This summer, a political agreement was reached between the European Parliament and the European Council on a directive aimed at improving the gender balance on the Boards of EU listed companies. First proposed by the European Commission in 2012, the directive has been a long time coming, and persistent statistics have continued to prove its relevance.
With European countries registering more female university graduates than males, it would certainly appear that there is no shortage of highly qualified women in the EU – so why do women continue to be underrepresented in high-level positions, including in corporate boards?
With a view to redressing this balance, the recently adopted directive on Gender Balance on Boards of EU Listed Companies sets a target for EU companies listed on the EU stock exchange. It requires EU member states to legislate that a minimum of 40 per cent non-executive Directors or 33 per cent of all Director positions are occupied by the underrepresented sex on company boards. Further to this, companies must ensure that board appointment procedures are clear and transparent, and that applicants are assessed objectively based on their individual merits, irrespective of gender. But is the directive justified, and above all, necessary, to achieve gender balance on company boards?
European Commissioner for Equality Helena Dalli believes that the directive is as relevant today as when it was proposed in 2012. “Ten years ago, progress towards equal representation was only occurring in countries that set gender balance targets by law or policy. After slow and uneven progress over the decade since the directive was proposed, advancement on gender equality within boardrooms was stalling,” she affirms, noting that today, only one third of members of non-executive corporate boards are women.
Referencing the fact that 60 per cent of current university graduates are female, the Commissioner says there is a vast pool of untapped skills and talent among women that can contribute towards better company boards’ outcomes. “Our freshly adopted directive is about ensuring stronger, fairer and equal societies,” she maintains.
As a female leader herself, Commissioner Dalli comments on the obstacles women face to reach top positions, placing the care responsibility at the top of the list. “Advancing at the same rate in our career is not possible, if you consider women with children in the EU spend on average 39 hours per week on unpaid care, compared to just 19 hours per week for men in the same situation,” she says, noting that gender stereotypes also play a role in preventing women from reaching top positions, limiting their aspirations, choices and freedom.
Moreover, she continues, violence against women including harassment, bullying and online violence is a gross injustice that impacts their ability to thrive and lead in all spheres of life, including the workplace. To address this, the European Commissioner for Equality states, “my mission is to tackle these inequalities, and we have laid out all our actions in the EU Gender Equality Strategy. On 7th September, we presented a European Care Strategy. In it, we proposed to increase the target – up from the previous target of 33 per cent – to at least 50 per cent of children under three years of age to be in early childhood education and care. Childcare options are crucial to give parents, especially women, a choice to reconcile work and private life.”
“Right now, my services are also working closely with EU countries to ensure the Directive on Work-Life Balance is properly implemented,” the Commissioner continues, explaining that new EU rules allow fathers and second parents to take at least 10 working days of paternity leave; state that two out of the four months of parental leave will be non-transferable between parents; and there will be a new right to carers’ leave.
MBB President Alison Mizzi, a fellow female leader, is in agreement that several factors, including childcare, are behind women being grossly underrepresented at the top hierarchy of the corporate world.
“Caring responsibilities are still predominantly undertaken by women and would often result in career breaks with a consequence on their professional progression,” she notes, going on to mention other factors relating to certain professional sectors that do not attract large participation of women, which is at times due to gender stereotypes. “There are, of course, still cases where competent and qualified women are simply overlooked,” Ms Mizzi continues, affirming that, “as more women adopt leadership positions and prove their value for the companies they represent, I am confident that there will be a rebalancing to reflect more equal and diverse Boards of EU listed companies.”
Indeed, Commissioner Dalli maintains that a culture shift is needed to make a lasting difference, and she believes that the Gender Balance directive will play a major role in shaping corporate rules on the selection of board members based on merit and qualification.
“In years to come, transparent selection procedures to appoint board members must become the norm. Transparency is welcome also to see non-discrimination on other grounds such as racial or ethnic origin, religion or belief, age, disability, sexual orientation, gender identity, or any other personal characteristics. Transparency is fair for everyone,” she says, insisting that there is a strong macroeconomic argument for using all talent, and growing evidence of the benefits for companies, including greater creativity and increased productivity. “Companies with more diversity in their management will also see the benefits of this culture shift in practice.”
Speaking on behalf of HSBC Malta, which already surpasses the 40 per cent threshold proposed by the directive on its Board of Directors, Chairman John Bonello agrees with the directive, stating that it reinforces the bank’s long-standing commitment to diversity and to encourage and support under-represented groups at every level of the organisation.
“I think the approach of the directive is a sensible one, requiring action to attain reasonable quantitative targets, while also taking into account the competence and performance of all candidates and respecting shareholders’ voting rights. Importantly, the directive recognises different national starting points, and allows a reasonable timeframe of five years for these targets to be reached,” he affirms, also describing the directive as justified, in that greater diversity brings different perspectives and ideas to discussions around the boardroom table.
“Having a diverse board is more representative of the community it serves, and this makes good business sense. As a bank, we are committed to diversity in its broadest sense, and gender diversity is the obvious place to start. My experience in chairing a gender-diverse board has been a very positive one,” he states.
In fact, HSBC surpasses the thresholds proposed by the directive on all its boards, that is, the bank and its two subsidiaries. And the Chairman also draws attention to the fact that the bank also exhibits strong gender diversity in various layers of management too. “In our ExCo, which is the highest management body outside of the board, women make up 57 per cent – eight women and six men,” he says, attributing good succession planning and talent development as key. “Companies should keep the benefits of diversity in mind at all levels, not just the board, and by doing so will help to foster a culture of inclusion and avoid the dangers of group think and unconscious bias.”
Commenting on the obstacles women tend to face to reach top positions, Mr Bonello references the fact that in Malta, we have historically been slow to make social and behavioural adjustments like, for example, sharing family or childcare duties. Despite this, he believes that things are changing, affirming that “the number of women pursuing career options in addition to their family priorities has risen rapidly over the past 15 years; from having the lowest rate of female employment, Malta now exceeds the EU average.”
Noting that our culture is moving away from stereotypical gender roles and that change is evident, especially among younger cohorts where we see female leaders emerging in various domains, the HSBC Malta Chairman believes that making this change a sustainable and successful one requires courage and collaboration on the part of both women and men, at work and at home.
“Though still too low, I believe female representation on various boards is gradually increasing. However, diversity is not simply about gender per se but about enhancing the range of skills, of expertise, of background and experience. It is often remarked that the pool of potential non-executive directors in Malta with the right skills, availability and freedom from conflicting interests is a shallow one at the best of times, so finding women to sit on boards with the right experience or qualifications, or indeed with the time required, is not easy. That is why I suggest that companies of all types and sizes should seek to improve diverse representation at all levels. We have to deepen the pool,” he maintains.
Going back to the directive, some may argue that gender quotas will give a perception that women are appointed for the sake of reaching numbers required by law, but for the Commissioner, the fact that there are enough qualified women in the talent pool makes this a non-issue. “We want to ensure equal opportunities for potential candidates and transparency in selecting and appointing board members so that qualifications, competence and professional performance are the key criteria for selection. Women also have extra obstacles, as we discussed, so these targets are needed to break the glass ceiling,” she maintains.
“Our directive is not about imposing rigid quotas by law, but sets clear targets that companies must prove that they are acting to fulfil. The rules are about promoting the under-represented sex – male or female,” Commissioner Dalli emphasises, explaining that where two equally qualified candidates are in the running, the directive requires companies to give priority to the under-represented sex. “The core of our rules is focused on transparency in the first place. When companies fail to attain these objectives; they will be required to show their appointment procedures, and they will have to report on the reasons for failing to achieve these objectives and what they are doing to rectify them. Member States must also have in place penalties that are effective, proportional and dissuasive in case needed,” she adds.
Indeed, the Malta Business Bureau President maintains that while a voluntary approach is always preferable, despite political rhetoric favouring gender balance at the highest level of corporate structures, statistics on the percentage of women on boards to date show that this is far from materialising. “Perhaps it is time to adopt a stronger approach. This EU Directive will shake company cultures and require recruitment processes to look closer for talent from all genders. It is a call to identify qualified and experienced women and give them the space to lead and succeed,” she says, agreeing with the Commissioner that “diversity at all levels of company structures increases competitiveness and ultimately contributes to economic growth.”
Certainly, the Commissioner is in agreement that in an ideal world, there should be no need for regulatory measures to ensure equality, but as things stand, deems it necessary to tackle a centuries-old problem. Indeed, the EU proposal includes an end date for the application of the directive, and Commissioner Dalli believes it can be used as a temporary solution, until sustainable progress has been made. “The Directive will apply until 2038, when we expect a critical mass of women in European companies to be reached in a sustainable way. I am confident and I expect this to happen in the coming 15 years. However, if it does not, the directive has within it a mechanism for the review of the sunset clause.”
On this point, while acknowledging that a new approach to address the gender imbalance on Boards was needed, the MBB President also calls for a timeline that would allow EU listed companies to make a gradual transition to achieve the requirements without creating major disruptions to their governance structures. “This cannot happen overnight and the MBB believes that a slightly longer transition than the adopted timeline of June 2026 would have been more beneficial,” she says. Commenting on the directive’s end date, Ms Mizzi is confident that during this period more women who will serve on company boards will continue to inspire and succeed. “Ongoing monitoring and evaluation leading up to 2038 will still be required to help identify whether there are still gaps or if the measure needs further finetuning. But the expectation is that the situation then would have certainly improved compared to the current scenario.”
On his part, the HSBC Malta Chairman also believes that the directive will bring about change, and that the change will be a sustainable one. “It obliges us to stop and think, to acknowledge that promoting gender diversity is both beneficial to business and socially just. The directive is a robust one, it encourages companies to take action, such as examining selection criteria for bias, and developing their talent pipeline, that they may not have addressed before. I would imagine that some companies may have difficulties in meeting the required targets within the deadlines suggested by the directive, so the advice must be to start taking note of the directive sooner rather than later.”