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Germany recently became the largest economy in the world to institute a mandatory quota for female board members. The new law was passed earlier this month by Chancellor Angela Merkel’s governing coalition after lengthy debate.

Michaela Rehle/REUTERS

When Thomas Sattelberger sat on the council overseeing one of Germany's main business associations three years ago, he and other senior executives would gather to discuss the most pressing issues facing corporations. One item that wasn't near the top of the list: increasing the number of women in leadership roles.

"Those issues were not in the core of the discussion," recalled Mr. Sattelberger, a former executive at Deutsche Telekom AG who now serves on various boards. "Everybody thought, 'That's a wave that's going to pass.'"

Not any more. After more than a decade of relying on persuasion to push businesses to increase the number of women in leadership roles, Germany recently became the largest economy in the world to institute a mandatory quota for female board members. In so doing, it's embarking on a major experiment into whether government policy can shift corporate culture.

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The new law was passed earlier this month by Chancellor Angela Merkel's governing coalition after lengthy debate. It will oblige about 100 of the country's biggest listed companies to move toward boards with at least 30 per cent women starting next year. In another significant move, it will also require about 3,500 large firms to announce public targets for increasing the number of women in leadership roles, from managers to boards of directors.

Germany's two-pronged approach aims to jump-start a broader cultural change and not simply correct an imbalance in boardrooms. The country has a dismal track record when it comes to female executives. At Germany's 200 largest companies, just 5.4 per cent of the top echelon of management is composed of women. The situation in small and medium-sized firms is not much better: A recent study by accounting firm Warth & Klein Grant Thornton AG found that the proportion of women among top managers in such companies in Germany was the second-lowest of the 35 countries it surveyed.

The new law in Germany is the latest development in a raging debate over whether voluntary efforts or government mandates are needed in order to change male-dominated corporate cultures. A number of countries in Europe – including Norway, France, Italy, Spain and Belgium – have already instituted official quotas for women on corporate boards. By contrast, in Britain and the United States a privately run campaign – called the 30 Percent Club – is seeking to enlist willing companies to meet such targets (a Canadian chapter is planning an official launch this year).

Germany's new legislation is "a milestone," said Monika Schulz-Strelow, who heads Fidar, an advocacy group in Berlin that helped push for the law. "I am not fighting for quotas because I like quotas. I am fighting for the result that comes out of quotas." She noted that German political parties first forged a voluntary pact with a major employer association on increasing women in leadership back in 2001 and "it didn't change anything."

The early evidence from European countries shows that quotas function as intended in a narrow sense: The representation of women on boards increases in accordance with the law. But what's less clear is whether such increases do anything to tackle deeper problems, such as the dearth of women in senior management positions or the persistent wage gap between men and women doing similar jobs.

The bitter and sometimes dispiriting debate over the quota in Germany shows just how far the country has to travel. During the tussle over the new law, a leader of the governing Christian Democratic Union told Manuela Schwesig, the Family Minister who pushed for the legislation, to stop being "so whiny." At one point, several major German auto makers hinted they might have to move some of their business outside the country if the legislation were to proceed.

The law's supporters note that its provisions aren't actually that arduous for the largest firms. The new quota applies only to the companies' supervisory boards. (German companies have a two-level governing structure that involves both a supervisory board and a management board. The supervisory board approves major decisions and is composed of representatives of shareholders and employees; the management board runs the company.)

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Ms. Schulz-Strelow estimated that the largest German firms will have to recruit about 170 female board members – whether from Germany or elsewhere – to reach the 30-per-cent threshold. Granted, for some firms, this process will be more challenging than for others: Fresenius SE, a health-care company with more than 200,000 employees, currently has no women on its board. By contrast, Deutsche Telekom has already met the threshold.

Mr. Sattelberger, the former head of human resources at Deutsche Telekom, said the real challenge for German firms will be living up to the newly required public targets for women in leadership.

In 2010, Deutsche Telekom introduced its own internal target of 30 per cent women in management roles. That meant changing the company's approach to every significant event on the career ladder, from initial recruitment to promotions, Mr. Sattelberger said. But it has yielded results: The proportion of female managers in the company's German operations rose to 20 per cent today from 13 per cent in less than five years.

Mr. Sattelberger believes the new law will prod companies to action, though he would have preferred they make progress on their own terms. Companies are not only obliged to set public targets for female managers but to explain if they fall short. "In the end, businesses all over the world do not like to be named and shamed," he said.

That's also what the government is betting on. "We're confident that public pressure will lead to ambitious targets," said a spokesperson for the Family Ministry. For the outside world, a firm's policy on female managers "is an important criterion by which the company must be measured."

Meanwhile, the larger issues that contribute to a lack of women in senior positions in Germany remain to be addressed, said Anke Hassel, a professor of public policy at the Hertie School of Governance in Berlin. They include a tax regime that favours a traditional division of labour between mothers and fathers, she said, and the difficulty of resuming a full-time career after motherhood.

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The quota kicks in at the pinnacle of the corporate world, added Prof. Hassel, a place the vast majority of women never reach. "The only thing it will do is raise awareness," she said. "It is a symbolic act that points to a problem without addressing it."

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