Improving the gender balance on boards

In March 2012, the European Commission published a report showing that limited progress had been made with improving the gender balance in EU boardrooms since the Commission had adopted a gender equality strategy in 2010.  In order to try and improve this imbalance, the Commission have now published a proposal to introduce a Directive with the objective of increasing the number of women on boards throughout the EU and to promote gender equality in economic decision making.

The proposed Directive would introduce measures to ensure equality in the representation of women in non-executive director roles.  The proposal sets minimum objectives for listed companies (to be achieved by 2020) and listed public undertakings (to be achieved by 2018) to increase the gender representation of women holding non-executive director roles on boards to 40%.  This proposal excludes small and medium-sized enterprises (any company employing less than 250 people and have an annual turnover of less than 50 million euro) and non-listed companies. Listed companies will also be able to justify non-compliance with this Directive if less than 10% of their workforce comprises the under-represented gender.

Appointments of non-executive directors are to be made on the basis of a comparative analysis of the qualifications of each candidate, by applying clear, gender-neutral, unambiguous and pre-established criteria. In order for companies to meet the Directive’s objective, where candidates are equally qualified, companies will be required to give priority to candidates in the under-represented gender.  The objective of the proposal will also be met if a company can show that the members of the under-represented gender hold at least a third of all director positions, regardless of whether these are executive or non-executive positions.

Under the proposal, companies will be required to report annually on the gender split at board level and the measures being taken to achieve the objectives of the Directive.  This information is to be published on companies’ websites. Member states will also be required to establish sanctions for any infringement of the proposed Directive.

Where measures to improve the gender balance of non-executive directors are taken by Member States prior to the Directive coming into force, they may be entitled to suspend the procedural requirements of the Directive relating to appointments. This will be provided the Member State can show that those measures they have already taken enable members of the under-represented sex to hold the required percentage of non-executive director positions.

The Directive is only intended to remain in force until sustainable progress has been achieved in the gender composition at board level and it is currently drafted to expire in December 2028. The proposal will now pass to European Parliament and Council of the European Union for consideration under normal legislative procedure.

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