New EU law to boost gender equality on corporate boards

The EU has adopted a new Directive on gender balance on corporate boards of listed companies. The Directive sets targets of 40% of the underrepresented sex among non-executive directors, or 33% among all board members, for listed companies by 2026. 

Key takeaways

• Member States are required to adopt national rules requiring 40% of non-executive directors, or 33% of all board members of listed companies, to be women.
• Listed companies in the EU will have until the end of June 2026 to meet these targets.
• Member States are required to implement appropriate penalties for companies which fail to meet the national requirements.

Background

On 22 November 2022, the European Parliament adopted "landmark" legislation to boost gender equality on corporate boards. The European Commission put forward its initial proposal on gender balance on company boards in November 2012. While the European Parliament adopted its position in 2013, the European Council could not reach an agreement because  some Member States did not consider binding measures at the EU level to be the best approach. Almost a decade later, in March 2022, Employment and Social Affairs ministers agreed on a position. The European Parliament and Council then reached a political agreement in June 2022.  The Directive only applies to listed companies and does not apply to micro, small and medium sized enterprises with fewer than 250 employees and annual turnover of less than EUR 50 million. 

On 7 December 2022, Directive (EU) 2022/2381 on improving the gender balance among directors of listed companies and related measures was published in the Official Journal. Member States have until 28 December 2024 to adopt national rules implementing the Directive's measures. 

What you need to know

The adoption of the so called "Women on Boards" Directive aims to ensure that at least 40% of non-executive board seats or 33% of all board seats for listed companies are occupied by the "under represented sex" by the end of June 2026. The Directive sets out that priority should be given to the underrepresented sex when selecting candidates for board positions, however, it emphasises that this priority should not "constitute an automatic and unconditional preference". The recitals emphasise that board appointment procedures should be "clear and transparent" and "candidates [should] be assessed objectively on their individual merits, regardless of their gender". 

To ensure compliance, listed companies will be required to provide competent authorities with information about gender representation on their boards annually. If the Directive's targets are not being met, companies will need to explain how they plan to meet these objectives. 

Members States are also required to  implement rules setting out "effective, proportionate and dissuasive" penalties for companies that fail to comply with the national requirements. Article 8(1) suggests that appropriate penalties may include fines or the ability of a judicial body to declare a board appointment decision void. 

The Member State in which the listed company has its registered office will have jurisdiction over compliance with the rules. 

Comment

Co-rapporteur on the adoption of the "Women on Boards" Directive, Lara Wolters commented that "in those countries where binding quotes were introduced [in the last 10 years], 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".  The Directive follows the introduction of similar targets by the UK Financial Conduct Authority in April 2022. The UK rules apply to listed companies for financial accounting periods starting from 1 April 2022 and require 40% of the board to be women, including a requirement that a woman hold at least one of the senior board positions.