Gender Quotas on Corporate Boards

This week, the European Commission unveiled its proposal for an EU directive on gender balance on corporate boards.  Gender balance means that women must constitute at least 40 percent, and not more than 60 percent, of the board to which the requirement applies.  Over the last few years, there has been a robust debate about the importance of women’s participation in economic decisionmaking, catalyzed in part by Norway’s success in requiring gender balance on the corporate boards of its publicly traded companies.  Supporters of measures to achieve gender balance have focused on the importance of gender equality to the good governance of well-functioning legitimate institutions, including corporations.  Studies cited by the Commission in its proposal claim that women’s participation in leadership improves companies’ economic performance and growth. 

Several member states have passed legislation imposing gender quotas on corporate boards in the last several years (Spain, Italy, Belgium, the Netherlands, and France), or are in the process of doing so (Germany).  However, some of these countries have joined the UK in opposing EU action in this field.  The sticking point is sanctions:  The recently adopted gender quotas laws in various jurisdictions impose a range of sanctions for boards that fail to comply.  None of the EU member states have followed the Norwegian model of dissolving companies by court order should they fail to reach gender parity.  In France, the law provides for the invalidation of any nomination of a board director if appointing the candidate would cause the board to exceed 60 percent of one gender. 

Although the Commission's proposal was supposed to be publicized in late October, there was a delay due to disagreements about appropriate sanctions.  Discussions since last year suggested that the proposed directive would impose sanctions in the form of fines on corporations that failed to comply.  However, the current proposal largely leaves the question of sanctions to the member states.  Nonetheless, it does require one mode of enforcement:  a cause of action for candidates of the underrepresented sex (women) who can show that they were qualified for a board position but passed over in favor of an equally- or less-qualified candidate of the overrepresented sex (men) for a corporate board that has failed to achieve the legally prescribed 40% minimum for each gender.  Thus, lawsuits modeled on employment discrimination claims could become the primary enforcement scheme. 

Will this shift from public to private enforcement be effective in bringing about gender balance?  By imposing the burden of enforcement on unsuccessful women candidates, the private enforcement scheme encourages and perpetuates the perception that these women have the strongest stake in gender-balanced boards, and that they have the most to lose when companies remain run by men.  Such messages undermine the most powerful justification that has been advanced for gender quotas, namely the claim that women’s participation in economic decisionmaking is in the best interests of corporations and the democratic societies in which they operate.  If gender balance will improve corporate governance and economic growth for all, it makes little sense to concentrate the burden of enforcement on these women.