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Bar News - December 14, 2012

Opinion: EU Gender Quota Causes Concern


The Commission of the European Union (EU) has proposed legislation that would require its 27 member states to mandate that women hold 40 percent of non-executive seats on public company boards by 2020. Should women applaud? Iím not entirely convinced they should.

As much as I welcome gender initiatives, these mandates cause concern, not least because they deflect attention from the merits of the women nominated, create resentment, lead to allegations of tokenism and are often accompanied by protracted legal challenges. Although, I also understand that faced with the ineffectiveness of voluntary efforts to date, the EU believes that it has no choice but to mandate quotas.

Since its inception in 1957, in an effort to achieve substantive equality for women, the EU has adopted a variety of hard and soft law measures conferring equal and special rights and requiring gender mainstreaming in public policy. However, due to discontent with thus-far unachieved goals of equal economic independence and gender equality in decision-making, the Commission and the EU Parliament are demanding the enactment of additional measures intended to be more institutionally transforming, both in terms of womenís participation in politics and in company boardrooms.

The Commissionís quota proposal is buttressed by the fact that while about 60 percent of university graduates in the EU are women, only 12 percent are board members of its biggest listed companies, with only 3 percent being presidents of those companies, suggesting that formal access to the labour market alone is not the solution to discrimination.

The problem of inequality in decision-making is not confined to the EU. In March 2012, GMI Ratings published the "Women on Boards Survey," which analyzed gender diversity on the boards of directors of S&P 1500 companies. The survey found that an average of 12.6 percent of board members at these companies were women, and that overall, the United States ranks 11th in boardroom gender diversity out of 45 countries.

In calling for legislation mandating gender quotas in the EU, the Commission is not entering unchartered waters. In 2003, Norway mandated that women fill 40 percent of the seats on company boards, and its publicly traded companies were given until 2008 to comply. Other European countries enacted similar measures, including France, Italy and Belgium. Additionally, there are some quotas in state-owned enterprises in other countries; including Ireland, Israel and Switzerland, as well as at the local government level in Montreal, Canada.

Much has been written about the pros and cons of board quotas. Those on the pro side assert that gender diversity leads not only to greater equality, but also to better business performance and economic gains for companies. There is also evidence that more diverse boards exercise greater and more diligent oversight, and in light of the recent global economic and financial crisis, this increased oversight should be welcomed.

On the other side of the debate, those who oppose mandates argue that gender diversity does not guarantee viewpoint diversity, and even if it does, there is no definitive proof that diversity makes a positive difference. Rather, there is evidence that any difference in Norway has been negative. A 2010 study by the University of Michigan indicated that mandates in Norway did nothing to improve the calibre of the boards or corporate governance; rather, companies performed 20 percent worse the year after the imposition of mandates.

Efficacy arguments aside, quotas have to be considered in their legal context. If quotas are mandated in the EU, they will be the offspring of delegated institutional authority, wherein the form and reach of equality measures is limited only by the inability of the member states to agree, and not by the terms of any written constitution. In direct contrast, legislating quotas on the basis of sex in the US would violate formal equality contained in the Equal Protection Clause of the Fourteenth Amendment to the US Constitution.

In sum, EU-style mandates arenít likely to happen in the US. Moreover, to the extent that EU mandates, if adopted, would affect US companies publicly listed in any EU country, they would likely be challenged as illegal. Ironically enough, many US companies publicly listed in the UK already comply with its governmentís voluntary commitment to gender equality; including McDonalds, DELL, GE, IBM and National Grid.

The absence of mandates in the US means that while voluntary efforts to achieve diversity are the norm, they have proven to be disappointing. A 2011 report from the Alliance for Board Diversity found that in the Fortune 100 companies, between 2004 and 2010, white men increased their presence by adding 32 corporate board seats while African-American men lost 42 and women saw no appreciable increase in board seats.

Possibly, the 2009 SEC Disclosure Rules, which came into effect in 2010, will aid the voluntary effort. These rules require publically traded companies to disclose how they view diversity in the corporate boardroom, both in terms of ethnicity and gender. Specifically, they must disclose whether diversity is a factor in considering candidates for nomination to the board of directors, how diversity is considered and how the company assesses the effectiveness of its policy for considering diversity. It remains to be seen whether these Disclosure Rules result in only abstract disclosure for most companies, or achieve real institutional change.

Licensed to practice in NH and NY. Denise MacLeod holds an LLB from London, an LLM from Cambridge, England, and an MBA from Plymouth State University. She is a candidate for a PhD in law at the University of York School of Law, England, where she currently teaches under a teaching scholarship awarded in 2010.

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