Bending the gender agenda

Last month, EU Justice Commissioner Viviane Reding faced a setback when voting was delayed on her proposal to introduce mandatory quotas for women on EU-listed company boards. Concerns were raised about the legality of her proposals. She tabled a revised proposal last week, which the European Commission has now published in the form of a draft directive.

The directive sets a target, but not a mandatory quota, of at least 40 per cent for the ‘under-represented gender’ of board members by January 2020. (For ‘under-represented’, read women, given the current make-up of these corporate boards.) Importantly, this applies only to non-executive directors, although companies will need to set voluntary targets for executive directors. Sanctions will apply for failing to set targets but not, as originally planned, for failing to meet them.

The 40 per cent target is more ambitious than Lord Davies’ 25 per cent for UK listed companies in his 2011 report on Women on Boards, although his target comprises executive and non-executive positions.

Companies that fail to meet the 40 per cent target will need to explain why they have failed and report on what measures they are taking to meet it in future. They will also be obliged to operate a form of positive action for non-executive appointments, appointing the under-represented sex if there are equally qualified candidates of both sexes. They can override that if, on an objective assessment, something ‘tilts the balance’ in favour of the other candidate.

There is some scope for positive action under existing English law. If an employer reasonably believes that those with a protected characteristic (eg women) are disadvantaged, it can take reasonable steps to help them overcome that disadvantage. The Equality Act 2010 also introduced a voluntary provision enabling positive action in recruitment and promotion. An employer can use this to appoint a woman over a man as long as she is “as qualified as” other candidates. In our experience, it is rare for two candidates to be so evenly matched. This has had limited use to date in the private sector but it may now come to the fore. However, the concept of ‘tilting the balance’ is less well developed and, as a result, could create challenges for advisers and employers alike.

Recruitment and promotion decisions will come under even greater scrutiny. Employers will be conscious of the pressure to appoint on merit, avoid tokenism and select fairly while being aware of the focus on increasing female representation. They will be sensitive to the risk of discrimination claims from either gender - men who are not appointed due to positive action and women who are unsuccessful when the balance tilts in favour of a man.

The revised proposals are a better fit with the voluntary ‘comply or explain’ approach that the UK has so far taken on boardroom diversity. Unsurprisingly, the Government, which opposed the idea, welcomed the decision not to impose a mandatory quota. However, Reding has not given up the idea altogether and, if satisfactory progress is not made, mandatory quotas could be back on the (board) table.