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EU to Mandate Quota on Number of Women on Corporate Boards

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A year ago, European Union justice commissioner Viviane Reding called on companies in the region to voluntarily take active steps towards increasing the number of women on boards. The aim was for women to make up 30% of board members by 2015 and 40% by 2020. Reding warned companies that if she found progress to be wanting, she would introduce enforcement legislation to make sure of it

After only 24 companies, including LVMH (LVMHF.PK) agreed to the measure proposed, Reding has decided to make good on her promise, announcing today plans to introduce mandatory quotas that would require that women must occupy a certain percentage of the seats on corporate board, reported The Guardian.

“It's no secret that in countries where there are legal quotas [for representation on boards], the figures have grown substantially. In countries without obligatory quotas, progress is slow,” Reding told the Guardian.

Reding cites the example of France, which legislated at the start of 2011 quotas that women must hold 20% of board positions by 2014, and 40% by 2016. The New York Times noted that about half of the 1.9% increase in the number of women on boards of publicly traded companies in Europe could be attributed to France.

To determine what the quota should be, Reding will have a series of consultations with governments, companies, unions and civil groups in Europe, reported the Times.

“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?” the commission will ask, according to a draft copy of the consultation document seen by the International Herald Tribune. Any resulting proposal would need to be approved by governments and by the European Parliament.

As it is, some parts of Europe are rather progressive in terms of the number of women on boards. In Finland, Latvia, and Sweden, women make up some 25% of the boards of listed companies. It is countries like Malta (3%) and Cyprus (4%) that bring the continental average down.

You might be surprised (or not) that, on average, there are actually more women board members in the US. According to the non-profit research group Catalyst, women held 16.1% of board seats in 2011, up from 15.7% in 2010. Among the companies with the most women are Avon (AVP), with 5 out of 10, Estee Lauder (EL), with 6 out of 140, and General Motors (GM), with 4 out of 11.

The question remains, of course, whether it is better for boardroom equality to occur by mandate or by a more organic manner. Tim Worstall of Forbes, for one, believes that quotas for the number of women on corporate boards are not a good idea for companies. He puts forth the example of Norway, which mandated in 2003 40% female representation in boardrooms. “The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance,” he cites a study on the country’s board feminization policy.

On her part, Reding told the Guardian she was confident there was a large pool of women in Europe qualified to be corporate board members.

"It's very interesting that the major business schools of Europe have united forces because they have seen that often the best MBAs are done by women, but the best positions after the MBA are taken by men. So the business schools decided to pool the talent which is available on the market – that means very qualified women who have a lot of management experience – in order to put this pool at the disposal of those who take the decisions on the fulfilling of the vacant positions on the board. Very often we have heard that the women are not available. They are," she said. "They are."

POSITION:  No positions in stocks mentioned.