It took ten years but the new EU law on gender balance on corporate boards has now been approved by the European Parliament. By 2026, companies will need to have 40% of “the underrepresented sex” (which normally means women) among non-executive directors or 33% among all directors.
Once published in the EU’s Official Journal, the directive will enter into force 20 days after publication and member states will have two years to transpose its provisions into national law. They will have to ensure that companies strive to meet the 40% target for non-executive boards, or 33% for all board members, by 30 June 2026.
The Commission tabled the proposal on gender balance in company boards in November 2012. The European Parliament adopted its position in 2013, but the Council could not reach an agreement as some member states did not agree with binding measures at the EU level.
Finally, on 14 March 2022, the Council adopted its general approach, unblocking the file and on 7 June 2022, the European Parliament and the Council reached the political agreement, paving the way for the final adoption of the file.
The adopted directive aims to ensure that gender balance in corporate boards of large listed EU companies is established across the EU and appointments to board positions are transparent and that candidates to board positions are assessed objectively based on their individual merits, irrespective of gender.
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).
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).