03
Mar

Women on Boards: Next steps for business

Despite clear evidence that diversity contributes to corporate success, women are still underrepresented in boardrooms across Europe. European Commission President Ursula von der Leyen addressed this topic recently, calling for increased gender balance across the directors of listed companies.

The President of the Commission has spoken – what happens now?

In her speech, Von der Leyen referred to the legislative proposal for improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures – which has been paused since 2012. This is due to the several EU Member States historically blocking its progress in the Council, deeming it to be an issue best dealt with at a national rather than EU level.

But President von der Leyen is confident that now is the time to bring the proposal back to the table.

Currently, the proposal would set a need for a minimum of 40% of non-executive members of the board being of the under-represented sex. For member states that choose to apply the objective to both executive and non-executive directors, a lower target could apply.

If the current French Presidency manages to take the proposal forwards, an agreement on the proposal can be expected by the end of June 2022 and EU-wide implementation by 2024. 

What is the current state?

The Gender Diversity Index 2021, which looked at 668 European companies, shows that the board level is the governance level with the highest participation of women, currently at 35%, an increase of 1% from the previous year. This means that while female representation will differ across boards, the proposed legislation is not going much further than the current reality across the companies reviewed. While there are some signs of progress, only 9% of the chairs of the companies studied are female. There is a clear opportunity for companies to go further and faster than the proposed legislation.

A recent report on Board Diversity and Effectiveness FTSE 350 Companies found that higher levels of gender diversity of FTSE 350 boards positively correlate with better future financial performance, contribute to higher stock returns and shareholder support, leading to up to a 21% higher stock price [1].

How can we increase board diversity?

In preparation for impending legislation on gender diversity on boards, companies and their existing boards should:

1. Become vocal champions for board diversity

Articulate any changes made to increase board diversity, and the impact it has had on board effectiveness and company performance. Encourage other boards to follow the changes made. Dispel harmful narratives around a conflict between gender equality and meritocracy.

2. Get ahead of legislation and work with policymakers to ensure ambitious, effective rulemaking

Start making the changes now to be ready for incoming legislation. Engage with policymakers to ensure any legislation is ambitious and effective in driving real change, including sharing best practices and lessons learnt.

3. Review board nomination processes and criteria

Root out any biases and barriers that mean the processes and the evaluation criteria that may hinder the progression of women onto boards, including rejecting all-male shortlists. Engage the executive search firms that support your board searches to ensure they’re also prioritising diversity considerations and not just going to the same set of candidates each time.

4. Support diverse board leadership development programmes
Work with these programmes to support the development of diverse future board members, including providing access to networks, training, and mentoring.

We are encouraged by the legislative proposal and expect to see more companies achieve gender parity on their boards in the coming years, hopefully having a spill-over effect on other levels where women are under-represented, – not least the executive C-suite. It is imperative that companies consider gender equality at every echelon of their organisation. A topic which we cover in our latest blog.

Read the Gender Diversity Index 2021 here.

 

[1] FRC Board Diversity and Effectiveness in FTSE 350 Companies 2021: https://www.thecorporategovernanceinstitute.com/insights/news-analysis/board-diversity-leads-to-better-profits/