German women lose board battle. Maybe not the war

Angela Merkel narrowly stifled a mutiny among MPs who wanted to force women quotas on corporate boards. She had to promise a softer reform in return. The fight against quotas is as desperate in Germany as it is in the rest of Europe. Companies should adjust to that reality.

In the banking industry, the Basel III requirements are to be fully implemented in 2018, yet investors and banks seem to behave as if they are already in full swing. Listed European companies would be well advised to do the same regarding the presence of women on their boards – and act before pan-European quotas come into effect, which is only a matter of time.

The German parliament last week voted down a bill that would have forced listed companies to have at least 20 percent female board members by 2018, and 40 percent by 2023. From a short-term perspective, the Bundestag’s decision looks like a setback for women. Paradoxically, however, the decision may mark a turning point both in Germany and Europe as a whole.

The reason is that Angela Merkel, who opposed the bill, could only get the Bundestag to agree with her at the price of a major concession. The German chancellor faced an internal rebellion within her own CDU party – which even included her labour minister. Merkel was forced to renege on her principled, blanket refusal of fixed quotas, and she had to agree on a softened version for later. Now she will campaign, ahead of the September election, for a quota of 30 percent female board members by 2020.

This U-turn was made necessary by the threat that a significant number of conservative MPs would vote with the opposition in supporting the law. Five months ahead of the parliamentary election, such a rebellion would have been a traumatic embarrassment for Merkel. And now her about face will make it hard for Germany to shoot down European quota laws in Brussels.

This is a welcome development. More women at the top is not an end in itself. Economists have collected evidence showing positive effects of gender diversity in the board room, as long as they are phased-in with reasonable transition periods
In spite of some recent progress, the glass ceiling in Germany still holds. From 2006 to 2012, the share of female board members at the largest firms rose from 7.8 to 12.9 percent. In Europe, the country ranks seventh, trailing countries like France, the Netherlands and the UK.

Companies know that they will have to go further. They should not wait until they are forced to. If they do, they will come under time pressure and will have to hire directors in a hurry. Acting pre-emptively makes business sense.

This article was initially  published as a Reuters Breakingviews comment on 22 April 2013.

 

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