The law of 28 July 2011 inserted a new article 518 bis in the Belgian Companies Code which will require the state-owned and publicly traded companies to include more women at the top management level. Indeed, article 518 bis provides that at least one-third of the board of directors of state-owned and publicly traded companies “should be of a different gender than the other members of the board of directors”. Considering the fact that the percentage of women in boards of directors for listed companies in Belgium was 11% in January 2012, according to data gathered by the European Commission, it is clear that “the different gender” in the new law refers to women.

By adopting this system of quota, the Belgian legislator was following a broader movement, encouraged by the European Union, to provide for more diversity in the corporate world, especially with respect to top management positions. These efforts were not only motivated by the promotion of gender equality in the corporate environment, but also by the belief that a greater diversity in corporate bodies would lead to a more balanced approach to decision-making.

In that context, the new article 518 bis of the Belgian Companies Code stipulates that the membership of the board of directors of state-owned and publicly traded companies in Belgium should include at least one third of women. The rule will apply on the first day of the sixth financial year after the year of adoption of the law, i.e. in 2017. Smaller publicly traded companies will have to comply with the quota requirement two years later, in 2019. To be qualified as “small”, a company must either have a free float amounting to less than 50%, or present at least two of the three following characteristics: an average number of less than 250 employees during the ongoing financial year, a balance sheet not exceeding 43 million Euros, and/or a net revenue inferior or equal to 50 million Euros. If the quota established by article 518 bis is not complied with at the time of its entry into force, the next director who is appointed should be of a “different gender” than the remaining members of the board. In the meantime, publicly traded companies are already under the obligation to publish in their annual management report a list of actions that they have undertaken to secure the presence of one third of women in their board of directors.

The consequences of not complying with article 518 bis are, on the one hand, the nullity of each director’s appointment that has been made in violation of the quota, and, on the other hand, the suspension of all benefits, including financial, that are due to directors under their corporate mandates. The sanction of suspension of benefits can be applied from 2018 onwards, while the sanction of nullity of nomination will become applicable in 2017. With respect to the sanction of nullity of directors’ subsequent appointment, it is important to point out that the appointment of a director in violation of the quota rule does not affect the legality of the decisions taken by the irregularly composed board of directors. Moreover, the other members of the board of directors cannot refrain from voting in protestation against the irregular appointment by the shareholders’ meeting, as such behavior would be contrary to the corporate interest. As a result, the sanction of nullity, standing on its own, seriously lacks teeth in securing women presence at the corporate top. Thus, in order to make the quota rule more constraining, article 518 bis also provides for a second sanction: the suspension of benefits due to directors in connection with their mandates. Indeed, as long as the board of directors is not composed of at least one third of women, no director can receive any benefits to be perceived under his/her respective mandate. Moreover, those benefits will not be granted retroactively once the board membership is in compliance with the quota rule.

With respect to the determination of the quota in itself, some practical difficulties may arise when implementing article 518 bis, as pointed out by commentators of the new law. First of all, how can the quota be computed when the number of directors in the board is not divisible by three? To answer that question, the new law provides that the quota should always be computed based on the nearest whole number that is divisible by three. Another issue is to determine the compliance with the quota when a board of directors is also composed by legal entities, i.e. companies, instead of individuals. The law does not address this issue as such. However, for the purpose of determining compliance with the quota, the only reasonable interpretation is to consider the gender of the representative whom the legal entity/company has elected to represent itself in the board of directors. Another practical aspect of article 518 bis is that it establishes a difference between state-owned companies on the one hand, where the one third requirement is to be applied on the amount of directors designated by public authorities only, and publicly traded companies on the other hand, where such quota applies to the entire board of directors. Finally, it is important to note that article 518 bis does not seem to distinguish between executive, non-executive, and independent directors, which raises the question as to whether the women elected should belong to each category of directors. As the law is silent on this issue, it seems that the companies will be allowed to appoint one third of female directors and to confine them to non-executive roles. While it is understandable that the legislator did not wish to interfere too much with the corporate life, the possibility to limit woman members of the board to non-executive roles seems to be at odds with the objective of the law, which is to promote greater corporate profitability through increased diversity in the daily management bodies of the companies.

The issue of quota has recently received a new impetus as the European Commission released in November 2012 a proposal for an European directive requesting the European publicly traded companies to appoint 40% of female non-executive directors in their boards. While the quota is higher than what is provided for under Belgian law, the 40% requirement only applies to non-executive members of the board. Moreover, the proposal reduces the obligation for companies when they already have female executive directors in their boards. When such is the case, the quota requirement is reduced to one third, as it is currently provided for by article 518 bis. Hence, while the proposal of the European Commission does re-activate the issue of underrepresentation of women in the corporate world, it will probably have a minor impact on the Belgian system since it limits the quota requirement to non-executive members of boards of directors, and only concerns European publicly traded companies.