The EU plans to issue a proposal next month that would require European companies to appoint women to 40 percent of seats on supervisory boards by 2020. The proposal was made by Viviane Reding, the European Union justice commissioner. The law would apply to all listed companies with more than 250 employees and annual sales of more than 50 million euros ($63 million). Companies that fail to comply with the quotas will be subject to sanctions including fines and could be excluded from state aid and contracts. In 2011, Reding gave European companies a final opportunity to improve their records of gender imbalance in top management positions but there has been only marginal improvement.

In brief, the EU proposal aims to combat the significant gender imbalance that is still seen in many boardrooms across the EU. Specifically, the European Commission issued a report that demonstrated that just 13.7 percent of board seats in the EU belong to women. Furthermore, the report showed that there was only a 1.9 percentage point increase between October 2010 and January 2012. The report also noted that varying rates of improvement have led to highly divergent results within the EU. The legislation requires the approval from the EU’s 27 governments and the European Parliament to take effect.

The gender quota proposal has faced fierce criticism, mainly from conservative politicians and some major technology and manufacturing companies. France, the Netherlands, Italy and Spain have already introduced national quotas. However, Sweden and the United Kingdom are generally opposed to the proposal. For example, Marina Yannakoudakis, a Conservative member of the European Parliament who represents London, argues that the measure is “bad for genuine equality.” Yannakoudakis argues, “Imposing strict quotas, which are both arbitrary and artificial, cuts across the freedom of businesses to make their own decisions and the freedom of women to succeed on merit.”

It will be interesting to see how the EU faces challenges that the plan violates Article 16 of the EU Charter of Fundamental Rights which provides the freedom to conduct a business. However, one unnamed EU official notes that “companies would retain the freedom to choose among the best qualified executive directors to run day-to-day aspects of a business.” Another argument that opponents may consider is that the gender quota plan violates Article 21, a provision that explicitly prohibits any discrimination on the grounds of sex. However, this possible challenge will likely be rejected because Article 23 provides that “the principle of equality shall not prevent the maintenance or adoption of measures providing for specific advantages in favour of the under-represented sex.”

Supporters of the EU measure contend that now is the time to act and that self-regulation has not addressed the gender imbalance. Supporters argue that mandatory quotas are the only way to effectively address the systematic problem of women being underrepresented in management positions. Certain factors support the use of quotas, including: (1) women now have higher graduation rates than men in Europe but their professional careers continue to fall behind those of men; (2) women represent a growing underused pool of qualified workers, thus are an untapped potential for a poor economy; and (3) studies suggest a strong link between gender balance and professional performance. Indeed, supporters often cite Norway as a model of success for the advancement of women in business since the country instituted gender quotas several years ago. Before the Norwegian gender quota was put into effect, women occupied only 7 percent of seats on supervisory boards. Women in Norway now make up 42 percent of the board seats.