Introduction
Scope of application
Obligations for listed companies
Penalties
Entry into force
Comment
On July 28 2011 a law was passed whereby at least one-third of members of boards of directors of listed companies (and certain autonomous state undertakings) must be "of the minority gender" - in the case of most companies, this means women. The law was published in the Official Gazette on September 14 2011.
This update examines the consequences of the law for listed companies, summarising their main obligations and the penalties for non-compliance, and considers whether the law is likely to be extended to cover non-listed companies.
Scope of application
The law applies only to companies that have publicly offered securities and to 'autonomous state undertakings' (ie, companies directly or indirectly controlled by the state). Although the initial proposal covered only companies with listed shares, the final text of the law applies to companies which have issued any securities that are admitted to trading on a regulated market.(1)
Obligations for listed companies
The law adds a new Article 518bis to the Companies Code, which requires listed companies to ensure that the minority gender among their directors constitutes at least one-third of the board. Thus, if most of a company's directors are men, one-third must be women, and vice versa. If the number of directors is not divisible by three, the percentage of minority directors must be rounded up or down to the nearest whole number. The preparatory discussion papers noted that if a legal entity is appointed as a director, the gender of its permanent representative must be taken into account.
A listed company's annual management report will be required to list the measures that the company has taken to ensure compliance with the quota.
Penalties
There are two main penalties for non-compliance.
First, as long as the company fails to comply with the quota, the appointment or reappointment of directors of the majority gender (on expiry or termination of a directorship) will be null and void.
Second, benefits that would otherwise be granted to board members will be suspended for the period in which the composition of the board is non-compliant. The preparatory materials for the law suggested that companies would be unable to grant such benefits retroactively once the situation is corrected; however, the law does not expressly confirm this.
Although the shareholders of Belgian companies appoint the members of board, it is the members of the board, not the shareholders, who are directly affected by the penalties.
Entry into force
The obligation on boards to report the measures taken to ensure adequate representation of both genders will apply from the first day of the next financial year. For listed companies whose next financial year will start on January 1 2012, the measures must first be reported in the annual management report relating to the financial year starting on that date.
The entry into force of the other obligations depends on the size of the company. Large listed companies must comply with the new rules in full from the first day of the sixth financial year following publication of the law. In principle, large listed companies whose financial year starts on January 1 will have to comply fully with the rules by January 1 2017.
Smaller listed companies and listed companies whose freely traded shares represent 50% or less of the securities issued by the company must comply as from the first day of the eighth financial year following publication of the law. In principle, such companies whose financial year starts on January 1 will have to comply fully with the rules by January 1 2019.
For the purposes of the law, a listed company is 'small' if it fulfils at least two of the following criteria:
- its average number of employees is less than 250 during the financial year concerned;
- its total balance sheet does not exceed €43 million; and
- its net annual turnover is €50 million or less.
The appointment of additional directors of the majority gender in contravention of the law may be declared null and void as of the first day of the sixth or the eighth financial year following publication of the law, depending on the size of the company. The suspension of directors' benefits enters into force one year thereafter.
Companies whose securities are listed for the first time after the law enters into force must comply with its requirements by the first day of the sixth financial year after listing.
Parliament will evaluate the impact of the law on the representation of women in decision-making bodies during the 12th year after the publication of the law (ie, in 2023).
Comment
When initially proposed, the law was the subject of fierce debate among politicians, legal experts and other commentators; at times, it appeared unlikely to gain parliamentary approval. For a variety of legal, political and economic reasons, it seems unlikely that the law will be extended to unlisted companies soon.
For further information on this topic please contact Jérôme Vermeylen or Esther Goldschmidt at Altius by telephone (+32 2 426 14 14), fax (+32 2 426 20 30) or email ([email protected] or [email protected]).
Endnotes
(1) As defined in Article 2(3) of the Law on Financial Supervision, August 2 2002.