“More women on boards make companies more resilient, more innovative and will help to change top-down structures in the workplace,” Social Democratic Austrian MEP Evelyn Regner, said in a statement. Yet women continue to be vastly underrepresented in the highest decision-making bodies of companies.

The European Union is hoping to address this concern with its new Directive on improving gender balance among directors of listed companies and related measures (Women on Boards Directive), which was adopted on 22 November 2022 in a plenary session by the European Parliament (see EU press release).

Key provisions 

  • The Women on Boards Directive provides that, by 2026, at least 40% of non-executive director positions in listed companies must be held by members of the underrepresented sex. If companies decide to apply the target to both executive and non-executive and executive directors, the target will be 33% of all director positions.
  • Companies failing to meet the objective will need to adjust their selection process to include a fair and transparent selection and appointment procedure, comparing candidates on neutral criteria. Where candidates are equally qualified, priority should be given to those from the underrepresented sex.
  • Companies will have to annually report (on their website and/or in their annual report) on the composition of their boardroom and the measures taken to achieve the 33% or 40% target.
  • Member States will have to annually publish a list of the companies that have achieved the target.
  • Finally, Member States will have to ensure effective, proportionate and dissuasive sanctions are in place in case of non-compliance, for example fines or the possibility for a judicial body to annul the directors’ appointment. According to the Directive, the sanctions should only apply for failing to set the target or to report, not for failing to effectively meet the target.

Next steps 

The Directive will now need to published in the Official Journal of the EU and will enter into force 20 days after that.

This marks the end of a deadlock of 10 years at European level. Yet before the rules become applicable, Member States will have to transpose the Directive into national law. They will have two years to do so, and it will be interesting to follow-up on possible gaps as the Directive gives plenty of leeway.

Forthcoming impact? 

Under the Directive, Member States (or listed companies) are allowed to go further than what the Directive provides:

  • Some countries could, for instance, decide to apply the rules to non-listed companies too, or apply the 40% target to executive and non-executive directorships (instead of 33%).
  • Inspiration for non-listed companies could also be drawn from the EU rules applicable to the financial sector, where the nomination committee shall itself decide on the appropriate target for the representation of females in the management body, and prepare a policy aimed at meeting that target (Article 88(2) Amended Capital Requirements Directive V (CRDV)).

On the other hand, countries that already have in place legislation which is equally effective or has come close to achieving the objectives, can decide to suspend the Directive’s requirements:

  • For example, Belgian law already requires listed companies to have at least one third (33%) females on their boards (in a one-tier structure) or supervisory boards (in a two-tier structure). Yet there are no sanctions for failing to comply with the rules, hence amendments to the Belgian legislation are likely to follow.
  • By contrast, the Netherlands will likely suspend the Directive’s requirements in view of the recently adopted rules that go further than the Directive, and also oblige non-listed large companies to “set [themselves] suitable and ambitious goals by means of a target figure” (read more here).

Conclusion

What the legislative landscape in Europe will be remains a question mark for now. But what is certain is that women are increasingly demanding their place on boards, and that companies have a large pool of highly qualified women in the EU to recruit from.

Of course, targets are only one part of the equation to improve gender balance on boards. The challenges are varied, so the solutions should be too.

Our Diversity Faculty at Linklaters provides plenty of inspiration, and Jennifer Granado Aranzana or your regular Linklaters contact would gladly help your company meet its Diversity & Inclusion ambitions, bearing in mind (amongst others) the regulatory framework around positive discrimination.