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EU Companies Face 40% Quota Rule Favoring Women on Boards

Companies may be required to favor women over equally qualified men for supervisory board seats, as they strive to meet a 40 percent quota for female directors the European Union set out in draft rules published today.

The European Commission adopted a proposal aiming to make boards two-fifths female by 2020, Mina Andreeva, a spokeswoman for EU Justice Commissioner Viviane Reding, said in an e-mailed statement. Regulators amended earlier versions so companies would only face sanctions if they fail to favor women, even if they don’t meet the quota.

“We are proposing legislation to smash the glass ceiling that keeps women out of top jobs,” Reding said at a press conference today. “Our proposal has teeth.”

Some 13.7 percent of corporate board seats in the EU are held by women, following a 1.9 percent increase between October 2010 and January 2012, the commission said in a report in March. The lack of female candidates for a seat on the European Central Bank’s Executive Board saw European Parliament lawmakers oppose the appointment of Luxembourg’s Yves Mersch.

The measures would apply to about 5,000 listed companies in the EU by 2020 and state-owned companies by 2018, the commission said. They exclude companies with less than 250 employees or global sales below 50 million euros ($64 million.)

Recruitment Processes

The modified proposal doesn’t really set a quota, said Clodagh Hayes, a partner at Linklaters LLP in London. Companies that don’t meet the target “just need to ensure their recruitment processes are transparent and give preference to equally qualified female candidates,” she said.

“After doing the maths, many U.K. companies will find they comply in any case,” Hayes said in an e-mailed statement. “The 40 percent target can be satisfied by having one female non-executive director out of four or two out of six.”

The draft rules need the backing of most of the EU’s 27 member states and the bloc’s parliament, which can amend draft laws before they become final.

The U.K. prefers a “business-led, self-regulatory model” to encourage female representation in boardrooms over EU targets and would work with other European states to shape the final version of the rules, the government said in an e-mailed statement.

Unsuccessful Candidates

“We have consistently argued that measures are best considered at national level,” according to the U.K.

The amended proposals can, if governments wish, exempt listed companies from meeting the quota if women make up less than 10 percent of their employees or if women hold at least one-third of all director positions.

Companies would also have to disclose to unsuccessful candidates their reasons for selecting board members. The rules wouldn’t stop companies from choosing a man if an objective assessment made him preferable to an equally qualified woman.

Reding’s initial plan was altered after it didn’t win the support of EU commissioners. The EU’s legal adviser warned that a standalone binding quota for women on boards may be not be “legally possible,” according to notes of an Oct. 23 meeting where the rules were discussed.

While EU rules can’t mandate companies to reach a target, they can require companies to make efforts toward a target, said a person familiar with the talks last month.

A European rule on the issue is “doubtful,” German government spokesman Steffen Seibert said, and should be handled by national governments.

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