On 14 November 2012, the European Commission published proposals for legislation to improve the gender balance of corporate boards. In light of objections from various Member States, and in a move welcomed by the UK Government, the Commission has dropped its earlier plans to introduce mandatory quotas. The key provisions of the proposed Directive (which will apply to listed companies6, excluding small and medium-sized enterprises7) include the following:

Non-executive directors (‘NEDs’)

  • The objective for gender balance: the Commission proposes that board members of the ‘under-represented sex’ should hold 40% of NED positions and that companies should meet this objective by 1 January 2020. The 40% figure is a target rather than a mandatory quota.
  • Recruitment procedures: companies that fail to meet the target will be required to make NED appointments on the basis of a comparative analysis of the qualifications of each candidate, by applying clear, gender-neutral and unambiguous criteria. Given equal qualification, priority must be given to the under-represented sex.

Executive directors

The proposals will also require companies to publish their own, voluntary, targets to bring about gender balance among executive directors by 1 January 2020.

Reporting requirements

Companies will have to make annual disclosure of the gender split of the board and of the steps taken to meet both the 40% target for better gender balance among NEDs and the company’s own voluntary target for gender balance among executive directors.

Sanctions

Companies will not be sanctioned for failing to meet the targets. However, sanctions (to be determined by each Member State) will be applied to a company which:

  • having failed to meet the 40% target for gender balance among NEDs, has not introduced the recruitment procedures described above;
  • is in breach of the obligation to publish its voluntary target for gender balance among executive directors; or
  • is in breach of the other reporting requirements.

Next steps and time-frame for implementation: the proposals are now subject to consideration by the European Parliament and the Council of the European Union. Once the Directive has been adopted at the European level, Member States will have a period of two years within which to implement its provisions into national law. The Directive is unlikely to be implemented at national level before 2016.

Proposal for a Directive of the European Parliament and of the Council on improving the gender balance among nonexecutive directors of companies listed on stock exchanges and related matters available at:

http://ec.europa.eu/justice/gender-equality/files/womenonboards/directive_quotas_en.pdf