On 14 March 2022, the Council adopted the text of the proposal of Directive on improving gender balance on boards of listed companies, which was pending since November 2012. This initiative aims to accelerate progress towards gender balance on boards of listed companies. Small and medium-sized enterprises would be excluded from the scope of the Directive.
EU Gender quota at board level
The proposed Directive sets a quantitative target for listed companies of at least 40% of their non-executive director positions held by members of the under-represented sex by 2027. The target would be reduced to 33% if Member States choose to apply the objective to both executive and non-executive directors. The quantitative target would apply to all board systems – any administrative, managerial or supervisory body of a listed company – and directors – any member of a board, including an employees’ representative. The number of non-executive director positions deemed necessary to attain the objective is clarified in the Annex. Member States may provide that listed companies in which members of the under-represented sex represent less than 10% of the employees are not subject to the quantitative targets.
Companies are required to adopt procedural rules based on objective criteria for the selection and appointment of non-executive board members and explain what measures they have taken and intend to take in order to reach the target. These procedural rules imply that the appointment should be based on objective criterias, whereby there is no automatic promotion of the under-represented sex. Nonetheless, priority would be given to the candidate of the under-represented sex for equally qualified candidates, unless an objective assessment tilts the balance in favour of a candidate of the other sex. Candidates should be informed about the qualification criteria upon which the selection was based, the objective comparative assessment of the candidates under those criteria, and, where relevant, the considerations tilting the balance in favour of a candidate of the other sex. The burden of proof relies on the company in case a candidate from the under-represented sex establishes facts from which it may be presumed that he/she was equally qualified as compared with the candidate of the other sex selected for appointment or selection.
Noteworthy, the proposal for Directive gives the opportunity to Member States to suspend the application of procedural rules laid down by the Directive, provided that national legislation contains equally effective measures to achieve balanced representation of women and men among the directors of listed companies. The proposal gives an example of such measures, a.o. gender quota established by law of at least 30% for non-executive director positions or at least 25% of all directors positions supported by effective, proportionate and dissuasive enforcement measures in case of non-compliance.
The Member States that already have an effective system in place would be able to keep it, insofar as the targets set can be achieved by 2027. It goes without saying that Member States are also free to introduce measures that go beyond the proposed system.
Belgian mandatory quota
By Law of 28 July 2011, Belgium’s largest publicly traded companies and certain state-owned or -controlled entities are required that at least one-third (+- 33%) of the entity’s directors be of a different gender than other members of the board. Appointments made in violation of the law are void. Financial penalties may also apply to benefits of board members of publicly listed companies.
While the gender quota established by the proposed Directive is not a game changer for boards of Belgian listed companies, the transparency on the selection and appointment process of a director and burden of proof placed on the company will require a well documented process. It remains to be seen whether Belgium will take advantage of the exemption to the procedural requirements.
The proposed Directive will now result in negotiations between the Council and the European Parliament with a view to agreeing a common position. The measures will become applicable three years after the adoption.
Despite expected regulatory developments, it should be noted that companies are facing growing (internal and external) pressure to promote gender equality and inclusive leadership. We encourage companies – listed or not – to proactively engage towards equality and diversity and embed it into their core values.
Interested to know more about PwC’s views and offerings on gender equality, diversity and inclusion? Please do not hesitate to contact Bart Van den Bussche.