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Home arrow Economics arrow Boards of directors of state-owned enterprises : an overview of national practices.

Gender, diversity and nationality/residency quotas

Judging from current debates about listed companies, there is mixed evidence and continuous discussion concerning the outcomes board diversity practices. Proponents of board diversity argue that it helps to intensify discussion, the exchange of ideas, and group performance. As a result, diversity has been supported as an instrument to improve organisational value and financial performance by providing a board with new insights and perspectives. Opponents have argued that the inclusion of eligibility criteria other than formal qualifications in the nomination process is liable to limit the pool of candidates, which can potentially impact the quality of SOE boards.6

Good practice: Diversity preferences may add value to Boards, but should not rise to the level where the ability to attract candidates with the right skills and capabilities is imperilled.

A number of European jurisdictions have introduced gender preference in their board nomination process. Countries with hard quotas include:

Austria has a minimum quota of 25% of female representation by the end of 2013; Belgium requires a one-third quota; and Finland has a minimum requirement of 40% for both genders.7 Sweden and Norway have both expressed formaltargets for gender representation, although not as quotas: in Sweden's case it is 40% representation of both genders, and in Norway it is equal gender representation.8

Other European countries have expressed a preference, but no quota; for example in Denmark equal gender balance is encouraged “as far as possible.” While in others, gender quotas are only applicable to state-appointees to boards (Greece, Slovenia). The European Commission has proposed legislation on a 40% target for the “underrepresented” gender on boards starting with large listed state-owned enterprises (i.e. public undertakings) but extending the requirement to large private companies (European Commission, 2012). If passed, this legislation would presumably affect national targets among EU membership where applicable.

Other jurisdictions have gender or other preferences, but no particular targets. New Zealand and Israel implement their diversity preferences by actively preferring suitably qualified people in under-represented groups. One mechanism used in New Zealand is to seek nominations from Ministries with a role in promoting the interests of diversity and equity.

Some other countries, one example being Canada, have additional affirmative action requirements, for example in terms of geographic origins or in terms of minority representation. While favouring an enlargement of the pool of candidates, such a policy may also put too much emphasis on the diversity of SOE boards to the detriment of their skills and capabilities. This has been criticised in Canada where Crown Company Boards have a high ratio of women, a good geographic balance, but lack in some cases critical skill and capabilities.

Good practice: Restricting board membership to nationals should be limited to cases where there is a demonstrated need for such rules, considering that it can act as a barrier to attract the right talent.

For certain SOEs operating in sensitive areas (i.e. national security or strategic sectors) restricting membership to country nationals (or residents) is preferred in some jurisdictions, but such limitations raise potential barrier to boards recruiting the best expertise and experience. It is unclear the extent to which jurisdictions are actively seeking foreign expertise in identifying potential board candidates. A small number of jurisdictions have nationality requirements of SOE board members. Turkey has a requirement that all board members must be Turkish nationals. Brazil also stated that the company bylaws often included a requirement that members be Brazilian nationals. Belgium, Latvia, and Switzerland have no nationality constraints, but express preference for members to speak the local language(s).

 
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