Germany Will Require Companies To Make Boards 30 Percent Female

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Companies listed on the German stock exchange DAX will need to make sure at least 30 percent of the members on their supervisory boards are women by 2016, according to a proposal agreed on by the two largest political parties during talks on forming a broad coalition government over the weekend.

German companies have two boards: a management board that works with the CEO to help run day-to-day operations and supervisory boards that are more similar to those in the United States. The quota would only apply to the latter for now, but the Social Democrats’ main negotiator in a working group on families and women said rules for the former will come in the future. The proposed legislation came out of negotiations between Chancellor Angela Merkel’s conservative party and the Social Democrats.

Among the 30 biggest companies on the DAX, 22 percent of the members of the supervisory boards are already women and 12 percent of executive board positions are held by women.

Other countries have instituted quotas or guidelines for how many women need to be on corporate boards. Norway took the first step by enacting a 40 percent requirement, and since then Belgium, France, Italy, the Netherlands, and Spain have passed similar laws. While the United Kingdom hasn’t set a quota or requirement, in 2011 it published a recommendation of a 25 percent female target by 2015 plus other requirements for more transparency and better policies for increasing diversity on boards. European Union Justice Commissioner Viviane Reding has proposed a 40 percent quota for the whole region, which was approved by two European Parliament Committees and will be considered in a plenary session of the Parliament in mid-2014.

The United States, on the other hand, hasn’t set any requirements or goals and instead has left changes in diversity to voluntary efforts. The few rules that do exist, issued by the Securities and Exchange Commission in 2010, only require companies to disclose information about how they take diversity into account when selecting their boards, yet most companies fail to comply with even that small nudge.

Quotas and targets have had a big effect on boosting gender diversity on boards. Norwegian companies’ boards are now 35 percent female and women hold 18 percent of senior management positions. The percentage of board positions held by women in the 100 biggest companies listed on the London stock exchange is now at 19 percent, the highest ever. In the U.S., however, women hold just 16.6 percent of the board seats on Fortune 500 companies, and there hasn’t been any progress in seven years. Fifty companies don’t have any women on their boards at all.

Yet there is ample evidence that increasing gender diversity on boards isn’t just the right thing to do, it is also a smart business decision. One study found that the stock price of companies that had women on their boards outperformed those that didn’t. Another found that companies with gender diverse boards on a particular stock index outperformed male-only ones by 26 percent over six years. Yet another found that Israeli companies with at least three women board directors who showed up at meetings had significantly better returns than those that didn’t. And a survey of 600 board directors found that women make decisions that lead to better performance.