The German legislator has introduced a "women's quota". It applies to listed companies with supervisory boards having an equal number of shareholder and employee representatives according to German employee co-determination law. Further statutory obligations to set gender-equality targets have been imposed on companies which are either listed or subject to employee co-determination. According to the German government, it was necessary to implement statutory provisions because recent statistics showed that the percentage of women in executive positions was still extremely low. The new provisions will only apply to companies based in Germany which were established under and are regulated by German law. Foreign companies operating in Germany do not fall within the scope of the new statutory obligations.
Fixed minimum quota on supervisory boards
As opposed to, for example the UK or the US, and subject to certain criteria, German company law provides for a two-tier board system:
- Stock corporations (Aktiengesellschaft, AG) are represented and managed on a day-to-day business by the management board, while the supervisory board is a controlling corporate body responsible for matters such as the appointment and removal of members of the management board and for the supervision of the company's management.
- German limited liability companies (Gesellschaften mit beschränkter Haftung, GmbH) are only required to form a supervisory body if a GmbH’s domestic operations regularly employ more than 500 employees.
In terms of employee representation, one third of the members of any supervisory board must be employee representatives in companies regularly employing more than 500 but not more than 2,000 employees in Germany, and companies with more than 2,000 employees in Germany must have a supervisory board with an equal number of employee and shareholder representatives.
Starting on 1 January 2016, listed companies with supervisory boards having an equal number of shareholder and employee representatives according to German employee co-determination law are subject to the new mandatory provisions. They must meet a fixed minimum quota of 30 per cent for the respective under-represented gender (in practice this will usually be women) when electing or appointing new members of the supervisory board. An election or appointment as shareholder representative to the supervisory board in breach of the minimum quota will be invalid. The risk of invalidity is meant to have the effect of behaviour control. Shareholder representatives are unlikely to risk being outvoted by employee representatives.
Gender- equality targets
In addition, all companies which are either listed or fall within the scope of employee co-determination law must set targets to increase the percentage of women on the supervisory board, on the management board or among the managing directors, as well as on the two top management levels below the management board or the managing directors. The first date for compliance with this new statutory duty of self-commitment was 30 September 2015.
It applies regardless of whether the company complied with its duty to establish a supervisory board. Companies within the scope of the new legislation will also have to determine a time limit by which they plan to achieve their targets. If they fail to achieve their targets they will have to explain why (the principle of "comply or explain"). Even though there are no penalties for non-compliance, bear in mind that voluntary commitments have often been followed by rigid quota systems if commitments based on voluntary decisions did not produce the desired outcome.