The (German) Road To Diversity – When Lip Service Is Not Enough

“Lip service is not enough: action is required”
“Es darf hier aber nicht bei Lippenbekenntnissen bleiben. Handeln ist gefragt.”

– Christine Lamprecht, Federal Justice Minister

An agreement by Germany’s coalition government to increase female representation by mandating a minimum of one woman on Management Boards with more than three members marks an important step forward.

Fidelio’s focus is building better Boards and diversity is key. This is hardwired into our Search, Evaluation and Strategy assignments. 40% of recent Board and Executive Searches conducted by Fidelio have resulted in female appointments and 22% have contributed to the ethnic diversity of the organisation. Fidelio is also recognised by the UK’s Hampton-Alexander Review for our contribution towards achieving gender balance on Boards and leadership teams in the category ‘Beyond FTSE 350’.

Our commitment to diversity in the German market is a matter of record. We have participated in government-sponsored discussions in Berlin, ‘Fachtag Evaluierung des FüPo-Gesetzes‘, sharing the UK experience with those involved in assessing the impact on Board gender diversity of existing German legislation.  We have also hosted groundbreaking seminars in London and Germany sharing progress towards diversity in UK and German Boardrooms. The next takes place in January with a sharp focus on Executive Directors.

2015: Die Frauenquote – steps in the right direction for Supervisory Boards

In this Table Talk we set the context for the legislation being proposed and its potential impact on the German market.

In 2015 the Bundestag passed a “Law for the Equal Participation of Women and Men in Leadership Positions” (known in German by its abbreviation as “Füpog”).

The law mandates that women occupy at least 30% of the positions on the Supervisory Boards of large quoted companies and other organisations, including all that have over 2,000 employees: around 100 organisations.  A further 3,500 smaller companies are obliged to set their own targets, and all are obliged to set targets for the Management Board and the senior positions one level below it.  The legislation is indeed serving its purpose, with female representation on Supervisory Boards of Germany’s largest companies having increased to 35% (on average) by 2020.

Larger organisations over 2,000 employees are already subject to the Co-determination Law which requires that 50% of Supervisory Board positions are occupied by workforce representatives.  Traditionally female representation in the Supervisory Board was dominated by the employee representatives but as a result of the legislation the shareholder slate now also includes female representation of similar levels.

One common criticism of the legislation was that it did not  specify any minimum for the voluntary targets in smaller Supervisory Boards and all Management Boards and senior positions.  It was thus possible for companies to set targets of zero – the so-called “Nullquote” – and many have done so, thereby complying with the letter of the law but hardly with its spirit.

November 2020 – Women on Management Boards

The most recent proposal addresses a deficiency of the 2015 legislation, the lack of mandated gender diversity on Management Boards (“Vorstände”). Though this was supposed to be addressed on a voluntary basis, progress has been glacial.  The proportion of women on Management Boards was 6.3% in 2015 and just 11.2% in 2020, while there are a number of DAX quoted companies with all-male Management Boards (11 according to a recent Allbright report: ‘Frauenanteil in DAX-Vorständen sinkt in der Krise’).

The Management Board is a vital component of the two-tier German governance model: though the Supervisory Board has powers of appointment and dismissal over the Management Board and is to be “involved in decisions of fundamental importance to the enterprise”, in practice very important decision-making power is often vested in the Management Board where  women remain extremely under-represented.

The current proposal mandates a minimum of one woman on Management Boards with more than three members (as well as stricter guidelines for state-owned organisations of at least one woman on Boards with more than two members).  If experience with the 2015 law is a guide, compliance with the new law is likely to be high, though it raises potential concerns that the minimum will be treated as a maximum – what Denise Wilson of the UK’s Hampton-Alexander Review calls the “One & Done” problem.

Other cultural and financial factors also contribute to the under-representation of women at senior levels in German business.  Social conservatism remains strong, as do gender stereotypes – despite the strength of female political leadership. German tax laws and insurance norms also favour the traditional “breadwinner” model.

As a consequence, much work remains to be done.  The proposal has so far been greeted warmly by the German business press with commentary noting that action is needed given that self-regulation on the issue has had little effect.

Fidelio has strongly advocated that there are enough good women. We have equally welcomed talented female Directors from Germany on our flagship “A Seat at the Table” Programme.

Quota or no quota, we are committed to strengthening Board effectiveness in Germany and this includes greater gender balance. We look forward to working with existing and new clients to identify strong candidates for Supervisory and Management Board roles and also to building the pipeline.

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