Commentary Gender Diversity at European Banking Boards: Still a Long Way to Go
DBRS Morningstar Summary 22 February 2021 Gender diversity has become an increasingly important issue for the banking sector, particularly as
ESG factors have grown in importance for investors when evaluating banks. Despite recent Kevan Viagas changes, women still represent less than a third of board membership at European banks. Financial Analyst - Global Financial Representation is especially low at the Chief Executive position, with only 6 women at the helm of a Institutions Group +44 20 3356 1526 sample of 53 banks across Europe. In order to accelerate representation at the highest level, some [email protected] countries have introduced country-wide board-level quota legislation, whilst other geographies
Nicola De Caro have found more success in implementing bank-specific policies aimed at improving representation Senior Vice President - Global FIG at the individual institution. +49 69 8088 3505 [email protected] Whilst quotas may go some way to reducing inequality, in isolation they are unlikely to be Elisabeth Rudman sufficient. We believe that progress will continue to be hindered unless regulatory efforts are Managing Director, Head of European FIG - Global FIG compounded by effective and measurable internal bank policies. +44 20 7855 6655 [email protected] This research forms part of DBRS Morningstar’s ESG analysis, encompassing both the credit risk
factors and also the sustainability factors relating to ESG. With increased scrutiny from regulators and investors on gender diversity, DBRS Morningstar considers banks face reputational risk and the possibility of future regulatory pressure, if they fail to progress in this area.
Low Levels of Female Board Representation in Banking Industry Whilst there have been increases over the past 5 years, women remain significantly underrepresented on banking boards. On average in our sample of 53 European banks, women represent 32% of board membership, as opposed to 22% in 2014. Boardroom parity would be reached by c. 2030, if we were to assume the average 2014-2019 growth rate remains steady. Portugal lags significantly behind the average at 19%, whereas Norway and Sweden reported the highest female representation at board level (Exhibit 1).
Norway and Sweden are also among the few countries in our sample with female representation at the Chief Executive level. Out of the 53 banks, only 6 have a female Chief Executive: DNB ASA (Norway), Svenska Handelsbanken (Sweden), NatWest Group (UK), Bank of Ireland (Ireland), Banca Nazionale del Lavoro (Italy) and Bankinter (Spain), whilst just three, DNB ASA (Norway), Banco Santander (Spain), and Banca Monte dei Paschi (Italy) have a female Chairperson. This is in contrast to the 51% female representation on average at the workforce level in 2019, and shows the bottleneck at the upper levels of management.
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Exhibit 1 % of Women at Board Level per Country
Average of Women Board Members % - 2014 Average of Women Board Members % - 2019 Sample Average 2019 2014-2019 Percentage Point Change 50
45 0 5 12 17 24 40 -6 11 35 7 16 10 -5 30 7 25 9 20 15 10 5 0
Source: DBRS Morningstar, Company Documents.
Denmark and Ireland, as well as being two of the countries with the highest levels of female representation in FY19, were also amongst the jurisdictions with the largest increases over this period, with increases of 17 percentage points (p.p.) and 24 p.p. respectively (Exhibit 1). Bank of Ireland and Allied Irish Banks saw the highest increases over the analysed period, with increases in excess of 30 p.p. (Exhibit 2). And the 3 banks in our sample with highest levels of female representation, Crédit Agricole, Credito Valtellinese and Svenska Handelsbanken, all had increases in excess of 20 p.p. (vs. the sample average of 10 p.p.). The least gender diverse boards in 2019 were largely comprised of Portuguese and Spanish banks.
Exhibit 2 % of Women at Board Level FY19 & Growth vs. FY14
FY19 Percentage Point Change FY14 - FY19 50
40
30
20
10
0
-10
-20 SG UBI SEB BCP KBC BNL CGD DNB ING* PTSB BCES BBVA HSBC Iccrea Intesa BMPS Lloyds BPCE* Bankia Danske Nordea Abanca Sondrio Cajamar Barclays Natwest Sabadell Unicredit Nord LB* Nord DZ Bank* Bankinter Montepio Liberbank Caixabank Santander AltoAdige Swedbank Rabobank* ABN Amro* Banca Sella Novo Banco Novo BNP Paribas Banco BPM** Banco Credit Agricole Nationwide BS Nationwide Bank of IrelandBank of Commerzbank* Handelsbanken Deutsche Bank* Pfandbreifbank* Credit Logement Allied Irish Banks Irish Allied CreditoValtellinese
Source: DBRS Morningstar, Company Documents, * Supervisory Board data used in conjunction with Management Board data; ** Banco Popolare used as proxy for FY 2014 data.
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National Legislation & Individual Country Experiences International banking regulators have largely avoided setting punitive diversity legislation, instead
focusing on setting diversity targets in action plans. In February 2020, however, the European Banking Authority (EBA) published a report1 on diversity in credit institutions and investment firms.
The results showed low representation of women in management bodies (15% as of 2018), and
stated that 2/3 member institutions had executive directors of only one gender. The EBA report included a call for more measures to be taken at a national and institutional level to improve gender diversity, as they believe a more diverse workforce aids with "decision-making regarding strategies and risk-taking by incorporating a broader range of views, opinions, experiences, perceptions, values and backgrounds".
One of the legislative measures used at a national level has been the imposition of gender quotas for boards 2. Of the top 5 most gender diverse countries in our sample, two have imposed quotas, those being France and Norway. The origins of the Norwegian board quotas stem from similar policies enacted in Norwegian politics, which has served to increase female participation. Summaries of these quotas, amongst others, can be seen below:
Table 1 Examples of Board Level Quotas
Implementation Country Requirement Potential Penalty Year
Norway 2008 Listed companies to have at least 40% female directors Potential penalty of dissolution
2011; Revised in Requires companies with 500+ employees and revenues over EUR 50 France Noncompliance risks voided appointments 2014 million to have a minimum of 40% of females on their board of directors
Listed companies with 250+ employees to have at least 40% female Risk losing public contracts and/or Government Spain 2015 directors Subsidies
30% female participation on supervisory boards of large, publicly listed Vacated board seats may remain vacant until filled Germany 2016 companies by a woman
If the quota is not met within a four month grace Requires listed companies to have at least 30% female representation Italy 2011 period, companies can be charged a fine of up to on their boards €1,000,000 In 2013, large companies were to set an optional target of 30% of the 2013; Revised in Vacated board seats may remain vacant until filled Netherlands seats of the company’s management and supervisory boards to be 2020 by a woman women. This was made mandatory for listed Dutch companies in 2020.
Source: DBRS Morningstar. The mechanism of quotas allows for internal targets to be set at a specific, numerical level, and reduces the possibility of overly broad objectives. Whilst this has gone some way to reducing gender disparity at senior levels, the imposition of gender quota type legislation suffers from two main weaknesses. Firstly, gender quotas are often unenforced, and usually do not carry sanctions for noncompliance. By treating this as a “soft” law, companies have reduced incentives to improve.
1 https://www.eba.europa.eu/eba-calls-measures-ensure-more-balanced-composition-management-bodies-institutions. 2 For geographies with two-tier banking systems, the regulatory point of reference is generally the supervisory board, as opposed to the management board.
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Secondly, the imposition of quotas is concerned with the result, as opposed to the means behind it. By setting a fixed threshold, quotas do not address the reason behind the inequality.
Unlike other Scandinavian countries, neither Finland nor Denmark impose quotas on board
membership. Instead, the Finnish Government funds programs that help develop the skills of female
members of the workforce, and to further prepare them for potential board membership. The Ministry of Social Affairs and Health also implements an action plan for gender equality. Meanwhile, Denmark requires its largest companies to maintain policies on how they will attain executive management-level gender diversity. These policies require companies to report their own achievable target of board composition in a 4 year timeframe. The reports must also indicate current progress and describe measures taken to achieve their target.
Both of these approaches address the issues outlined in the February 2020 EBA report of female underrepresentation in management. This is done through a focus on career development, and sustainable growth of female representation at senior levels, as opposed to focusing on the end result.
Example of Bank Policies: DNB ASA DNB ASA (DNB) has a target of 40% of the top 4 levels of management being comprised of women, and having pay parity. These efforts are tracked and updated annually, whilst also being supported by internal talent development. In addition, DNB has changed their hiring practices to try to eliminate some of the disparity between sexes, including a requirement to have the final two candidates for a position to be male and female. Policies such as this have aided DNB in reducing the gender pay gap and gender disparity in management, with both metrics narrowing since 2014 (Exhibit 3).
Exhibit 3 DNB Progress vs. Gender Targets
Female Salary vs. Male Target Female Proportion in Top 4 Management Levels Target 100.0% 40% 97.5% 39% 95.0% 38% 92.5% 37% 36% 90.0% 35% 87.5% 34% 85.0% 33% 82.5% 32% 80.0% 31% 77.5% 30% 75.0% 29% 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
Source: DBRS Morningstar, Company Documents.
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ESG Factors in DBRS Morningstar Rating Analysis
DBRS Morningstar evaluates and incorporates 17 ESG credit risk factors in the assessment of its credit ratings across Governments, Financial Institutions, Corporate Finance, and Structured
Finance. DBRS Morningstar's Financial Institutions Group considers 12 of these factors in its
assessment of credit ratings. DBRS Morningstar considers how ESG risks affect the issuer and transaction-specific ratings during the life of the transaction/rating. As with all of DBRS Morningstar’s credit analysis, evaluation of the factors’ impact is forward looking—relevance reflects the factors’ impact in the future, which may not necessarily be the same as it might have been in the past.
This is relevant for gender diversity, as whilst this may have been a less prominent concern for regulators and stakeholders in the past, its importance has grown. DBRS Morningstar considers gender diversity within banks' boards to fall under the Governance ESG factor, particularly under the "Corporate Governance" factor, alongside the Social ESG Factor. We consider an institution's relation to its community of stakeholders as key in maintaining reputational standards, particularly as calls grow for more diverse workforces. A stronger reputation can enhance a financial institution's franchise, while a lack of progress could eventually lead to a loss of clients.
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European Banks List by Country Belgium KBC Group NV
Denmark Danske Bank A/S Finland Nordea Bank AB (publ)
France
Groupe BPCE Crédit Agricole Group Société Générale SA BNP Paribas SA Crédit Logement Germany Commerzbank AG Deutsche Pfandbriefbank AG Deutsche Bank AG DZ Bank AG Norddeutsche Landesbank Girozentrale Ireland Permanent TSB Group Holdings plc The Governor and Company of the Bank of Ireland Allied Irish Banks, p.l.c. Italy Banca Sella Holding SpA Banco BPM SpA Banca Monte dei Paschi di Siena SpA Credito Valtellinese SpA Intesa Sanpaolo SpA Unione di Banche Italiane SpA UniCredit SpA Banca Popolare di Sondrio S.C.p.A. Banca Popolare dell'Alto Adige S.p.A. Banca Nazionale del Lavoro SpA Iccrea Banca SpA Netherlands ABN Amro Group NV ING Groep NV Coöperatieve Rabobank U.A. Norway DNB ASA Portugal Banco Comercial Português, S.A. Caixa Geral de Depósitos, S.A. Novo Banco, S.A. Caixa Económica Montepio Geral Spain Abanca Corporación Bancaria S.A. Bankia SA Bankinter SA Banco Bilbao Vizcaya Argentaria, S.A. Caixabank SA Grupo Cooperativo Cajamar Liberbank SA Banco de Sabadell SA Banco Santander SA Banco Cooperativo Español S.A. Sweden Svenska Handelsbanken AB (publ) Skandinaviska Enskilda Banken AB Swedbank AB (publ) UK Barclays Bank PLC HSBC Holdings plc Lloyds Banking Group plc Natwest Group plc Nationwide Building Society Page 8 of 8 Gender Diversity on European Banking Boards: Still a Long Way to Go | 22 February 2021
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