iStock_000003858560XSmallBy Elizabeth Harrin

Germany, Europe’s largest economy, is managed by men. While Chancellor Angela Merkel has packed her cabinet with a good gender balance, that isn’t reflected in German businesses. And many people think it should be.

Recently German politicians have been debating targets for the number of women on supervisory and executive boards. They are aiming for 30% representation by 2018. That’s 10% below the target that Norway set in 2003, but a lot higher than the current board representation figures.

“Germany is recognized as a laggard in terms of public policy focused on helping women in the workplace,” says Véronique Bourez, in the report Women on Boards: Moving Beyond Tokenism [PDF]. “The number of women in senior levels in business is certainly one of the lowest in Europe.”

According to FIDAR, a German women’s association which aims to promote a sustainable increase in the proportion of women on the supervisory boards of German companies, only about 12% of the directorships of large German companies are women. However, most of those are labour union representatives. If you look at the female shareholder representatives on boards the number drops to a measly 4.5%.

Missing Out on Growth

“As one of the top economies, Germany has more at stake in not continuing to grow than those economies in rising tides like China and India,” says Mark Faust, Founder of Echelon Management International, a turnaround consultancy. “We have seen healthy and dysfunctional boards as being relevant to the health and growth of a company. Missing out on the advantage of diversity will only hinder their growth potential in an already developed economy, while others will grow despite themselves.”

Klaus-Peter Müller, Chairman of the Government Commission on the German Corporate Governance Code which includes new guidance on board diversity, agrees. “In the upcoming battle for the best talent, the improper consideration of women would not only be poor corporate governance, but would also be a grave disadvantage in global competition,” he says [PDF].

The discussions in Germany echo the discussions elsewhere in Europe, and failing to address the issue of managing female talent at the very top of organisations will see German businesses lose out in the race for talent. After all, many other European countries are rebuilding their economies and are on the lookout for talented individuals able to operate at senior levels. Recruitment of women to these roles may be slow, but there is a spreading realisation across Europe of the role that women can play.

“Ireland was hit quite hard by the global recession,” says Natalie Novick, an academic in the Political Science department of Trinity College Dublin. “Some have wondered if maybe greater women’s representation in politics or in the boardrooms of the troubled Irish banks would have made a difference.”

Both Ireland and Germany have fewer women on boards than the average European country, according to the EPWN Board Women Monitor [PDF] study.

“Ireland has pretty poor female representation in politics, and the corporate culture is even worse,” says Novick. “According to a recent report by the Irish Central Statistics Office, women in Ireland are paid less than men, even though women are more likely to be higher educated. Sexism is additionally prevalent in Irish corporate society. A notable example took place last year at the Dublin branch of PricewaterhouseCoopers, after an email became public ranking the attractiveness of a new group of female employees. The email, with a subject line of ‘This would be my shortlist for the top 10’, included derogatory slang alongside pictures of the women from the company directory.”

The Call for Quotas

As with other European countries struggling to increase the number of women on corporate boards, Germany has thought about quotas. FIDAR is calling for at least 25% representation, with sanctions for poorly performing companies. That’s lower than the government’s target of 30%.

While quotas are one option, not everyone agrees with mandating the level of female representation on boards. Kristina Schröder, the family affairs minister, was quoted recently as saying: “Quotas are always a supporting crutch, but sometimes they are necessary, and that’s why I’m suggesting a flexible quota, which the companies agree among themselves, because that’s the way they take much more responsibility for the issue.” In other words, let companies decide for themselves how many women to put on boards.

That might seem unrealistic. Are companies really keen to monitor board recruitment between now and 2018, seeking out women to find replacements for the men who are retiring from their positions?

Some companies are already making the commitment, and Deutsche Telekom recently became the first DAX 30 company to introduce quotas for recruitment and participation in executive development programmes. Their published goal is to have 30% of upper and middle management positions filled by women by 2015. Deutsche Telekom has recognized that having women in management roles directly correlates to corporate financial performance but has stopped short of specifying if their targets apply to supervisory board level positions as well as “upper management”.

Voluntary targets could be successful. The German Corporate Governance Code was amended last year to include a statement recommending boards of directors consider diversity when recruiting to fill board positions. The number of women on boards has increased to 8.5% last year from 7.8% in 2008 – but that’s a small rise and the changes to the Code were only adopted in May 2010. Hopefully that means that with a bit of encouragement, German companies will make the changes themselves.

“Quotas are usually detrimental,” says Faust. “Quotas are goals created by one and forced down the throat of the other and whenever people are forced to do something without clear and agreed upon reason, they tend to rebel and sabotage. Rather, companies and countries should set values and objectives in conjunction with those who must implement. People tend to support that which they help to create.”