Female board quotas will impact EU funds

The EU has proposed legislation to force Europe’s companies to hire more women non executive directors. The proposed legislation will require large European companies appoint females to boards, over equally qualified male candidates, unless women already occupy at minimum 40 percent of the board positions. The intention is to make European companies have 40 percent of their board positions occupied by women by 2020.The legislation has been proposed by EU Justice Commissioner, Viviane Reding. It has to be approved by the European parliament before becoming law. Assuming that this occurs, European companies failing to comply with the measure will face sanctions.  Additionally, unsuccessful female candidate for non executive directorships will have the right to ask the company that has rejected them to disclose the qualification criteria upon which their selection was based.Ms Reding’s proposals don’t impose a mandatory quota but they do introduce administrative penalties to force companies to appoint more female non executive directors. There is a concern that these proposals will tie companies up in litigation by unsuccessful female board candidates who do not agree selections that don’t go their way. An EU official played down the risk of lawsuits but acknowledged that companies’ fears of being tangled in litigation cases would be an incentive for them to meet the 40 per cent target.According to a report in the Financial Times, Ms Reding said the EU Commission will take legal action against any member state that failed to apply sanctions to non-complying companies. “Sanctions are going to be applied to companies that have less than 40 percent quotas and who are not putting in place an open system for the selection of the candidate to replace an outgoing board member and who do not chose the woman in order to fill the gap if the woman is qualified,” she said.In particular companies will have to show that their board selection decisions are transparent. Pressure is also likely to apply to those small and medium sized enterprises not covered by these proposals to do the same. This includes the asset management industry, at least for the boards of EU domiciled funds.In the research study conducted by The NED with investors and managers only 47 percent of respondents said that fund boards should have more female directors. In the same survey gender came last out in terms of selection criteria used by managers for their board positions. And whilst only 13.7 percent of board positions in Europe’s largest companies are filled by women, the number of female occupants on European fund boards is estimated to be well under half this (already low) number.