Gender balance on European corporate boards
05/05/22
Gender balance in the boardroom: EU legislation
On 14 March, the Ministers of Social Affairs and Employment of the different Member States of the European Union (EU) agreed on a general approach to proposed EU legislation aimed at improving the gender balance on the boards of listed companies. These companies should aim to ensure that by the end of 2027 40 percent of their supervisory board (non-executive board positions) or 33 percent of their supervisory board and board of directors combined (non-executive and executive board positions) consists of members of the underrepresented gender.
Women are still underrepresented
Within companies in the EU women are still underrepresented in the highest decision-making bodies, despite the proven positive effect of gender balance and EU legislation banning sex discrimination. ‘This imbalance is particularly alarming in the private sector, especially in listed companies,’ comments PwC expert Yvette van Gemerden. ‘In 2021, the boards of the largest listed companies in Europe consisted only for 30.6 percent of women and only 8.5 percent of board chairs were women.’
EU directive improves gender balance
To solve this problem, the European Ministers of Social Affairs and Employment have agreed that listed companies should aim to have 40 percent of the seats of their supervisory board, or 33 percent of the seats of their supervisory board and board of directors combined filled by members of the underrepresented gender by 31 December 2027.
‘The underlying idea is that only an EU measure can increase the number of women on the boards of listed companies and, at the same time, ensure a level playing field within the EU and prevent practical complications in the corporate world,’ explains PwC expert Frank van Oirschot. ‘Moreover, European ministers expect that greater participation of women in economic decision-making - especially in company management - to have a positive effect on the employment of women in the companies concerned and in the economy as a whole.’
Criteria for selection and appointment
Listed companies that have not yet reached the quantitative target should work towards achieving it by:
- Implementing procedural requirements for the selection and appointment of members of the board of directors and the supervisory board.
- Applying the procedural requirements and explaining the measures they have taken and intend to take in order to meet the target.
Qualification and merit remain the most important criteria for selection and appointment. The proposed Directive ensures this by:
- Setting a minimum level of harmonization of corporate governance requirements as appointment decisions are based on objective criteria.
- Employing built-in safeguards to prevent the unconditional, automatic promotion of the underrepresented gender.
- Giving preference to equally qualified candidates of the underrepresented gender, unless an objective assessment suggests the appointment of the other gender.
Non-compliance with these principles should be sanctioned by the EU member states in a manner that is effective, proportionate and dissuasive.
Practical preparations
Next up are the negotiations between the European Council and the European Parliament. The aim of these negotiations is to reach a common approach. If both parties agree to the proposal as it stands, the EU member states will be obliged to transpose the measure into national legislation within two years of the adoption of the Directive. Member States that have already implemented an effective system to improve gender balance in the boardroom will be allowed to keep it, provided they can demonstrate that it is equally effective.
The proposed European Directive goes further than the current Dutch quota to improve the gender balance in the management top. The Dutch quota aims to ensure that at least one third of the supervisory board consists of men and one third of women. Additionally, it requires large nv’s and bv’s to set targets to improve the gender balance.
‘We advise companies to strive for a suitable gender balance in all organizational layers and not only in the top and the sub top’, concludes Yvette van Gemerden. If there is an appropriate gender balance throughout the organization, it will be easier to meet the objective set out by the EU directive. Moreover, organizations with a more balanced workforce will more benefit from the diversity.’
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