Businesses, where the German government owns a majority stake, will have a mandatory quota imposed on them, ensuring that at least 30% of their boardroom is made up of women.
The German cabinet approved the mandatory requirements designed to close the gender gap on 20th November, and companies have until 2025 to meet the goal. Other businesses who are registered on the stock exchange will also have at least one female board member.
This comes after previous legislation from 2015 requiring companies to report on female participation in their boardrooms had failed to have a real impact.
Germany’s minister for women, Franziska Giffey, said when presenting the government’s first equality strategy: “This breakthrough is historic. We are putting an end to women-free boardrooms in large companies. We are putting an end to women-free boardrooms in large companies. We are setting an example for a sustainable, modern society.
“We are exploiting all of our country’s potential so that the best in mixed teams can be more successful. Because nothing is done voluntarily, and we need guidelines to move forward.”
Recent research showed that women make up just 12.8% of management boards in the 30 largest companies listed on the blue-chip Dax index in Germany. Other countries in Europe, however, had more than double the number of women on their biggest boards with France at 22.2% and 24.5% in the UK.
The first woman CEO of a blue-chip German company was also only crowned last year, with Jennifer Morgan becoming the co-leader of business software group SAP.
The new move is being hailed as a success towards ensuring boardroom gender equality, as companies now must have women actively in the boardroom, rather than simply report on female participation.
Research shows that better gender diversity at the board level leads to companies being more successful. This year, McKinsey released their Diversity Win report, which showed that companies whose boardrooms are made up of more than 30% of women outperform their less diverse counterparts by 36% in profitability. The report also found that the penalty for not having a diverse boardroom is growing, so if businesses want to remain successful, they must act fast.
It isn’t just a company’s performance that benefits from executive diversity, but employees too. Recent analysis from Willis Towers Watson showed that employees feel better supported by their management and have more confidence in their leaders. Employees are 12% more likely to be happy with their careers when more women hold executive positions.
The country’s justice minister Christine Lambrecht added: “This law is a huge success for women in Germany, and offers not just a great chance for society, but the companies too”.