore administrative burden costs of €124,000 and the investment costs of
€16.6 million and €3 million for the periods 2017-2020 and 2021-2030
respectively can be considered negligible compared to an increase in net income
of about €15.7 billion. The
benefits of this option translate into a further reduction of the gender
employment gap and the gender pay gap compared to baseline and option 2.

Option 4 is estimated to further increase the participation of women
in company boards by 13.27 percentage points compared to baseline. The
investment costs of roughly €5,000 are estimated to be higher compared to
option 3. However, administrative burden for average companies and Member
States stays the same compared to option 3. The illustrative calculation in
section 5.5 indicates that ROE could increase to 11.10%. For all EU listed
companies, therefore administrative burden costs of €124,000 and the investment
costs of €18.3 million and €3.5 million for the periods 2017-2020 and 2021-2030
respectively can be considered negligible compared to an increase in net income
of about €17.5 billion. The
benefits of this option translate into a further reduction of the gender
employment gap and the gender pay gap compared to the baseline and to option 3.

Option 5 is estimated to further increase the participation of women
on company boards by 19.16 percentage points. The investment costs of roughly
€5,300 are estimated to be higher compared to option 4 (administrative burden
for companies and Member States stay the same as under option 5). However, the illustrative
calculation in section 5.6 indicates that ROE could increase to 11.21%. For all
EU listed companies, therefore administrative burden costs of €124,000 and the
investment costs of €26.5 million and €5 million for the periods 2017-2020 and
2021-2030 respectively can be considered negligible compared to an increase in
net income of about €23.7 billion. In addition, the possible short term risks on a company's financial
performance might be higher compared to options 3 and 4. The benefits of this
option translate into a further reduction of the gender employment gap and the
gender pay gap compared to baseline and option 4.  However, option 5
would arguably be more difficult for companies to implement, as executive
directors have to be chosen from people with specialised professional
experience in the field.  It can therefore be more difficult to find a suitable
person if a gender target is imposed. Such a measure could change the internal
company structure and could therefore create additional burden for companies.

Table 7: Overview of the impact of policy options

|| Effectiveness || Micro-economic impact || Macro-economic impact || Social impacts || Admin burden

|| Change from baseline in p.p. of female board members on average for EU-27 || Corporate performance (qualitative score) || Financial performance expressed in % change in return on equity compared to the baseline || Total EU annual investment costs over the period 2017 – 2020 and the  period 2021-2030 || Impact on reducing gender employment gap and gender pay gap compared to baseline (qualitative score) || Return on education: change compared to baseline (qualitative score) || Impact on gender equality (quantitative score) || Annual average reporting  and monitoring costs  in total EU

PO1 (Baseline) || (20.84%) || - || (10.78%) || || || || ||

PO2 || +2.73% || + || 0.67% || €3.7 million/€651,800 || + || + || 1 || €115,000/ €93,000

PO3 || +11.74% || ++ || 2.61% || €16.6 million/ €3 million || ++ || + || 3 || €124,000/ €100,000

PO4 || +13.27% || +++ || 2.92% || €18.3 million/ €3.5 million || +++ || ++ || 3 || €124,000/ €100,000

PO5 || +19.16% || ++++ || 3.95% || €26.5 million/€5million || ++++ || +++ || 4 || €124,000/ €100,000

The impacts
under the different policy options as compared above lead to the assessment of
the suitability of these options to achieve the policy objectives indicated
under point 3 as shown by the table below:

Table 8: Correlation between objective and options

      Options Objectives || Option 1 Baseline || Option 2 Recommendation || Option 3 Directive (40% for non-executive directors) || Option 4 Directive (40% for non-executive directors  and flexi-quota for executive directors) || Option 5 Directive (40% for both executive and non-executive directors)

Gender equality in boards || No direct encouragement || Moderate link as not binding || Good effect on more female non- executive directors || Significant effect on more female non-executive directors and moderate effect on executive directors || Very significant effect on both non-executive and executive directors

Exploit female talent pool || No direct influence || Moderate link as not binding || Good effect on exploiting  pool for female non-executive directors by internal training and talent pool || Significant effect on exploiting  pool for female directors by internal training and talent pool || Very significant effect on exploiting  pool for female directors by internal training and talent pool

Reduce barriers for women aiming at board positions || No direct effect || Moderate link as not binding || More women in board positions would reduce barriers || More women on boards would reduce barriers || High reduction of barriers

Improve corporate governance || No direct influence || Moderate link as not binding || Direct effect on many indicators || Direct effect on all indicators || Very significant effect on all indicators

Operational  objective || Not achieved || Not achieved throughout the EU || Achieved for non-executive directors || Achieved for non-executive directors || Achieved for both executive and non-executive directors

7.           Monitoring
and evaluation arrangements

In case of any policy option based on a
legally binding measure at EU level (options 3-5), Member States will have to
monitor whether listed companies comply with the targets and report to the
Commission on the state of implementation at national level. In compliance with
the principle of subsidiarity, the relevant information should be gathered
primarily by Member States through relevant agencies.

The Commission
will, in turn, monitor whether the legally binding instrument has been correctly
transposed and implemented at national level. The Commission will report to the
European Parliament and the Council on the progress made in practice at regular
intervals. Monitoring activity should involve sample
reviews of statements or reports, to ensure compliance with a binding
instrument. During the transposition and implementation period, implementation
workshops can be organised by the Commission to deal with questions/issues that
might arise in the course of the implementation period. Where questions are
common, guidance on how to deal with the issue may be issued by the Commission.
The evaluation of effects of the preferred policy
option shall be carried out to see to what extent the anticipated impacts
materialise.  In terms of possible downsides it will be necessary to assess whether
companies have chosen to de-list from EU regulated stock exchanges as a
consequence of the policy. Such an evaluation will be carried out by the
Commission services.  Data collection should be possible at limited cost at EU
level, as it would be made broad use of existing structures and this would not
require the setting up of new instruments. The existing network of legal
experts will, upon the expiration of the implementation deadline, provide a
study on the implementation and effects of the obligation. The results of this
study would be made public.

DG MARKT’s
initiatives on the disclosure of non-financial information and on gender
diversity policies will contribute to increasing board
diversity in general and will also offer better information on board diversity
policy to investors and civil society. [127]   Therefore, it is
complementary to any of the retained policy options: better disclosure can help
in monitoring the application of a requirement on female participation in
boards of listed companies.

It is expected
that a legally binding EU measure will be limited in time, meaning that it will
be repealed after a number of years, when sufficient progress has been made and
it is expected that the trends will sustain even when the EU measure will be
discontinued.

In case of a
non-legally binding measure at EU level, Member States are free to decide
whether and if so, what type of action they will take at national level. The
Commission will monitor the situation to assess process made and regularly
report to the European Parliament and the Council. If, on the basis of those
progress reports, not enough progress is made, the Commission may propose
legally binding measures at EU level at a later stage.

The main
indicator to monitor and evaluate progress towards to the policy objectives
would be the number of female board members in publicly listed companies in the
EU.

8.           List
of Annexes

1.
List of consulted studies

2.           Results of the stakeholder
consultation

3.           Business case literature
review

4.           Background to the problem
definition

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

6.           Background on the baseline
scenario

7.           Fundamental rights

8.           Background on methodology
of calculation of all impacts

9.           Background on the
Norwegian case

2.
List of consulted studies

9.           List
of Figures and Tables

Figure
1 Gender-Balance Across Key Institutions in Different Areas

Figure
2: Career Progression for Women and Men in Listed Companies (2011)

Figure
3: Share of Women among Members on Boards for Listed Companies in EU Member States and some other countries (Iceland, Norway, Australia, Canada and the US), January 2012

Figure
4: Female Board Participation by Sector

Figure 5: Percentage Point Change in Female
Presence in Corporate Boards between 2004 and January 2012

Figure
6: Women and men on corporate boards in the EU, 2003-201

Figure
7: The Vicious Circle: How the current under-representation of women on company
                        boards contributes to their future under-representation

Figure
8: Change in the share of women on corporate boards in the EU, October
2010-January 2012

Table
1: Estimated Percentage of Women in Board by 2

Table
2: Overview of corporate governance indicators

Table
3: Corporate governance score for policy option 2

Table
4: Corporate governance score for policy option 3

Table
5: Corporate governance score for policy option 4

Table 6: Corporate
governance score for policy option 5

Table 7: Overview
of the impact of policy options

Table 8: Correlation between objective and options

[1]               Notably DG MARKT’s impact assessment on
an initiative on disclosure of non-financial information by listed companies
which assesses the costs and benefits of disclosure of information on diversity
on boards.

[2]               Special Eurobarometer 376
(2011), Women in decision making, see: http://ec.europa.eu/public\_opinion/archives/eb\_special\_379\_360\_en.htm#376.

[3]               Institutions included: European Financial
Institutions/Central Banks: European Central Bank, European Investment Bank,
European Investment Fund; European Social Partners: Employer Organisations,
Employee Organisations; Politics (National Level): National Parliaments,
National Governments; Judiciary (National Level/European Level): European Court
of First Instance, European Court of Human Rights, European Court of Justice, European
Union Civil Service Tribunal, Supreme Courts: Politics European Level: EP,
Commission, Committee of the Regions, Economic, Social Committee

[4]               Almost 60% of EU university graduates
are women. See Eurostat, Tertiary students (ISCED 5-6) by field of education
and sex [educ\_enrl5], 2009.

[5]               Women account for around 45% of the
people employed across the EU. See Eurostat, Employment by sex, age groups and
nationality [lfsq\_egan], 3rd quarter of 2011.

[6]               Studies show that 83% of mid-level
career women have expressed a strong desire to move up the company ladder. See http://www.mckinsey.com/Client\_Service/Organization/Latest\_thinking/Unlocking\_the\_full\_potential.

[7]               Contrary to the commonly articulated
belief that there is a lack of qualified women to take up a corporate seat in
an EU company board, a database established by European business schools in
2012 has demonstrated the suitability and availability of over 7000 'boardable'
women for seats in boards of listed companies – the number of women listed is
quickly growing without claiming to be exhaustive.

See 
http://gallery.mailchimp.com/3ad8134be288a95831cc013aa/files/2012\_5\_Commissioner\_Reding\_Initiative.pdf
.

[8]               As a result of
demographic change, such as the ageing of the workforce, Europe’s workforce is
shrinking and a smaller number of workers are supporting a growing number of
inactive people. While demand for workers remains stable, low birth rates mean that
European population is falling. For a regional overview of these demographic
challenges, see the background document to the Commission Staff Working
Document SEC (2008)2868 Final.

[9]               A recent study by Catalyst (2012) shows
that the EU Member States are on average lagging behind the United States of
America (16.1%), South Africa (15.8%) and Israel (15%). The results are higher
than for other countries such as China (8.5%), Russia (5.9%), India (5.3%) and Brazil (5.1%). These latter differences, which have to be seen in the context of
different present demographic structures and rates of educational achievement,
constitute a competitive advantage of the EU at least in the medium or longer
term. See http://www.catalyst.org/publication/433/women-on-boards.

[10]             O. J. of 19/12/1984, L 331/34 and O. J. of
10/12/1996, L 319/11.

[11]             COM(2010)78 final.

[12]             COM(2010)491 final.

[13]             See Commission report 'More women in
senior positions' (2010), Staff Working Document "The Gender Balance in
Business Leadership", Commission report 'Public service, justice, business
and politics –Top jobs for men but where are the women?' (2011) and Commission
'Report on Progress on equality between Women and Men in 2010'.

[14]             See e.g. Resolution of 9 June
2011 on women and business leadership, Resolution of 11 May 2011 on corporate
governance in financial institutions and Resolution of 8 March 2011 on equality
between women and men in the European Union.

[15]             See, for instance, the recent
UN Women's Empowerment Principles: Equality Means Business. Available from: http://unglobalcompact.org/Issues/human\_rights/equality\_means\_business.html.

[16]             These figures may be slightly different
from those estimated by Matrix due to difference in calculation method. The EC
database does not report figures for Australia, Canada and the US. Catalyst instead reports figures only for some EU countries and Anglo-Saxon countries.
Since the EU figures reported by Catalyst are in line with those reported by
the EC database figures, we believe that the two databases are comparable.

[17]             In general, the impact assessment takes
into account the developments until the end of 2011.

[18]             Apart from the need to explain
non-compliance ("comply or explain" method) in the Netherlands.

[19]             In May 2012 Denmark announced the
intention to adopt legislation that would oblige the largest 1100 (listed and
non-listed) companies to set targets at company level without attaching
sanctions to the failure to meet these self-imposed targets. Companies will
have to report on their progress in the annual report.

[20]             In March 2012, Portugal has issued a
governmental Decision encouraging companies which are state-owned to increase
female presence on board. However, neither targets nor sanctions are set.

[21]             Norway and Iceland have been included in
this table for comparative purposes in order to examine the degree of
attainment of gender balance in corporate boards. These two countries are comparable
to EU Member States in terms of their overall socio-economic setting and are,
as members of the EEA, also legally bound by the EU acquis in the field
of gender equality. In view of these circumstances and given their experience with
legally binding targets which is considerably longer than in EU Member States, the
results achieved in these countries are particularly valuable to enrich the
evidence base concerning the impacts of such measures.

[22]             For the purpose of this figure the
category "legislative quotas" does not include countries with legally
binding quotas only for state-controlled companies.

[23]             See a detailed table on Member States'
individual progress in the Annex 6.

[24]             Asa Lofstrom: Gender equality, economic
growth and employment, a report which measures relations between gender
equality and growth rates,  see:                 http://www.eurosfaire.prd.fr/7pc/doc/1261581381\_eu\_studie\_gender\_growth\_sidvis.pdf.

[25]             World Economic Forum, R. Hausmann et al, The
Global Gender Gap Report 2011, page 28, available at:
.http://www3.weforum.org/docs/WEF\_GenderGap\_Report\_2011.pdf

[26]             Department for Business Innovation &
Skills. 2011. Women on Boards. Available at: http://www.bis.gov.uk/Consultations/women-on-boards.

[27]             Following the OECD (2011), return on
education can be defined as the internal rate of return for an individual which
is given by the rate that makes the financial benefits equal the costs.

[28]             See for instance: McKinsey, Women Matter:
Gender diversity, a corporate performance driver (2007).

[29]             Credit Suisse Research Institute, August
2012, Gender diversity and corporate performance

[30]             Details for this report and the following research can be found
in Annex 3 – Business case literature review

[31]             Pam Watson Knorbel and Donna Evans, Women
on boards=Peak performance in organisations, 2012, Women's Leadership
Foundation.

[32]             Lord Davies report, Women on boards 2011.

[33]             Deutsche Bank,  Research, 2010, Towards
gender-balanced leadership.

[34]             See detailed review in Annex 3; a good
overview can be found in : Deborah L. Rhode and Amanda K. Packel, Diversity on
Corporate Boards, How much difference does difference make?, 2010

[35]             Corporate board gender diversity and stock
performance: the competence gap or institutional investor bias?

[36]             It has to be taken into account that that
these studies are based exclusively on data prior to the onset of the financial
crisis. Especially in relation to the evaluation of company performance by
investors and the resulting stock value before the crisis it appears to be
appropriate to exercise a certain caution.

[37]             Annex 3 gives a complete overview of the
business case literature, including the more critical reviews and Annex 4 provides
background information on the
problem definition, including a problem tree.

[38]             The boards have better attendance rates,
more communication, more initiatives to take supervisory action, See M.
Schwartz- Ziv, Do the Gender of Directors and Critical Masses of Genders
Matter? 2012, available here: http://papers.ssrn.com/sol3/papers.cfm?abstract\_id=1868033&http://www.google.com/url?sa=t&rct=j&q=M.+Schwartz+Ziv%2C+Do+the+Gender+of+Directors+and+Critical+Masses+of+Genders+Matter%3F+2012&source=web&cd=1&ved=0CEgQFjAA&url=http%3A%2F%2Fpapers.ssrn.com%2Fsol3%2FDelivery.cfm%3Fabstractid%3D1868033&ei=31UOUIeKD8fU0QXjrYGwBg&usg=AFQjCNGrXgUAWjGMl7dHVjlxjr6sV20Cog,
Joecks, J. et al (2012). 'Women
on Boards and Firm Performance: What Exactly Constitutes a 'Critical Mass'?' Available
at SSRN: http://ssrn.com/abstract=2009234;
Kramer, V. et al (2007). 'Critical Mass on Corporate Boards: Why Three or More
Women Enhance Governance'. Available from http://vkramerassociates.com/writings/NACD%20article.pdf.
Konrad, M. and Kramer, V. (2006). 'How many women do boards need?'. Harvard
Business Review, Forethought Gender edition December 2006.;Kramer, V. et al (2007). 'Critical Mass on
Corporate Boards: Why Three or More Women Enhance Governance.

[39]             The Commission and Union legislator have
been actively striving to improve the framework for reconciliation, e.g.
through the recently amended Parental leave Directive 2010/18/EU, bearing in
mind that most reconciliation measures (such those related to the Barcelona targets for childcare) fall within Member State competence.

[40]             Some stakeholders, mainly from the
business community, consider this double-burden as one of the main reasons for
the persistent under-representation of women in top management and on company
boards.

[41]             See section 2.1.1 above.

[42]             See Ridgeway, C. L. (2001), Gender,
Status, and Leadership. Journal of Social Issues, 57: 637–655,  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,
Sinus Institute (2010). Women in leading positions – barriers and bridges and
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.
See Annex 4 (background to the problem definition) for a non-exhaustive list of
studies used for this IA related to the glass ceiling.

[43]             The US Glass Ceiling Commission found that
the reasons for the glass ceiling are stereotypes, erroneous beliefs and 'plain
old fear'. It was found that without the glass ceiling business would develop
stronger.

[44]             The term "glass ceiling"
probably has been used first in this context to refer to invisible barriers
that impede the career advancement of women in the American workforce in an
article by Carol Hymowitz and Timothy Schellhardt in the March 24, 1986 edition
of the Wall Street Journal.

[45]             Directive 2009/101/EC (currently under
review) requires Member States to take measures to ensure compulsory disclosure
by companies of information about the appointment, termination of office and
particulars of the persons who either as a body constituted pursuant to law or
as members of any such body which take part in the administration, supervision
or control of the company. Directive 78/660/EEC requires listed companies to
include in their corporate governance statement information on the composition
and operation of the administrative, management and supervisory bodies and
their committees.

[46]             Derek Higgs, 2003, Review of the role and
effectiveness of non-executive directors, available at: http://www.berr.gov.uk/files/file23012.pdf,
page 39

[47]             Vince Cable, 16 July 2012, The Evening
Standard, available at:
http://www.standard.co.uk/comment/vince-cable-city-passivity-and-prejudice-is-still-sidelining-women-7946158.html?origin=internalSearch

[48]             Davies, M (2011), Women on Boards,
available at
http://www.bis.gov.uk/assets/noscpre/business-law/docs/w/11-745-women
-on-boards.

[49]             Doldor, S, Vinnicombe, S and Gaughan, M
(2012). Gender Diversity on Boards: The Appointment Process and the Role of
Executive Search Firms, p. iv. Available at
http://www.equalityhumanrights.com/uploaded\_files/research/rr85\_final.pdf

[50]             Ferree, M.M. and Purkayastha, B. 2000.
Review: Equality and Cumulative Disadvantage: Response to Baxter and Wright.
Gender and Society, 14(6): 809-813. Singh, V, Kumra, S and Vinnicombe (2002).
Gender and Impression Management: Playing the Promotion Game’. Journal of
Business Ethics, 37, 1: p. 77-89.

[51]             The rich evidence confirming these findings
includes Kumra, S. and Vinnicombe, S. (2008) and Sansonetti (2004).

[52]             http://www.eurochambres.be/Content/Default.asp?PageID=216

[53]             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

[54]             Singh, V, Kumra, S and Vinnicombe (2002).
Gender and Impression Management: Playing the Promotion Game’. Journal of
Business Ethics, 37, 1: p. 77-89. Association of British Insurers, Report on
Board Effectiveness, Highlighting best practice: encouraging progress, page 17;
see also Review of the role and effectiveness of non-executive directors
(“Higgs review”), 2003, p. 39.

[55]             G. Riley, 2006, Labour Market
Discrimination, available at: http://tutor2u.net/economics/revision-notes/a2-micro-labour-market-discrimination.html

[56]             For details on the case-law and the cases
see point 2.4.4 below and Annex 7; the main CJEU rulings are quoted in footnote
61 of Annex 7.  As far as the political sphere is concerned, quotas exist in
many Member States, in particular quotas used by political parties in the
process of nominating candidates.

[57]             All the averages in the table are weighted, i.e. they
depend on the number of executive and non-executive directors in the company.
As in general there are more non-executive directors in a company, the
average-figure is closer to the figures for non-executive directors. Figures
were estimated by Matrix based on data from EC Database for Women and Men in
Decision-Making and Standard & Poor’s. Differences with other figures
presented in the report are due to recalculation of raw data in order to
provide sufficient breakdown of the figures for the purpose of the analysis.

[58]             Drawing on the pace of change observed
over the past 8 years, it is estimated that it would take more than 40 years to
arrive at a level of representation of at least 40% on boards for both sexes

[59]             T. Sattelberger, Executive board member of
German Telecom, Öffnet das System!, djbZ 2/2012

[60]             Research concludes that a 'critical mass'
of 30% women on boards is needed to bring about positive effects; see below
under section 4.1.3.

[61]             COM (2010)0193).

[62]             In the third quarter of 2011 the youth
unemployment rate in the EU-27 stood at 21.6%
Eurostat, available at: http://epp.eurostat.ec.europa.eu/statistics\_explained/index.php/Unemployment\_statistics#Youth\_unemployment\_trends.

[63]             COM(2010)78 final.

[64]             Art. 157(4) TFEU clarifies that positive
action measures can also be undertaken by Member States themselves but does not
exclude the right of the EU to act. Positive action measures adopted on the
basis of Article 157(3) TFEU would need to respect the relevant case-law of the
Court of Justice of the European Union regarding the principle of
non-discrimination on ground of sex which is set out in detail under point
2.4.4 below and in Annex 7.

[65]             Figures provided by the Latvian government
in its reply to the stakeholder consultation.

[66]             This situation corresponds to the concept
of 'real subsidiarity', whereby the Union's duty to abstain from action is
limited to cases where Member States not only can act but also show the
willingness to act (as opposed to the concept of 'formal subsidiarity', whereby
the Union has to abstain from action, as soon as Member States have the legal
possibility to act), see PV(2001) 1520 final, p. 20.

[67]             Nor does Article 157(3) TFEU require a
direct cross-border dimension to serve as a legal basis for the EU legislator.
Indeed several EU legal acts have been adopted on this basis without any direct
aim of promoting the internal market, e.g. most recently Directive 2006/54/EC
(gender equality in employment and occupational social security) and Directive
2010/41/EU (gender equality in self-employment).

[68]             See, for instance, consultation reply from
Austria, which has not introduced gender quotas for private company boards
itself, but calls for the EU to set binding objectives and highlights the
advantages of introducing them at the EU level in terms of companies' competitiveness.

[69]                    Egon
Zehnder International Board Diversity Analysis, "European
board diversity analysis 2010 - Is it getting easier to find women on European
boards"

[70]             See point 4.2.3 below for more detail on
the appropriate deadline for compliance.

[71]             The risk of such problems is separately
assessed for all binding policy options, in particular for options 3 and 5
analysing the differences between non-executive and executive board members. See
points 5.4 and 5.6 below.

[72]             Directive 2006/54/EC of the European Parliament and of
the Council of 5 July 2006 on the implementation of the principle of equal
opportunities and equal treatment of men and women in matters of employment and
occupation (recast).

[73]             Self-regulation is defined as the
possibility for economic operators, the social partners, non-governmental
organisations or associations to adopt amongst themselves and for themselves
common guidelines (particularly codes of practice or sector agreements) As the
Single Market Review points out, measures set this way may be quicker to adopt
and may lead to more acceptable results for stakeholders.

[74]             See a detailed overview about Member Stats existing
self-regulation under 6.2 in  Annex 6.

[75]             For example in relation to the appropriate
means for publishing such posts, the process of pre-selecting candidates (e.g. a
certain required percentage of members of both sexes) or even the determination
of the relevant qualification criteria.

[76]             For example, where a major shareholder,
e.g. a family, has the right to individually appoint one or more board members
and traditionally appoints a family member, a publication requirement would be
clearly inappropriate.

[77]             Without targets it would appear to be
possible for companies much more easily, for example, to define the
qualification requirements with a view to maintain the current patterns of
board composition.

[78]             Such a requirement, which would be
insufficient as a stand-alone measure as set out above, would be sufficient as
an element in an instrument also including a gender target.

[79]             Including both privately owned and
state-owned listed companies.

[80]             The high percentage is due to the fact
that these companies mostly  operate internationally and often worldwide

[81]             For the definition of SMEs see: Commission
Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro,
small and medium-sized enterprises (Text with EEA relevance), Official Journal
L 124, p. 36-41, of 20 May 2003.

[82]             For instance, in Germany in listed family enterprises roughly 10-20% have family members among executive and
non-executive directors. The non-executive board also tends to be smaller (5.1
members) than the average board, see: Stiftung Familienunternehmen, Börsennotierte
Familienunternehmen in Deutschland.

[83]             Council Conclusions of 23/24 June 2011,see
at:
http://www.consilium.europa.eu/uedocs/cms\_data/docs/pressdata/en/ec/123075.pdf

[84]             COM(2011)78 (23) final.

[85]             COM(2011) 803 final, Commission Report,
Minimizing regulatory burden for SMEs

[86]             On average, where a big company spends one
euro per employee to comply with a regulatory duty a medium-sized enterprise
might have to spend around four Euros and a small business up to ten Euros
(Report from the Expert Group on “Models to Reduce the Disproportionate Regulatory burden on SMEs”, May 2007).

[87]             Joecks, J. et al (2012). 'Women on Boards and Firm Performance: What
Exactly Constitutes a 'Critical Mass'?' Available at SSRN: http://ssrn.com/abstract=2009234; Kramer, V. et al (2007). 'Critical
Mass on Corporate Boards: Why Three or More Women Enhance Governance'.
Available from http://vkramerassociates.com/writings/NACD%20article.pdf.
Konrad, M. and Kramer, V. (2006). 'How many women do boards need?', Harvard
Business Review, Forethought Gender edition December 2006; Kramer, V. et al (2007). 'Critical Mass on
Corporate Boards: Why Three or More Women Enhance Governance.

[88]             Some Member States have chosen different
targets: NL(30%); IT (33%), (BE 33%) AT (35%).

[89]             In a scenario without SMEs.

[90]             In order to keep the number of options
considered manageable and in view of the fact that effects of a lower objective
of 30% or 35% will be proportionately lower, this impact assessment refrains
from assessing in detail the exact impacts of other conceivable target levels.

[91]             Recalling the general objective of any
initiative to contribute to the Europe 2020 strategy, setting targets to be
achieved by the year 2020 would also represent a symbolic timeframe.

[92]             Such a deadline would also contribute to reducing or eliminating any
risk of negative short-term effects of binding measures as explained in more
detail below under section 5.4.2.

[93]             For example, in Italy, one of the Member
States with the lowest female share of board members (6%), a level of 33% has
to be reached by 2015.

[94]             The final political judgment as to the
appropriate compliance period could also include, within this general
framework, a differentiation based on reasonable expectations concerning the
possibility to comply differing between different areas. For example, in line
with existing regulation in some Member States, e.g. in relation to a binding
objective in Belgium, it may be argued that companies in public ownership
should be obliged to comply earlier.

[95]             None of the policy options were found to
have environmental impacts.

[96]             See point 2.1.5.

[97]             Catalyst (2004). The Bottom Line-
Connecting Corporate Performance and Gender Diversity.

[98]             Catalyst ranked 353 Fortune 500 companies
according to women on top management (bottom quartile: 0% to 5.1% women in top
management; top quartile: 14.3% to 38.3% women in top management) and then
compared their ROE. Companies in the top quartile had a ROE that is 34.1% (or
4.6 percentage points) higher than companies in the bottom quartile.

[99]             Catalyst (2011), The Bottom Line; based on
data from 2005-2009.

[100]            Using ROE as a measure for financial performance
of a company is advantageous because it indicates how the value of a company is
growing. It is also an accounting indicator, meaning that the inputs to
calculate ROE (shareholders equity and net income) are published in the company
accounts, allowing for accurate measurement of the indicator.

[101]            'Women at the top of corporations: Making
it happen'.

[102]            Ernst&Young (2012, Mixed Leadership)
based on the 250 biggest companies in the EU, reports comparable results if
there was at least one woman on boards, companies had, over a period of 5
years, a 89% better performance. Lückerath-Rovers, Women on board and firm
performance, 2010, based on 99 Dutch listed companies in the period 2005-2007
found a difference in the ROE of 110% in companies with women on board compared
to companies without women.

[103]            Due to lack of information by board type,
it was assumed that both effects would impact on ROE separately and that the
effects can be added.

[104]            For individuals: (a) net benefits are
calculated based on gross earnings, income tax, social contributions,
transfers, unemployment benefits, and grants; and (b) costs are calculated
based on direct costs and forgone earnings whilst in education. For the public
sector: (a) net benefits are calculated based on forgone taxes on earnings,
income tax, social contributions, transfers, unemployment benefits and grants;
and (b) costs are calculated based on direct costs.

[105]            As even non-binding measures on gender
diversity are often combined with an obligation to make the situation transparent
it is assumed that this administrative burden would also arise for a
non-binding measure.

[106]            Fourth
Council Directive 78/660/EEC of 25 July 1978 based on Article
54(3)(g) of the Treaty on the annual accounts of certain types of companies.

[107]            Including, for example, for female
entrepeneurship.

[108]            The figures presented for all options in
this impact assessment are based on the Matrix study and are based on a
scenario without SMEs.

[109]            It is calculated as the difference between
the participation of men and women divided by the participation of women.

[110]            The unadjusted gender pay gap is the difference between hourly wages of
male and female employees which has not been corrected according to individual
characteristics that might explain part of the earnings difference. It
comprises both potential discrimination and pay discrepancies that are not
related to discrimination as such.

[111]            See footnote 1.

[112]            For more details on these assumptions
consult Annex 8.

[113]            See above point 4.2.3.

[114]            See above point 4.1.2.

[115]            These considerations concerning the shape
and form of transparency obligations are identical for all the following
options including legally binding objectives. They are not repeated in the
assessment of those options.

[116]            Under the assumption that a derogation for
cases of lack of equally qualified female candidates will allow companies to
justify non-compliance, the feasibility of implementation was not analysed more
in detail for sectors like the automobile or chemistry industry, where the
highest numbers of additional women will be required.

[117]            The assumption of full compliance is made
for all binding measures.

[118]            Ahern, Dittmar, 2011, The
changing of the boards: the value effect of a massive exogenous shock.

[119]            Nygaard (2011) finds that
investors anticipated the new (female) directors to be more effective in firms
with less information asymmetry between insiders of the firm and outsiders.
Firms with low information asymmetry experience positive Cumulative Abnormal
Returns (CAR). Dale-Olsen et al (2011-2012) came to the result that the
Norwegian reform contributed to increase return n assets for a previously badly
performing firm.

[120]            Annex 9 provides further
background information on the Norwegian case.

[121]            The average annual investment costs per company are
estimated at € 3.327 for the period 2017 – 2020 and € 600 for the period 2021 –
2030.

[122]            The idea of a flexible target as such has
been mentioned by some German stakeholders, as it has been proposed in the
first place by the German Minister in charge of the file.

[123]            The average annual investment costs per company are
estimated to be € 4.821   for the period 2017 – 2020 and €915 for the period
2021 – 2030.

[124]            E.g. Frauen in die Aufsichtsräte e.V.
(FidAR).

[125]            See
table 8 in Annex8

[126]            The average annual investment costs per company are
estimated to amount to €5,311
for an average company for the period 2017 – 2020 and of €1,011 for the period
2021 – 2030.

[127]            See for instance the proposal for the Capital
requirement Directive 4 (CRD4).

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