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Another crack in the glass ceiling

Home / Hermes EOS Blog / Another crack in the glass ceiling

Heralded by the country’s justice minister as the “greatest contribution to gender equality” since German women won the right to vote, the Frauenquote has given new impetus to the gender quota debate. The new mandatory quota requires all German listed companies that are subject to co-determination(Mitbestimmung) to have 30% of their board seats occupied by women. This means that the 30% quota will apply to approximately 108 large companies. The new law also compels another 3,500 medium-sized companies to set their own internal quotas. Failure to comply will result in empty board seats – at least until suitable candidates have been found.

Changing the corporate mindset
Gone are the days when the focus was on whether a more gender diverse board drives company performance – an increasingly established body of evidence answers this question in the affirmative.[1]The question now is whether gender quotas will deliver on their promise of a changed corporate mindset that will provide long-term upward mobility for women. In an ideal world, the diversity resulting from the imposed quota would trickle down to other echelons of management, allowing the whole company to benefit.

Will the German quota be able to fulfil its promise? It must first be said that there is no one-size-fit-all answer to the question of quota effectiveness, which is why quotas must be evaluated on a case-by-case basis. Factors such as Germany’s progression towards gender diversity on boards, the impact and robustness of self-regulation and the feasibility of the target set all need to be considered.

Doubts
In Germany’s case, doubts about the quota’s ability to deliver abound. They range from criticism that the quota should have been set for the executive board (Vorstand) – the centre of corporate decision-making – or perhaps more feasibly, for a range of senior management positions within the company instead of for the supervisory board (Aufsichtsrat) to the claim that Quotenfrauen, the name for women who have been given a post merely to fulfil the quota system requirements, are considered a burden rather than enrichment for the company, which is the exact opposite of the quota’s intended effect.

Application across Europe
While these are valid concerns, self-regulation has not yet led to significant progress for German women. The voluntary agreement that was struck between the Federal Government and the central industry associations in 2001 has to date made meagre progress for women in leadership positions. And while the gender diversity efforts of the German Corporate Governance Commission seem to have been more fruitful, they still have not gone far enough. In France meanwhile, similar laws on quotas have shown great promise. The country is far ahead of its 20% interim target of reaching 40% female representation on company boards by 2017.

The success of the German board quota is particularly important when considering the wider European context. While not the first of its kind – board gender quotas have slowly gained traction in European countries since pioneering in Norway in 2003 – the German gender quota carries particular weight because of its timing. A draft European directive calling for a minimum of 40% women on boards of companies listed in Europe by 2020 could be edging closer, with the European Commission aiming to agree on the proposal later this year. The looming prospect or perhaps threat of EU-wide legislation, combined with the introduction of the Frauenquote might give other European countries the final push towards the establishment of gender quotas for their own corporate boards.

Whether the German quota will drive greater levels of diversity in the long term remains to be seen but the glass ceiling in Europe has certainly incurred another substantial crack.

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Maxine Wille Maxine Wille focuses on engagements in the consumer goods and retail, financial services, industrials and technology sectors. Prior to joining Hermes EOS, Maxine completed an internship at Erste Group Bank. She holds an MA in International Relations from Edinburgh University, a Masters degree in Management from Cambridge University, the CFA Institute’s Investment Management Certificate and is currently a CFA Level I Candidate. She speaks French and fluent German.
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