In late 2022, the EU passed a landmark piece of legislation that put Europe front and center of the global effort, both by policymakers and businesses, to improve the gender balance at the top. The Gender Equality on Boards Directive requires that 40% of non-executive director (NED) roles (or 33% of all director roles) be filled by the underrepresented sex by 2026 â which, for most companies, means increasing the number of women.
The most recent data shows that, across the 27 EU nations, on average, women hold 35% of non-executive positions at the largest listed businesses, though countries vary widely. Seven countries have reached the 40% mark, yet in another seven, women hold under 20% of non-executive directorships. So, how can employers reach 40% by 2026?
Undoubtedly, it is a challenge. However, business still has a little time to implement solutions. We advocate a three-pronged approach, based on improving how business recognizes female executive talent, a rethinking of traditional ideas about the pre-requisites of non-executive directors, and ââŻfor the medium term ââŻa comprehensive strategy to strengthen the talent pipeline. Hereâs what businesses need to consider.
A senior executive post â often with financial responsibilities, or at least having some overall P&L responsibility â has long been the natural route to the boardroom. Historically and currently, these roles have been and are dominated by men: today the data shows that just 21% of senior executive roles across the EU-27 are held by women. How can businesses reach 40% if the traditional pool of NED candidates is so limited?
One key mindset change is to better recognize the talent that is available within that 21%. Our research suggests there are substantial numbers of viable women candidates in executive roles. Boardroom chairs and recruiting firms just need to notice them.
A recent IMD study of 130 senior executive women â 70% at the CEO, C-suite, or VP level â showed that they are ready and eager to take up board positions. Participants were asked to indicate their view on the board recruitment challenge on a scale of 0 to 100, with 0 indicating that âthe lack of women is completely a pipeline problem,â and 100 representing the view that it is âa demand problem of companies not appointing women.â The average score was 76, a clear signal that women leaders perceive the problem of boardroom under-representation to lie principally with those responsible for filling these positions.
Getting to 40% will require a shift in approach based on rethinking the traditional profile of a suitably qualified candidate. Many of the women eligible for board roles today are to be found in ânon-traditionalâ roles. They are still operating as highly effective leaders, just not in the P&L-holding roles that have been the typical stepping stones to the board.
Businesses should recognize that candidates can gain board-relevant experience in many ways. For example, the head of HR (a female-dominated profession) in a global company today probably has as much financial experience as the CFO in a small private firm, while an entrepreneur has had to manage both leadership and finances for the firm that they founded.
Whatâs more, there is a strong argument for bringing new expertise and experience into the boardroom. For instance, there has been a trend for appointing more academics in recent years â which has often meant appointing women.
This could be one of the most important results of the EUâs directive. Directors from non-traditional professional backgrounds will think outside the box in which their corporate-bred peers are sometimes trapped. They will help to change board dynamics and provide different perspectives, having taken different routes to the boardroom and potentially bringing with them a wider variety of experience and skills.
That said, it is also critical to acknowledge that to contribute in an NED role, individuals do need significant financial knowledge and the ability to perceive important patterns within a balance sheet. It is precisely why so many NEDs have been drawn from executive roles, and especially those with P&L responsibilities. A lack of actual and legitimate financial experience does not set up women to succeed, because it only exacerbates their internal self-doubt about their suitability and readiness for the role â and may prompt external challenges about whether they can contribute to board conversations at the same level as their peers who do have such financial experience.
Yet this does not mean that an executive role with P&L responsibility is the only route to developing such financial acumen. Any leader can build such knowledge through supplemental financial education.
âMost current female board members are drawn from legal, HR, or communications backgrounds... organizations should provide internal financial training for talented women who they identify as having leadership talent.â
Besides womenâs âpositionalâ disadvantage â that is, their lack of representation in those key executive roles â networking presents another uneven playing field.
Board appointments, especially at the small- to medium-sized business level, are often the result of networking: âwho you knowâ rather than formal, merit-based procedures that select from a wide and varied field of candidates. This presents two problems. First, women often lack access to these networks1. Secondly, relatively informal appointment processes are more prone to bias and tend to favor stereotypes2 (e.g., the middle-aged white man with a background in finance). This affects the composition of small-to-medium-sized company boards and significantly affects womenâs chances of gaining valuable mid-level board experience.
Whatâs more, there is solid evidence that, when more women sit in non-executive roles, the appointment of women into executive roles increases3. This is known as the trickle-down effect. A shortage of women on non-executive boards hampers efforts to strengthen the pipeline of qualified female executives.
So, what can companies do to change this? We present eight system-level solutions that companies can implement.
Developing effective systems to help women leaders progress to the boardroom requires a focus not only on the transition from executive to non-executive roles but also on the factors affecting female leaders throughout their career path. There are eight key areas to consider.
1. Audit board recruitment. Appoint external auditors to review candidate lists for executive roles and task them with ensuring diversity of candidates. This scrutiny keeps organizations âhonestâ and ensures that women enter consideration for top roles. One chemicals company that we worked with had a diversity committee review all candidate lists to ensure that diverse candidates were being considered. In situations where diverse candidates were lacking, the committee challenged the decision-makers and gave recommendations.
2. Establish transparent and fair criteria. Enshrining robust formal criteria for promotion and appointment into key roles is essential. Without objective standards, women are highly likely to be disadvantaged by unfair biases. It is well established in the research that women face a âdouble-bind dilemmaâ â that is, when they demonstrate âfemaleâ traits, such as interpersonal skills or care for others, assessors identify these as indicators that they lack the strength and toughmindedness required to lead. Yet, when they demonstrate traits typically associated with male leaders, such as assertiveness or decisiveness, they are criticized for violating female stereotypes.
There is another issue that surfaces regularly in conversations with women leaders: the âalmost thereâ problem. Women are perpetually told they are nearly ready for the next level â but not quite. The male candidate gets the benefit of the doubt; he is trusted to adapt to the next level once he gets there, whereas the woman with similar potential and accomplishments is told, âYouâll get a promotion when youâre ready. Youâre not quite there yet.â This perception is reinforced by real-world research: one study of performance appraisals in a large retail chain found that women got higher ratings than men but were consistently judged as having less leadership potential. The answer lies in establishing more objective and transparent evaluation criteria and making those who use these systems aware of how biases might skew the results.
3. Monitor the talent pipeline to ensure women are prepared for top roles. Enshrining robust formal criteria for promotion and appointment into key roles is essential. Without objective standards, women are highly likely to be disadvantaged by unfair biases. It is well established in the research that women face a âdouble-bind dilemmaâ â that is, when they demonstrate âfemaleâ traits, such as interpersonal skills or care for others, assessors identify these as indicators that they lack the strength and toughmindedness required to lead. Yet, when they demonstrate traits typically associated with male leaders, such as assertiveness or decisiveness, they are criticized for violating female stereotypes.
There is another issue that surfaces regularly in conversations with women leaders: the âalmost thereâ problem. Women are perpetually told they are nearly ready for the next level â but not quite. The male candidate gets the benefit of the doubt; he is trusted to adapt to the next level once he gets there, whereas the woman with similar potential and accomplishments is told, âYouâll get a promotion when youâre ready. Youâre not quite there yet.â This perception is reinforced by real-world research: one study of performance appraisals in a large retail chain found that women got higher ratings than men but were consistently judged as having less leadership potential. The answer lies in establishing more objective and transparent evaluation criteria and making those who use these systems aware of how biases might skew the results.
4. Develop sponsorship programs for female leaders. Women are less likely than men to be vocal about their achievements, which may contribute to their being overlooked for opportunities. When senior leaders undertake the responsibility to champion female talent, it can boost female progression up the management ladder. Organizations should implement formalized sponsorship arrangements, allocating responsibility to senior leaders for sponsoring female talent7.
5. Assess leaders on their record of promoting women. Beyond sponsoring women, leaders and managers at all levels should be held formally responsible for the gender equality of their promotional practices8. One energy company we worked with added promoting and developing diverse candidates as an explicit KPI for managers. This communicated the extent to which the organization was serious about this goal.
6. Offer reskilling opportunities after career breaks. Typically, taking time out from work for maternity leave (or other reasons) has been a significant barrier to womenâs career prospects. Leading companies recognize that they can address this by offering reskilling opportunities and recruitment initiatives that target women who are returning to work. Strong examples include IBMâs Tech Re-Entry Program and UBSâs Career Comeback scheme.
7. Provide flexible work policies. Business has long recognized the importance of flexible working, which allows women (and indeed men) to balance work with other responsibilities, such as childcare or caring obligations, while remaining a productive member of the workforce9. The effects of these policies can be dramatic. Some years ago, a global company that the first author worked with introduced a requirement for all new positions in one of its countries, including executive roles, to be advertised on a flex-time basis. Within six months, the number of women applicants increased by 60%.
8. Provide financial education for women. As acknowledged above, most current female board members are drawn from legal, HR, or communications backgrounds â functions of the business that tend to have less financial literacy and exposure than functions like finance, accounting, and sales. Organizations should provide internal financial training for talented women who they identify as having leadership talent, as it also benefits the employer when their leaders sit on the boards of other companies, inside and outside of their industry.
âKnowing what to look for in women candidates for non-exec director roles â and where to find those candidates â is key. â
We, and the women we have interviewed and surveyed, believe itâs high time for boards to welcome a greater diversity of backgrounds. We need to see a concerted effort to get women into more senior executive roles and strengthen the pipeline for female talent.
But we also need a shift in mindset in terms of what qualifies a candidate for the board and how diverse candidates are positioned for NED roles. Headhunters, nominations committees, and all those involved in appointing board directors need to be willing to challenge traditional ways of thinking.
Increasing boardroom diversity will add richer, better-informed perspectives to decision-making. It will allow businesses to navigate more effectively the complex challenges they face today.
As we have seen, achieving the EUâs 40% quota for women on boards will require a substantial effort â but it is not impossible.
Companies must recognize the strong presence of female talent in the existing pool of executives while discarding tired assumptions about what is required to become an effective board director. Perhaps even more importantly, they must unblock the talent pipeline to allow well-qualified women to progress unhindered.
With such a multi-pronged approach in place, the EUâs quotas will quickly look a lot more attainable.
While some organizations retreat from inclusion commitments under political pressure, the path to lasting transformation lies in embedding diversity deeply within core values rather than treating it as a compliance issue. Leaders...
As Pride Month celebrations fade, sobering data reveals the persistent workplace challenges facing LGBTQ+ employees globally. From the âgay glass ceilingâ blocking executive advancement to six in 10 LGBTQ+ Europeans hiding their...
In an interactive online panel organized by IMD and IMD's Inclusive Leadership Alumni Community, business leaders from various industries shared strategies for maintaining authentic LGBTQ+ inclusion in order to create inclusive, resilient...
Polarization is a defining trend in the changing global order. Hereâs how leaders can navigate the Trump-led pushback against diversity programs....
Audio availableExplore first person business intelligence from top minds curated for a global executive audience