Economy

Companies In This Country Now Have To Have At Least 30 Percent Women On Their Boards

CREDIT: AP/Markus Schreiber

German Chancellor Angela Merkel and members of parliament

On Friday, Germany passed a law that will require companies to give 30 percent of supervisory board positions to women.

The quota will apply to the country’s 100 biggest companies by next year, where women currently hold just 18.6 percent of board director seats. Another 3,500 have until September 30 to submit their plans for increasing the share of women on their boards.

The fact that German companies have less than 20 percent women on their boards means that the country is surpassed by many European peers. Norway tops the list with 35.5 percent female boards, followed by Finland, France, and Sweden, which all have just under 30 percent female representation, and Belgium, the United Kingdom, Denmark, and the Netherlands, which all have above 20 percent.

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CREDIT: Catalyst

What makes these countries stand out is the policies they already put in place for board diversity. Noway was the first to pass a gender quota in 2008, while France, Finland, Belgium, the Netherlands, and Denmark have all since followed suit. Sweden and the United Kingdom don’t have binding laws, but the former has threatened to institute one if companies don’t increase diversity, while the UK set a goal of 25 percent women on boards that spurred rapid diversification. Spain, Iceland, and Italy also have quotas.

Women’s global progress toward equality in board representation has been slow. Their share of seats had only increased by 1.7 percent since 2009 as of 2013. Most of that progress has taken place in Europe, where these quotas are common.

In the United States, by contrast, growth has been slower. Women make up less than 20 percent of board positions at S&P 500 companies. A different measure, of companies in the Fortune 500, found in 2013 that women made up less than 17 percent of seats and hadn’t made inroads in eight straight years. There are more men named John, Robert, James and William on American boards than all women combined.

The one rule the U.S. has for gender diversity on boards lies with the Securities and Exchange Commission, which requires them to disclose how they consider diversity when choosing board members. But it’s so vaguely written that few companies take it to mean gender or racial diversity, instead focusing on experience or background. Some also comply with the rule by simply saying they don’t take diversity into account.

Quotas, on the other hand, appear to work, at least when it comes to increasing women’s representation on boards. Norway’s quota hasn’t just significantly increased the number of women on boards, but has also increased the quality of female candidates. Other research has found that since it’s been in place, corporate directors now value women’s contributions and have come to support it.

Companies also stand to benefit from better board diversity. One study found that companies with more than one woman on their boards have seen a 3.3 percent better stock market return since 2005 than those that are all male, while at least two other studies have come to the same conclusion. Gender diversity also leads companies to make decisions that protect company value and performance and away from those that lead to fraud, corruption, or other scandals.