• A Look at Diversity Beyond the United States: Germany
  • August 25, 2015
  • Law Firm: Wong Fleming - Princeton Office
  • Diversity initiatives are not just an American concept. Some countries, in fact, have become diversity leaders in ways that the United States has yet to match. An example of this is Germany, where they are not just promoting diversity; they have made it a legal requirement. In January 2015, the Government of Chancellor Angela Merkel passed a law mandating that women make up at least 30% of all corporate boards. The regulations implementing the new law went into effect on May 1, 2015. By next year, all companies trading on Frankfurt’s stock exchange, the DAX, including Germany’s largest and most well-known companies, must begin implementing the 30% quota. Companies subject to co-determination need to agree upon a quota which can be below 30%.

    Limited liability companies (“GmbH“ in German), publicly traded corporations (“AG“) and publicly traded limited partnerships (“KGaA“) are all subject to the new requirement. And the law does not end there. In addition to reserving 30% of seats on the company’s board of directors for women, the law also requires the same 30% quota for positions in senior management. Companies are encouraged to exceed the 30% quota, but cannot fall below it. Full implementation must be achieved by no later than June 30, 2017.

    To ensure progress, companies must submit a plan by September 30, 2015 setting forth (1) what percentage of upper level executive and supervisory positions will be reserved for women and (2) how long it will take to achieve this goal. The plan must be reported in the company’s annual financial statements and other corporate reports. If a company fails to reach the 30% quota, it must explain what steps were taken and why they were ultimately unsuccessful. While the law does not currently impose penalties for failure to comply with the 30% quota, a company that fails to provide timely reports risks financial penalties and legal sanctions.

    Germany’s 30% quota for more women on boards and senior management positions is in contrast to the United States, where no such quotas exist. In addition, according to Ernst & Young’s corporate governance database and report, Getting on Board: Women join boards at higher rates, though progress comes slowly, only 14% of board seats and senior management positions are currently occupied by women.