We reported earlier this year that political agreement had been reached between the European Parliament and Council on a proposed directive aimed at improving the gender balance among directors of publicly listed companies (the Directive). This political agreement was more than ten years in the making.
The Directive has now been published in the Official Journal of the EU and will enter into force on 27 December 2022.
The Directive seeks to promote gender balance in corporate boards of publicly listed companies across the EU by setting a quantitative target for the proportion of members of what the Directive refers to as the "underrepresented sex" on the boards of listed companies (excluding micro, small or medium-sized enterprises (SMEs) with fewer than 250 employees). The requirements of the Directive are discussed in more detail below.
Directive requirements
The Directive requires listed companies with their registered office in an EU Member State, and which have shares admitted to trading on an EU regulated market, to ensure that each gender represents one of the following by 30 June 2026:
(i) at least 40% of non-executive directors, or
(ii) 33% among all directors
Such companies will be required to provide information to their competent authorities once a year about the gender representation on their boards including, where these objectives have not been met, how they plan to attain them. This information is required to be easily accessible on relevant company websites. Companies reporting under Ireland's Gender Pay Gap Information Act 2021 will be familiar with this approach.
Listed companies that do not already comply with these requirements will be required to apply transparent and gender neutral criteria in the appointment of directors, and where candidates are equally qualified, prioritise the underrepresented gender.
It is noteworthy that the Directive is not intended to result in "an automatic and unconditional preference" for the underrepresented sex. Merit remains the main criteria for appointment of directors, and the preamble to the Directive notes that factors such as "professional experience in managerial or supervisory tasks, international experience, multidisciplinarity, leadership, communication skills, networking abilities and knowledge in specific relevant areas such as finance, financial oversight or human resources management" remain valid selection criteria. However, "priority can in certain cases be given to the underrepresented sex in selection for employment or promotion, provided that the candidate of the underrepresented sex is equally qualified as compared with the competitor of the other sex".
Member States must designate one or more bodies for the promotion, analysis, monitoring and support of gender balance on boards. Member States must also establish "effective, proportionate and dissuasive" penalties for listed companies that fail to comply, which "may comprise fines or the possibility for a judicial body to annul a decision concerning the selection of directors made contrary to [the Directive]". Member States will also be required to publish identifying information on listed companies which are reaching targets in an effort to encourage non-compliant companies to accelerate compliance, in a reverse 'name and shame'.
The Directive allows Member States that have adopted equally effective measures by 27 December 2022 to suspend the procedural requirements contained in the Directive. Whether the Directive should be extended to companies that are currently not in scope (such as listed SMEs) will be assessed at a later stage following the Directive's entry into force.
The Directive's objectives remain in force only until sustainable progress in gender composition of boards has been achieved and the Directive includes a 'sunset clause' to that effect which envisages an expiry date of 31 December 2038, although that may be extended or brought forward.
To conclude, in the words of Laura Wolters, co-rapporteur on the Directive: "In the ten years that this Directive sat on the shelf, boardrooms remained predominantly the realm of men. But in those countries where binding quotas were introduced, considerably more women were appointed. With this law, those countries will no longer be the exception, and gender balance in the boardrooms of listed companies will become the norm throughout the EU."
Next steps
The Directive will come into force on 27 December 2022. Member States have until 28 December 2024 to ensure that any changes required to national law to implement the Directive's provisions have been made.
