After 10 years of negotiations, the European Parliament and European Union countries' negotiators reached a provisional agreement on the Women on Boards Directive, which – in short – aims to ensure more gender parity on boards of publicly listed companies.
The Directive will supplement the current legislation that is already applicable in the Netherlands. We have set out below the current framework in the Netherlands and the new obligations of the proposed Directive.
The Dutch Act
The Growth Quota and Targets Act was introduced in the Netherlands on 1 January 2022 to ensure a more balanced male-female ratio in top positions in large companies. The legislation consists of two measures: a gradual entry quota for the supervisory board members of publicly listed companies, and an obligation for large public and private limited-liability companies to set targets to improve the gender diversity on their boards.
The first measure consists of a gradual entry quota for the supervisory board members of publicly listed companies to ensure that men and women each hold at least one third of the seats on the board. This quota applies to all new appointments of supervisory board members.
A person cannot be appointed as a member of this board if it does not make the ratio between men and women in the supervisory board more balanced – that is, up to at least one third. If a man or woman is appointed anyway, without it making the ratio more balanced, the appointment is null and void. If the number of members is not divisible by three, the next higher number that is divisible by three shall be taken into account (for example, two out of five). Listed companies are companies with a listing on the Euronext Amsterdam.
The second measure consists of an obligation for large public and private limited-liability companies (that is, large NVs and BVs) to set "appropriate" and "ambitious" targets to improve the gender diversity on their boards (including the supervisory board) and among their senior management personnel.
"Appropriate" means that the target has to depend on the size of the company and the current male and female ratio. "Ambitious" means that a more balanced ratio than currently should be aimed for. Large companies are public and private limited companies that meet at least two of the following three criteria: the value of their assets are more than €20 million, net turnover is more than €40 million and they have 250 employees or more. The companies are required to report annually on their progress.
The ''sanction'' of the first measure is that the appointment of the supervisory board member is null and void. The second measure carries no sanction. However, the Dutch Social and Economic Council publishes the data of all companies on its website; a low target or poor results can, therefore, create public pressure.
The European Directive
The proposal for the Directive was published on 16 June 2022. The Directive aims to introduce transparent recruitment procedures to ensure a more balanced male-female ratio.
The Member States have to ensure that listed companies are subject to either of the following objectives: members of the under-represented sex hold at least 40% of non-executive director positions, or members of the under-represented sex hold at least 33% of all director positions, including both executive and non-executive directors. The ''non-executive director'' means any member of a unitary board other than an executive director and any member of a supervisory board in a dual board system. Companies must comply with this target by 30 June 2026.
The Member States have to ensure that listed companies which do not meet the target, adjust the process for the selection of candidates for appointment or election to the director positions. The selection shall be carried out on the basis of a comparative analysis of the qualifications of each candidate by applying in a non-discriminatory manner and throughout the entire selection process – including the preparation of vacancy notices, the preselection, the shortlisting or the establishment of selection pools of candidates – clear, neutrally formulated and unambiguous criteria established in advance of the process. When choosing between candidates who are equally qualified in terms of suitability, competence and professional performance, priority will be given to the candidate of the under-represented sex, unless in exceptional cases and for reasons of greater legal weight (such as the pursuit of other diversity policies).
The Member States have to require listed companies to provide information to the competent authorities once a year about the gender representation on their boards and regarding the measures taken to attaining the target. The listed companies also have to publish that information in an appropriate and easily accessible manner on their websites.
The Member States have to lay down rules on penalties applicable to infringements by listed companies. The penalties must be effective, proportionate and dissuasive, and may comprise fines or the nullity or annulment declared by a judicial body of the selection of directors made contrary to the legislation.
The Directive does not apply to small and medium-sized enterprises, which are companies that employ less than 250 persons and have an annual turnover not exceeding €50 million or an annual balance sheet total not exceeding €43 million.
Next steps
The provisional agreement has to be formally approved by the European Parliament and the European Council. Member States have to implement the Directive two years after it has been adopted. However, if a Member State already took certain measures to ensure the gender parity on boards of listed companies, it is possible to suspend the implementation of the objectives of the Directive. Therefore, the Netherlands could implement the Directive at a later moment. For other Member States – the ones that did not took certain measures to ensure the gender parity on boards – the Directive needs to be implemented and listed companies will need to comply with the regulations by 30 June 2026.
