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Vice-President of the European Commission, EU Justice Commissioner
The European Commission's New Gender Equality Strategy: Towards Quotas for Women in the boardroom?
European Central Bank Diversity Forum
Frankfurt, 28 March 2011
Ladies and Gentlemen,
It is a pleasure to be here in Frankfurt today. I would like to thank the ECB's Vice-President and in particular my friend Gertrude Tumpel-Gugerell for the invitation. The topic of your conference "Building on Diversity: how to master Europe's challenges" could not be more timely!
Let me start with: Mastering Europe's challenges. Over the past months, the European Central Bank and the European Commission – the two most supranational institutions of the Union – have fought hand in hand for the stability of the euro. We worked together in the interest of Europe's citizens and future generations. Following last week's European Council, we are now turning the page: we have saved the euro. We have created a new stability mechanism with enough "firepower" to deter even the most courageous speculator. We have laid the foundations for stronger European economic governance. In doing so, we have finally moved towards completing our Monetary Union with an Economic Union. These are the results of the joining of forces of Europe’s leaders: the European Commission has shown the way with our proposals on economic governance last September and the Annual Growth Survey in January. And the ECB has demonstrated that, for a limited time, the ECB can be the saviour of financial stability in the euro area – a “lender of last liquidity” in extraordinary times.
The "Pact for the Euro" is a true achievement – not only for the 23 Member States that are participating in it, but also for the European institutions. The Commission and the European Central Bank will play a decisive role in making sure that the "Pact for the Euro" does not remain a Pact on paper only, but that Member States deliver effectively and credibly on their commitments to strenghten fiscal discipline, financial stability, competitiveness, employment and growth.
In the future, it will be for the Commission, in liaison with the ECB, to assess the existence of a risk to the financial stability of the euro area as a whole, and to undertake an analysis of the sustainability of the public debt of the Member State concerned. Furthermore, the European Commission, together with the ECB and the IMF, will be responsible for monitoring Member States’ compliance with the policy conditionality required under their macroeconomic adjustment programmes.
Together, the Commission and the ECB will indeed master Europe's challenges. This will be true for both financial stability and the challenging area of gender diversity. After all, gender diversity is the real topic of today's conference. This Diversity Forum confirms the importance and urgency of action in gender equality. The topic of the gender balance in board rooms is high on the agenda at the ECB and the European Commission. Only a few weeks ago, Mrs Tumpel-Gugerell came to Brussels and co-chaired with me a meeting with CEOs of publicly listed European companies to discuss how to get more women into top-jobs. It was the start of a very interesting and constructive debate that I hope we will continue today and over the coming months.
Equality between women and men is a fundamental right of the European Union and one of Europe's founding principles. Over the past decades, we have developed European law covering equal access to employment, training and goods and services. We have also achieved equal treatment at the work place and are now moving towards full gender equality when calculating risk premiums for insurances. We have translated the EU's founding principles into Europeans' everyday life.
The results are visible.
Women make up 60% of university graduates in the EU. The proportion of women in work has risen steadily and, since 2000, female employees have taken three quarters of the millions of new jobs generated in Europe.
But we should not rest on our laurels. And we are not. There are still some outstanding challenges to tackle – notably in the labour market and women in top positions.
Women in the workforce
Let me start with a basic problem: the share of women in the European labour force. It rose from 52% in 1998 to almost 60% now. But still, today, labour market participation of women in the EU is lower than in the US – with 72%. We have to bring our figures up. Simply because of the sheer need to get Europe's economic engine moving again.
We need to make use of the untapped potential of the female workforce to reach by 2020 the employment target of 75% to which all EU-Member States have signed up to. Engaging the wealth of knowledge of half of our population is vital for both our society and our economies.
Goldman Sachs has carried out projections to explore what would be the impact of female employment rates being equal to those of men: if everything else remains constant, the Eurozone's GDP could potentially increase by as much as 13%. Of course, this is only a simulation but it points to potentially large gains.
Gender pay gap
Another issue to tackle is the gender pay gap – the average income differences between male and female employees across the entire economy. In the EU, the gender pay gap is currently at around 18%.
One of the reasons for the different income-levels between women and men is the burden of care women carry. Figures show that the moment men become fathers, they start working longer hours. The same is not the case with women. When they become mothers, they either stop working for longer periods of time or work part-time – often involuntarily. Only 67 % of women with young children in the EU are working, compared to 92 % of men. The employment rate for women decreases even further – while the employment rate of men increases – as the number of children grows.
Women in decision-making
In order to address these challenges, in September 2010, I presented a "Gender Equality Strategy". One of the core elements of the Strategy is women in economic decision-making. Women are still under-represented in all decision-making positions, in particular in economic decision-making. We all know that gender equality is an economic growth factor. The financial crisis should not become an excuse for levelling down our ambitions in this field. On the contrary, enhancing women’s participation in boardrooms can make companies more profitable and trigger sustainable economic growth.
Let us have a closer look at the figures.
This is the current situation of women in decision-making in the banking sector: in 2010 all governors of the national central banks across the EU were men. More than four out of five members of key decision-making bodies were men.
The central banks of Germany, Austria, Luxembourg and Cyprus did not have a single female representative in the main decision-making bodies. Only in Sweden and Finland is the share higher than 30%.
The three main European financial institutions – the European Central Bank, the European Investment Bank and the European Investment Fund – all have a man at the helm.
In the ECB governing council, the share of women amounts to only 5%, in the board of governors of the European Investment Bank to 15%, in the board of directors of the European Investment Fund 14%.
Company board rooms in Europe reflect the same situation: At the moment, women represent roughly 1 out of 10 board members of the largest publicly listed companies in the EU and 3% of the presidents of boards.
Across the European Union, one in three large companies had no women at all on its board in 2010.
The United States is facing similar challenges: women hold only 15% of board seats in the Fortune 500 companies.
And the rest of the world does not look any better. In India, the average share of women on boards is around 5%, in Japan around 2%, in China around 7% and in Brazil around 8%.
And this is despite the fact that more women are earning college degrees than men – 60% of new university graduates in Europe are female. But their academic achievements are not reflected in their positions in the labour market. The investment society makes into educating young girls seems to go to waste. This is a cost we cannot afford. Quite simply, it is not good for our economy.
Although there is evidence that the situation is improving in some countries, the pace of change remains slow. The share of female board members in the EU has increased by just over half a percentage point per year over the last seven years. At this rate it will take another 50 years from now to reach gender balanced company boards.
The only significant increase we have seen in the last decade was brought about by a quota law.
I have never been a fan of quotas. And I am still not a quota fan. I believe that credible self-regulation would be the best way to solve the problem. I nevertheless have to admit: I like the results of quotas: In 2003, Norway incorporated a minimum representation of 40% of each gender by 2008 into its company law. As a consequence, the number of women on the boards of large companies in Norway has sharply risen from 25% in 2004, to 36% in 2006 to 42% in 2009.
Other European countries have followed this path: Spain, Iceland, and most recently France have introduced binding rules. I am not saying progress can only be achieved through quotas. I think they are a measure of last resort – a Damocles sword. There are alternatives.
Some European countries have tried using corporate governance codes to promote gender-balanced boards.
The Finnish corporate governance code of 2003 was among the first national codes in the world to mention the gender of board members.
We have also seen good self-regulatory practices from companies. Deutsche Telekom announced voluntary targets of 30% in its middle and upper management last year, in order to achieve a competitive edge.
But we need to see more of these initiatives to keep the European economy competitive. And we need to see more than just the one token woman to achieve a real change.
Gender equality and business
Ladies and Gentlemen, gender equality is not a 'women's issue'. It is a business issue.
Studies show positive correlations between diversity in boards and company performance.
A McKinsey study of large European companies indicates that the best companies in terms of work environment, innovation, accountability and profits were those with a higher proportion of women on boards. According to their latest report, companies with a gender balanced composition can achieve an operational profit which is 56% higher than that of male only companies.
This is supported by other studies such as a series of studies on Fortune 500 companies in the United States which found that those companies with a greater number of female board members performed better financially: They had impressively higher returns on equity, sales and on invested capital.
Companies with three or more women in top-management positions achieved higher scores in organisational effectiveness than companies with no women at the top.
Increasing the number of women in management can increase organisational innovation.
US economic literature estimates that women make around 80% of consumer purchasing decisions. And we are not talking only about food and washing powder here. Just ask around in your family who bought the last PC! There are considerable profit gains out there for companies who can relate to those customer needs with a balanced leadership team.
Of course we recognise that all men are not the same and likewise all women are not the same.
However, a female perspective in top management and board rooms could give companies a reinforced sense of corporate social responsibility, environmental concerns and moral obligations going beyond the simple focus on short term financial gains.
Closing the gender gap at the top of the business world is a win-win situation. We have to take up this challenge now. Together with Mrs Tumpel-Gugerell we made a bold start just a few weeks ago.
On 1 March, together we met chief executives and chairs of boards of publicly listed companies in Brussels to discuss the under-representation of women on corporate boards. On the same day, I challenged all publicly listed companies in Europe to sign up to the "Women on the Board Pledge for Europe" – which is public on my website – by March 2012.
I ask companies for a voluntary commitment to increase women's participation on corporate boards to 30% by 2015 and to 40% by 2020. In the pledge, I also ask companies to actively recruit qualified women to replace outgoing male board members, and to implement concrete measures to achieve these targets.
For the next 12 months, I want to give self-regulation a last chance. I would like companies to come up with creative and credible initiatives to get more women into top jobs – otherwise regulators will have to do the work for them.
What counts for me is the outcome.
A year from now on, in March 2012, I will see which and how many companies have signed up to the "Women in Boardroom Pledge". The Commission will assess the situation and see whether there is significant progress and whether we see credible commitments. If this has happened by March 2012, I will congratulate the European business world. However, if self-regulation fails, I will be prepared to take action at EU level to achieve a breakthrough. Action will follow now, and not in 50 years.
You are in a day-to-day dialogue with the financial sector and the business world in Europe. I count on your support for the "Women on Boardrooms Pledge". Let's work together to achieve a change. And let's lead with good examples in the still very male world of central banking. I have seen that there is no candidate yet for the new President of the European Central Bank as of November this year. I agree with all of those who are in charge of this top personnel decision that we need to take all the time needed to find the right person for this important job. However, I would strongly advise that they include women in their consideration – not just the many capable men in the field of central banking and finance. Women can be strong and credible defenders of sustainable public finances. Women often tend to think about the coming generations. This is why I would not exclude from the outset that the new "Mr Euro" could also be a "Ms Euro".
Ladies and Gentlemen;
I commend the ECB project group on gender diversity for its work.
An important first step towards real gender equality at the workplace is data transparency and a thorough analysis of the data as you state in your report.
Among your measures, I find the female representation in recruitment panels particularly important.
I personally would welcome self-binding targets for women in all management positions. I encourage you to set ambitious targets for women in decision-making positions.
We have great ambitions and we have great, talented women – I am currently sitting next to one of them (referring to Mrs Tumpel-Gugerell). Looking at the progress we've made already, I am confident that we can do it.
Thank you very much for your attention.