This post appeared as part of Diligent Institute’s contribution to Insightia’s corporate governance report covering Europe. Read the full report here.

Europe has positioned itself as a diversity leader but companies lagging on this front continue to win the favor of investors and advisors.

According to Diligent Institute’s 2022 Modern Leadership report, Europe is leading the way when it comes to board gender diversity, thanks in part to its many ambitious quotas and targets. Among the countries analyzed in Diligent’s report, France boasted the highest proportion of board seats held by female directors, fueled by the country’s mandated quota of 40% female representation on public boards.

Norway, Finland, and the U.K. have implemented similar directives to great success, while in 2022, the European Commission (EC) passed an umbrella directive mandating that listed companies in member states feature at least 40% of the underrepresented sex in non-executive director positions by 2026. Diligent’s report revealed that women currently hold 29% of all board seats in Europe and, at the current growth rate, it is estimated to take European boards 10 years to meet the EC’s 40% target.

Women currently hold 29% of all board seats in Europe and, at the current growth rate, it is estimated to take European boards 10 years to meet the European Commission’s 40% target.

The success seen across several European countries is not going unnoticed by their neighbors. In March 2023, Spain’s government announced its intention to implement a parity law mandating corporate boards to feature at least 40% representation of either gender on their boards, as well as at the management level. If passed, the rule will apply to all publicly traded companies by July 1, 2024, and for all other companies with at least 250 employees and 50 million euros ($53 million) in annual revenues, the rule will come into effect mid-2026.

Does diversity impact investor voting?

While 17% and 15% of the CAC 40 and FTSE 350, respectively, feature upwards of 50% female representation in their boardrooms, no DAX-listed companies have met this target as of yet. German public company boards also boast a lower average female representation of 32%. Despite Germany lagging behind its peers when it comes to female board representation, director re/election proposals are receiving impressive support. In 2022, the average director at a German-listed company won 95.9% support, compared to 93% and 94.6% support in 2020 and 2021, respectively, according to Insightia’s voting module.

In Q1 2023, Glass Lewis endorsed 94.1% of director re/election proposals at DAX-listed companies, up from a record low of 84.6% in 2020.

A lack of board diversity also doesn’t seem to be an issue for proxy advisors either, with advisors endorsing German director nominees now more than ever. In Q1 2023, Glass Lewis endorsed 94.1% of director re/election proposals at DAX-listed companies, up from a record low of 84.6% in 2020.

According to synthetic recommendations, Institutional Shareholder Services (ISS) support for DAX-listed director nominees rose to 94.9% in 2022 compared to 83.3% two years prior. In Q1 2023, Glass Lewis’ support for French director re/elections dropped to 72.7%, compared to 84.8% a year prior. Regardless of investor voting trends, European companies that are falling behind mandated EC targets should still be wary of addressing their diversity shortcomings and be proactive in addressing these risks, lest they translate into voting revolts in coming years.