Some of Germany’s largest companies must ensure they have at least one woman on their management boards under legislation passed by the country’s lower house of parliament.
The bill, approved Friday by the Bundestag, requires publicly listed companies that have more than 2,000 employees, more than three management board seats and a supervisory board structure with equal representation from employees and shareholders to include at least one woman management director. The rule builds on a German law introduced about six years ago that requires large listed companies to fill 30% of their supervisory board seats with female nonexecutive directors.
Under the legislation, companies that don’t fall under the new requirement have to report on whether they aim to add women to their management boards and justify their decision if they don’t plan to do so. Failing to give a reason could lead to a fine.
Bundesrat, Germany’s upper house of parliament, will next consider the legislation, but its approval isn’t required for the bill to become law. The upper house could object but isn’t expected to do so.
“Highly qualified women still hit the glass ceiling far too often,” said
Germany’s minister of justice and consumer protection, after the bill passed. “There are still men-only clubs on executive boards that like to keep to themselves. This will stop in the future.”
“We already saw with the quota for supervisory boards introduced in 2015: Quota regulations work—and they work in the long term,” she said.
An analysis by the German Institute for Economic Research, also known as DIW Berlin, found that the new management board requirement would apply to 64 companies, 42 of which already fulfill the minimum requirement for female directors.
The share of women on management boards at the affected companies that are also part of Germany’s bellwether DAX market index has risen to 16% from 12% in roughly the past half year, according to DIW Berlin.
“The new planned law has apparently triggered remarkable anticipatory effects,” the institute said Friday. “Previously, an increase of this magnitude would have taken five years.”
Cornelius Baur, senior partner at consulting firm McKinsey & Co.’s office in Munich, said it has been evident for years that mixed teams could make better decisions. He expects the legislation to accelerate appointments of women in leadership roles at German companies generally.
“It would have been great if the companies themselves had appointed women to the boards, so that the law would not have been necessary,” he said.
Some critics argued the bill wouldn’t have a significant impact because it applies to a small number of companies. Others have criticized the law for different reasons. The Federation of German Industries, or BDI, said ahead of the vote in parliament that it supported the promotion of women in management positions but that a fixed quota would be a challenge for businesses.
“Social imbalances can’t be solved by introducing quotas alone,” said Iris Plöger, member of the federation’s executive board. “It involves expanding public infrastructure to improve the work-life balance for male and female employees.”
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