In November 2022, the European Union (EU) adopted a Directive to improve the gender balance among directors of public companies. It has been long awaited by some, frowned upon by others and has been 10 years in the making. What change will it bring?
What does this directive provide?
The Women on Boards Directive is an important part of the EU Gender Equality Strategy 2020-2025. Achieving gender equality in the workplace requires a comprehensive approach that also includes promoting gender-balanced decision-making in companies at all levels, as well as closing the gender pay gap.
The directive aims to achieve a gender balance among directors of companies listed on the stock exchange. By mid-2026, every listed company in the European Union must have at least 40% female non-executive directors or have a representation of women as executive and non-executive directors of at least 33%.
The rule will apply to all public companies with more than 249 employees. Small and medium-sized enterprises with up to 249 employees will be excluded from the requirements at this stage.
Why is it necessary?
The directive states that “Member States and EU institutions have made numerous efforts over several decades to promote gender equality in economic decision-making, in particular to strengthen the presence of women on company boards by accepting recommendations and encouraging self-regulation. (…) Very slow, however, is the progress in increasing the presence of women in the management boards of companies — its average annual growth in recent years is only 0.6 percentage points. At the current rate, it will take several decades to achieve gender balance across the EU. Underutilizing the skills of highly skilled women represents a loss of potential for economic growth.”
If one traces the developments over the past 20 years, countries with mandatory quotas have made the most progress. Soft quotas have also worked, but their effectiveness depends on many factors, including the political and cultural environment.
In the European Union, voluntary measures have so far not brought about substantial change quickly enough, which is why the EU directive really matters. It will ensure progress among all countries and all companies.
How will it be implemented?
Each country will have to provide for penalties that are effective, proportionate and dissuasive, such as fines or cancellation of nominations.
Companies that do not reach the target should set measurable quantitative targets, adjust the candidate selection process, ensuring non-discrimination and an objective selection process. In addition, companies that do not meet the requirements will not be entitled to public procurement and concessions. Additionally, when two candidates are equally qualified, the underrepresented gender should be selected. The company must motivate its decision upon request.
