Legislation on male-female ratio on boards and in management of Dutch companies

As part of the ESG acronym, the “S” does not  always receive the fullest attention. Whether this is the right approach can be debated at length whilst topics such as human capital management, minimum wage, health and safety, work force culture, diversity and inclusion, working conditions and human rights apply to any company in any sector by default. Not unsurprisingly, investor scrutiny on social issues has increased over the past years (see footnote 1 below).

In the Netherlands, an important milestone was reached on 1 January 2022. With effect from this date, new legislation became effective to achieve a more balanced ratio of seats between men and women on the boards and in management of publicly traded companies and large companies (see footnote 2 below).

Publicly traded companies

A “growth quota” has been introduced for the supervisory board (raad van commissarissen) of publicly traded companies. As long as a supervisory board does not consist of at least 1/3rd male members and 1/3rd female members, any newly proposed supervisory board candidate that would not create a more balanced ratio cannot be appointed. An exception applies for re-appointments within eight years or in case of extraordinary circumstances. In case of a one-tier board, the growth quota applies to the non-executive directors. Any appointment made in breach of the quota is considered null and void (nietig). Despite a void appointment, the decision-making within a publicly traded company will in principle not be considered void. That said, if the minimum number of directors under the articles of association of such a company would no longer be met due to the void appointment, the decision-making is at risk of being considered null and void.

Large companies

Large companies in the Netherlands, whether or not their shares are publicly traded, are subject to other/additional obligations. A company qualifies as a “large company” for these purposes if it meets at least two of the following three criteria for two consecutive years: (i) a value of assets higher than € 20 million; (ii) a net turnover higher than € 40 million; (iii) an average number of employees of 250 or more.

Large companies must:

• set suitable and ambitious goals by means of a target figure to balance the ratio of men and women on the management board (bestuur), the supervisory board and in other categories of employees in management roles, the latter to be determined by the company itself. In setting these goals, the size of the relevant body/group and the existing male-female ratio should be taken into account;
• establish a plan to achieve these goals. For example, by considering the male-female ratio when establishing the profiles for the board members, having a transparent application and selection process and a preference policy;
• report the male-female ratio of these bodies/groups to the Dutch Social Economic Council (Sociaal Economische Raad) on an annual basis, including the goals and, if certain goals are not met, the reasons therefor, ultimately by 10 months following the end of the company’s financial year. This information must also be included in the directors’ report, as part of the annual accounts.

As long as the parent company fulfils these obligations on behalf of a group company (whether or not for the group jointly), such group company itself does not have to adhere to the above requirements. It is noted that a publicly traded large company does not have to set a target figure for the ratio between men and women for the supervisory board or the one-tier board, due to the quota that is in place.

The above requirements will apply for eight years and will therefore cease to apply as of 1 January 2030.

Recent developments

Recently, in the Dutch financial press there is significant attention for ensuring that the new quota is being met. For example, SnowWorld, a publicly traded company, intended to appoint two new male supervisory directors in January 2022. This would result in a direct breach of the quota. At the last moment a breach was prevented by proposing to appoint a female member and only one of the men that were initially intended to be appointed.

In short, publicly traded companies should ensure compliance with the 1/3rd quota for any new appointments of supervisory board members or non-executive directors. Large companies, whether or not they are listed, should: (i) set a target figure to balance the male-female ratio on the supervisory board, the management board and the management echelon below that; (ii) establish a plan to meet these goals; and (iii) report the male-female ratio on an annual basis. If these obligations are not complied with, the company faces reputational risks. Moreover, it faces a risk of legal proceedings being initiated against it and increased investor scrutiny could result in its share price being negatively affected.

Revised Corporate Governance Code

At the end of February 2022, a consultation process for an update to the Dutch Corporate Governance Code was published. As expected, ESG, and more importantly the social factor, plays an important role. Not only has having a diversity and inclusion policy for the personnel of publicly traded companies become best practice, but the proposed updates also propose reporting on and taking account of the broader concept of diversity and inclusion, including gender identity and gender expression, in the composition of the boards and executive committees. The consultation period is open until the first half of April 2022 and we will continue to monitor the developments on this closely.

[1] See page 3 of the Linklaters ESG Outlook 2022 available here.

[2] See page 32 of the Linklaters ESG Outlook 2022 available here.