Add Germany to the mounting list of European countries that are making legislative efforts to ensure women hold leadership positions in the nation’s top companies.
On November 25, German Chancellor Angela Merkel and her coalition parties agreed to draft a law that would require that Germany’s top companies allocate 30 percent of their nonexecutive board seats to women. The legislation will be decided upon later this month and would go into effect in 2016.
Germany is only the latest in a long list of European countries that have already taken such steps. In fact, it was more than a decade ago that Norway took the lead in imposing a gender quota that forced public limited companies to have at least 40 percent of their board members be women—the first country in the world to require gender diversity in corporate leadership. Since then, France, Spain and the Netherlands have instituted similar requirements, and Sweden is poised to do so as well.
The decision of Germany—the strongest economy in the EU—to join these diversity efforts may not be surprising to some. Despite the fact that the country has a female leader and about 40 percent of the cabinet is female, just 6 percent of management board positions and 22 percent of supervisory board seats are held by women at companies in Germany’s benchmark DAX Index.
But research has unequivocally shown that a female leadership at a company’s highest level has myriad benefits, as we’ve previously discussed on this blog. By way of recent examples, the Director Gender and Mergers and Acquisitions study conducted by the University of British Columbia’s Sauder School of Business, demonstrated the cost of a successful acquisition is reduced by 15.4 percent with each female director added onto the board.
And the benefits go further than just board seats. A recent Credit Suisse study found that when comparing businesses where women make up less than five percent of the top operational jobs to those where more than 10 percent of these key positions are held by women, the company receives a 27 percent higher return on equity and a 42 percent higher ratio of dividend payouts for those with greater gender diversity.
While Europe seems to consider the statistics and recognize the importance of women in leadership positions (see the EU Commission’s efforts on gender diversity), there’s still much to be done on really moving the dial to increase female representation on boards—in Europe, the U.S. and around the world. To date, California is the first and only state in the U.S. to enact similar legislation with its Senate Resolution 62. While the legislation doesn’t require California companies to place women on their boards, it does encourage those with nine or more director seats to fill at least three of them with women in the next three years. There are, however, no penalties for noncompliance.
Yet, compliance isn’t the only factor, and failing to follow a guideline like SCR 62 comes with a shroud of shame. More and more stakeholder audiences are demonstrating that they care about the makeup of the organizations they do business with, and want to see change—even if that change is only because of its impact on the bottom line:
- Activist shareholders are demanding board diversity, especially in the tech sector.
- Public policy group The Committee for Economic Development is pushing for 30 percent female representation on corporate boards by 2018, achieved through dialog with board nominating committees (vs. legislation).
- There are even certifications to recognize companies for their gender practices (L’Oreal USA was recently EDGE certified), helping to increase their investment potential.
And then we must remember two of the largest and most important constituents – employees and customers. These stakeholders vote everyday with their time, their loyalty and their dollars, and more and more of them are paying attention to gender diversity in leadership.
So what does all this boil down to? There is a broad realization that gender diversity is good for business—the research and the actions of other developed and economically strong companies underscore that fact.
There is a broad realization that gender diversity is good for business—the research and the actions of other developed and economically strong companies underscore that fact.
While some companies in the U.S. and abroad have a culture that supports gender diversity— both in the organization as a whole and on their executive boards—many more don’t. And more and more governments are stepping in to give them that push they need.
Every company has the same goal: attract the best talent in an effort to conduct business ethically and live up to shareholder expectations. Gender diversity—from the top down—is an essential component in that effort. Whether by law or by will, we will see the makeup of corporate boards around the world transform quite dramatically over the next several years.