Gender imbalance in corporate boards in the EU – public consultation

A. Introduction

Directors’ Institute of Finland (in Finnish ”Hallitusammattilaiset ry”, below “DoF”) is an association for professionals actively involved in board work. The Institute’s corporate membership constituency also includes the largest Finnish institutional investors. DoF is the Finnish member organisation of the European Confederation of Directors’ Associa-tions (ecoDa). DoF is pleased to present its views in the EU Commission consultation on gender equality in corporate boardrooms.

The question of gender diversity in corporate boards has been very topical and subject to lively public discussion within the EU as well as in many member states for some time. The focal point of the discussion is not whether representation of both genders on corporate boards is an objective worth pursuing – this is a commonly shared view – but rather what the problems are in aspiring towards this objective and what means should be employed, i.e. binding quotas or self-regulation.

The gender equality issue can be seen as an element of social justice and, as such, as part of the political agenda. Opinions differ substantially on whether legislation is the best way in fostering this agenda.

DoF approaches the issue of gender balance purely from a corporate governance point of view. Also viewed from this angle, the issue is complex and entails many different aspects. In the following, and before turning to the specific questions, DoF will address the issue at a general level.

B. General

Where opinions do not seem to differ is that diversity in general – including gender di-versity – is good for the boards. It expands the pool from which well-educated and skilled individuals may be appointed to corporate boards. Increased diversity also en-hances a composition of the board where issues are viewed from a variety of angles and viewpoints. Both aspects are good and important from a corporate governance point of view.

However, when considering what route to pursue in promoting gender equality – bind-ing quotas or self-regulation – it is also important to keep in mind that a forced acceler-ation of the development is associated with a number of problems. First, corporations are operated at the economic risk of their shareholders. The right to determine the composition of the board is a fundamental right of the owners and the board owes its fiduciary duties to the owners. Any intervention by public means to regulate the com-position of the board constitutes a restriction of the owners’ proprietary rights. Second, the ideal overall composition of the board is a complex issue and affected by a multi-tude of factors. Succession planning and maintaining the right composition of the board is a long-term process and any intervention restricting the choice of the owners constitutes a disruptive event that should be implemented with extreme care and over a sufficiently long period. Third, it is widely recognized that the fundamental problem in recruiting more female board members is the underrepresentation of women in the executive management – the main recruitment source of board members. Hence, in order to deal with the problem in a sustainable fashion, the focus should be on measures that enhance increased participation of women at the top executive level, such as mentoring, training and, where necessary, attitudes.

While DoF considers that a better gender balance in the boardroom is good for busi-ness, DoF also firmly believes that the furtherance of this objective is best made in co-operation with the market participants (the institutional investors and the listed com-panies), i.e. through self-regulation.

Circumstances, culture and statistics on the topic of gender representation in corporate boards differ significantly in the different EU member countries. Therefore, it should be left to the individual member states to decide on which are the best and most appropri-ate measures to achieve a better gender balance. In the view of DoF, it would not be consistent with the subsidiarity principle of the EU to implement EU-wide regulation on the topic.

Interventions in the composition of boards through legislative measures will inevitably cause disruptions which have negative impacts at least for an interim period, seen from the perspective of good corporate governance. In light of this, it is more important that the development firmly moves in the right direction than that it takes place at a very high speed. Contrary to what has been frequently stated in the public debate, DoF is convinced that the development towards a better gender balance can take place at a sufficient pace based on self-regulation, as is evidenced by the statistics from Finland and Sweden referred to below. The statistics demonstrate that female representation on the boards of listed companies has increased very significantly over the last few years based on soft measures, such as self-regulation, a constructive debate and changes in attitudes.

C. Specific Answers

1) How effective is self-regulation by businesses to address the issue of gender imbalance in corporate boards in the EU

As stated above, the Finnish corporate world, alongside Sweden, has been very successful in increasing the female representation on the boards of listed compa-nies over the last few years. We refer, in particular, to the following statistics from Finland and Sweden in this respect:

In Finland, the share of women in board positions has increased significantly as a result of self-regulation based on the “comply or explain” – principle without the introduction of mandatory quotas for women. A study performed by the Central Chamber of Commerce of Finland in the spring 2012 shows that both genders are represented in the board of directors of a total of 86 % of Finnish listed compa-nies, with the comparable number for year 2011 being 78 % and for year 2008 only 51 %. All Finnish large and mid cap companies listed on the Helsinki Stock Exchange have boards consisting of both genders. The share of women on the board of directors of all listed companies is 22 % in 2012, compared to 18 % in 2011, 12 % in 2008 and only 7 % in 2003. The share of women on the boards of large cap companies is 28 %, in mid cap companies 23 % and in small cap compa-nies 16 %. The corresponding numbers of last year (2011) were 26 %, 19 % and 12 %.

Also in Sweden, the share of women in board positions has increased from 6 % in 2002 to close to 23 % in 2011 (with the preliminary number for 2012 being 23.8 %) without the introduction of mandatory quotas for women. The share of women in board positions in the 30 largest listed companies is expected to be 27 % in 2012.

The above statistical facts speak for themselves. DoF has every reason to believe that this development in Finland and Sweden will continue and that a reasonable gender balance will be achieved in Finland and Sweden through self-regulation. The same should be true also for other countries dealing with the gender issue proactively. There is no reason for the EU to intervene by implementing binding quota legislation, where the member states are able to deal with the issue through other, less radical and more appropriate measures. As stated above, in-tervention through binding quotas on an EU-wide basis would be contrary to the principle of subsidiarity.

2) What additional action (self-regulatory/regulatory) should be taken to address the issue of gender imbalance in corporate boards in the EU?

The owners of the corporate governance codes in the various member states together with the main market participants should be encouraged to review their governance code to determine whether this code in its present form is adequate and up to standard on gender balance. The examples of Finland and Sweden give every reason to believe that adequate measures in these respects will have the desired effect. While the codes are in general based on the “comply or explain” – principle, allowing flexibility where needed, they are an important instrument for impacting attitudes and implementing changes and developments. Particular at-tention should be paid to the quality of the explanations where recommendations are not followed. This could be coupled with the requirement to have a gender diversity policy with an obligation to report on concrete steps taken to implement this policy.

The corporate world, through directors institutes and similar associations, should also be encouraged to organize activities, such as structured mentor programs, training and public discussion on the question of gender diversity in the board-rooms and in business in general.

3) In your view, would an increased presence of women of company boards bring economic benefits, and which ones?

Academic studies and other research are frequently referred to suggest a positive correlation between gender diversity, corporate performance and to long-term sustainability. However, study results are conflicting and inconclusive and DoF there is no evidence showing causality between gender diversity and financial performance of companies.

Based on general considerations, DoF is of the opinion that a more diverse board, including in terms of gender diversity, promotes richer debate in the boardroom and is good for business.

To be competitive companies will have to make optimal use of the resources available, including in the composition of their boards. Therefore, there is no doubt that being able to recruit board members from a larger pool of qualified candidates is also good for business.

4) Which objectives (e.g. 20%, 30%, 40%, 60%) should be defined for the share of the underrepresented sex on company boards and for which timeframe? Should these objectives be binding or a recommendation? Why?

As the size, nature and culture of business vary considerably within Europe, exact thresholds, if any, should be set at a national (and not European-wide) level, also in line with the principle of subsidiarity.

If any quotas were to be introduced, whether in binding legislation or as part of “comply or explain” based self-regulation, it would be important to have regard to the fact that the quota implementation should not take place at a too accelerated speed, for the reasons discussed above. Moving in the right direction is more im-portant than the speed. Depending on the starting level in the various countries, it may be appropriate to include interim goals and checkpoints to ensure that the development takes place at an acceptable pace, still not too disruptive for corpo-rate long-term succession planning.

5) Which companies (e.g. publicly listed / from a certain size) should be covered by such an initiative?

As stated above, DoF is firmly of the opinion that gender diversity should be en-hanced through self-regulation, not by mandatory law. It follows that any regula-tion under such regime would be applicable to listed companies only. There are also other reasons why binding or non-binding quotas should not be implement-ed for non-listed companies, with the exception of state or other publicly owned companies. The universe of non-listed companies is so diverse, extending from one person owned and run companies to global giants, that it would not be meaningful, and certainly not at this point in time, to regulate this aspect of their operations. The real challenges among these companies are normally at com-pletely different levels.

6) Which boards/board members (executive / non-executive) should be covered by such an initiative?

The Nordic (and Finnish) governance model is a typical one-tier board structure. The board of directors has a supervisory role, but also participates in the strategy setting. The board of directors of Finnish listed companies are almost without ex-ception composed of non-executive members. Any measures aimed at affecting gender diversity – whether based on mandatory quotas or self-regulation – should be limited to the boards of directors.

In the Finnish governance structure the board of management is an informal, non-statutory body operating under the authority of the CEO, whose role is well defined in the company law. Implementing any gender diversity rules on the in-formal board of management would involve a number of problems which cannot be addressed here.

7) Should there be any sanctions applied to companies which do not meet the ob-jectives? Should there be any exception for not reaching the objectives?

As repeatedly stated, DoF strongly opposes any mandatory diversity quotas. It then follows that any sanctions would apply in cases of “non-compliance”, the most obvious one being an explanation, sufficient in quality. Attention should be paid to increasing the quality of explanations in general, and on gender diversity issues in particular. Measures towards this have already been taken by the owner of the Finnish Governance Code in cooperation with the Stock Exchange. If the implementation of a company’s gender policy would not meet its goals, “name and shame” would operate as an efficient de facto sanction. This would be par-ticularly true if the national code contained a roadmap for achieving certain levels of female representation through defined milestones.

Finally, and in the event that the self-regulatory measures were proven to be inefficient in a particular member state, there would always be the possibility for that particular state to implement mandatory quotas through legislation. If such a solution was to be made in a member state, a variety of different potential sanctions, could be introduced.

Yours sincerely,


Tomas Lindholm                         Maarit Aarni-Sirviö
Chairman                                    Secretary General