Europe moves to improve the gender balance on boards of listed companies

On 27 December 2022, the new European directive aimed at improving the gender balance on boards of listed companies entered into force.

Only for non-SME listed companies

The new directive is applicable to European companies whose shares are admitted to trading on a regulated market such as Euronext Brussels.The EU legislator explicitly excludes micro, small and medium-sized (listed) companies from the scope.

Quantitative objectives and qualitative measures to achieve them

The directive takes as its starting point the principle that Member States should make listed companies subject to quantitative objectives to ensure the gender balance on boards. According to (the transposition of) the directive, listed companies should aim to have at least 40% of the non-executive director positions held by persons of the underrepresented sex by 30 June 2026.

The directive aims to improve the representation of men and women in all decision-making positions. Therefore, as an alternative, a Member State may require that listed companies should aim to have at least 33% of all director positions, both executive and non-executive, held by persons of the underrepresented sex by 30 June 2026.

If a Member State does not apply the quantitative threshold of 33% of all director positions but that of 40% of (only) non-executive directors, listed companies with their registered office in that Member State must still set individual quantitative objectives to improve the gender balance among executive directors by 30 June 2026.

The directive complements the quantitative thresholds with qualitative measures to achieve these objectives:

  • Companies that fail to achieve the objectives must adjust their process for selecting candidates for appointment or election to director positions. The candidates should be selected based on a comparative assessment of the qualifications of each of them, assessed against predetermined, clear, neutrally formulated and unambiguous criteria. Apart from exceptional cases, when selecting candidates for the appointment of directors, companies should give priority to the candidate of the underrepresented sex if the candidates are equally qualified in terms of suitability, competence and professional performance.
  • At the request of a candidate, the listed company should inform the candidate of (i) the qualification criteria upon which the selection was based, (ii) the objective comparative assessment of the candidates under those criteria, and (iii) where relevant, the specific considerations exceptionally tilting the balance in favour of a candidate who is not of the underrepresented sex.
  • Where the process for selecting candidates for appointment to a director position is made through a vote of shareholders or employees, listed companies should ensure that voters are properly informed regarding the qualitative measures, including the penalties that may be imposed on the listed company if it fails to comply with the qualitative measures.

Listed companies are also subject to reporting obligations. For instance, they must inform the competent authorities once a year about the ratio of men to women on their boards, and the measures they have taken to achieve the applicable quantitative objectives. Listed companies must publish that information on their websites.

The directive does not prescribe specific penalties for non-compliance with its provisions. Member States should determine effective, proportionate and dissuasive penalties for non-compliance.

Impact of the European directive: transposition into Belgian national law

The existing Belgian gender quotas apply to listed companies and public-interest organisations within the meaning of article 1:12, 2° of the Belgian Code of Companies and Associations which have their registered office in Belgium and regardless of their size. In 2011, the Belgian legislator decided to follow Norway’s lead and impose stringent gender quotas, inter alia on listed companies. Under the Belgian gender quotas, at least one-third of the members of the board of directors (“raad van bestuur”/“conseil d'administration”) (one-tier governance model) or the supervisory board (“raad van toezicht”/“conseil de surveillance”) (two-tier governance model) must be of the opposite sex to the other members. The Belgian legislator makes no distinction between executive and non-executive directors for the one-tier governance model. The quota applies to all directors in general. By contrast, in the dual governance model, the quota only applies to the supervisory board and therefore not to the management board (“directieraad”/“conseil de direction”).

With regard to the one-tier governance model, the Belgian quota meets the minimum threshold of 33% specified in the European directive. As for the two-tier governance model, Belgian company law only imposes quotas for the members of the supervisory board, and not for the management board. Moreover, the quota is one-third, which is lower than the 40% required by the directive.

  • The Belgian legislator could opt to keep the one-third quota but would then also have to apply that quota to the management board. This could potentially make the two-tier governance model (even) less attractive than the one-tier model, where the board of directors is often assisted by a (contractual) management committee to which no quota is (required to be) applicable.
  • However, if the Belgian legislator opts to apply the quota to the supervisory board only, it should increase the quota from one-third to at least 40%. But even in that case, companies will have to work on the gender balance among executive directors.

In addition, Belgian company law does not contain qualitative measures regarding the procedure for selecting directors or the accompanying guarantees for the unsuccessful candidate (where a company (temporarily) fails to meet the quantitative objectives).

Consequently, transposition of the directive will require some adjustments to the Belgian regime. Member States must transpose the directive into their national legislation by 28 December 2024 at the latest.

For an in-depth analysis, please refer to the article by Joris De Wolf and Sofie Baveghems in the latest issue of the Belgian journal Tijdschrift voor Rechtspersoon en VennootschapRevue pratique des sociétés (only available in Dutch).