After ten years, the European Parliament and the Council have agreed on a directive about women on company boards. 40% of non-executive director posts in companies in the EU should go to the “under-represented sex”, which normally means “women”, according to an agreement between the Parliament and the Council.
“After being blocked in the Council for a decade, European Parliament and EU countries’ negotiators finally agreed on a bill to increase the presence of women on corporate boards”, the Parliament says in a statement. Small and medium sized enterprises with up to 249 employees will be excluded.
Today, only 30.6% of board members in the EU’s largest publicly listed companies are women, with significant differences among member states (from 45.3% in France to 8.5% in Cyprus).
“Diversity is not only a matter of fairness. It also drives growth and innovation. The business case for having more women in leadership is clear. After ten years, since the European Commission proposed this directive, it is high time we break the glass ceiling. There are plenty of women qualified for top jobs: they should be able to get them”, said EU Commission President Ursula von der Leyen in a statement.
“The so-called “Women on Boards” Directive aims to introduce transparent recruitment procedures in companies, so that at least 40% of non-executive director posts or 33% of all director posts are occupied by the under-represented sex. Thanks to Parliament, companies must comply with this target by 30 June 2026, compared to the Council’s proposal of 31 December 2027. In cases where candidates are equally qualified for a post, priority should go to the candidate of the under-represented sex” the Parliament said.
“MEPs insisted that merit must remain the key criterion in selection procedures, which should be transparent, as part of the agreement. Listed companies will be required to provide information to the competent authorities once a year about the gender representation on their boards and, if the objectives have not been met, how they plan to attain them. This information would be published on the company’s website in an easily accessible manner.”
The Parliament says that proportionate penalties for companies that fail to comply with open and transparent appointment procedures are included in the agreement.
“Parliament has been asking for a Directive for more women on boards for over a decade. The Council was finally ready to come to the table 10 years after the Commission made its proposal. It was high time to have binding measures”, said co-rapporteur Evelyn Regner (S&D, AT) in a statement.
“One of the main achievements is transparency. Selection processes have to be based on clear, predetermined criteria and with this agreement, only the best candidates will be selected, thereby improving the overall quality of boards.”
The Directive will enter into force 20 days after it has been published in the EU’s Official Journal. Member states must implement the directive two years after it has been adopted.
The European Commission first presented its proposal in 2012 and the European Parliament adopted its negotiation position in 2013. The file was blocked in the Council for almost a decade, until Employment and Social Affairs ministers finally agreed on a position last March.
The main elements of the Directive are:
- At least 40% of the underrepresented gender must be represented in non-executive boards of listed companies or 33% among all directors. Member States have to ensure that companies strive to achieve this objective. Those companies that do not achieve those objectives must apply transparent and gender neutral criteria in the appointment of directors and prioritise the underrepresented sex where two candidates of different sexes are equally qualified.
- Clear and transparent board appointment procedures with objective assessment based on merit, irrespective of gender. The selection procedure of non-executive directors will need to comply to the following binding measures:
- Where two candidates of different sexes are equally qualified, preference shall be given to the candidate of the underrepresented sex, in companies where the target for gender balance is not achieved.
- Companies must disclose their qualification criteria should the unsuccessful candidate request it. Companies are further responsible to prove no measures were transgressed, if there is suspicion that an unsuccessful candidate of the underrepresented sex was equally qualified.
- Companies must undertake individual commitments to reach gender balance among their executive directors.
- Companies that fail to meet the objective of this Directive must report the reasons and the measures they are taking to address this shortcoming.
- Member States’ penalties for companies that fail to comply with selection and reporting obligations must be effective, proportionate and dissuasive They could include fines and nullity or annulment of the contested director’s appointment. Member States shall also publish information on companies’ that are reaching targets, which would serve as peer-pressure to complement enforcement (“faming” provision).