Yesterday, 20 November 2013, the EU Parliament voted in favour of the legislative report on the EU Gender Directive which will oblige companies to adopt clear and transparent appointment procedures in order to attain at least 40% female non-executive directors by 1 January 2020. The resolution was adopted by 459 in favour to 148 against, with 81 abstentions. In 2013, only 17.6% of non-executive board members of the EU’s largest companies were women; there is some way to go to reach the 40% target within this time frame.

Scope

The Directive will apply to EU-incorporated companies which are listed on any EU regulated market provided they have more than 250 employees and an annual worldwide turnover of more than 50 million euros. The provisions would not apply to small and medium-sized enterprises (SMEs), i.e. those that employ fewer than 250 persons; but MEPs encourage EU member states to give SMEs incentives to improve gender balance on their boards, too.

Transparent and gender-balanced recruitment procedure

The Directive will require member states to ensure that listed companies take effective and binding measures to guarantee equal access for both women and men to non-executive positions on boards so as to ensure that by 2020, at least 40% of non-executive directors’ positions are held by women. Public companies would have to reach the target earlier, by 2018. Where candidates are equally well qualified in terms of suitability, competence and professional performance, priority should be given to the candidate of the under-represented sex (unless an objective assessment of all the criteria tilts the balance in favour of the other candidate). Qualifications and merit must remain the most important criteria, according to MEPs.

Penalties

MEPs propose that companies which fail to introduce such procedures should face penalties. “Exclusion from public calls for tenders” should be added to the list of possible penalties, MEPs propose. Further, penalties should be made mandatory, rather than indicative. Companies in breach will have to explain why and notify competent national authorities on the measures taken and planned to achieve the target in future.

The general consensus seems to be that sanctions, such as fines, should only apply for failing to implement transparent appointment procedures, rather than for failure to meet the target. This important aspect of the new Directive will only be clarified when we have the final drafting of the Directive.

Next steps

Consent from both the Council of Ministers and the EU Parliament is required before a new EU law may be adopted. Following the favourable vote by the EU Parliament, it is now for the European Council to approve the Directive.

Negotiations in the Council have, to date, progressed slowly due to a blocking minority. However, there has been a change in direction in Germany which may weaken the blocking minority. As part of the talks to form Germany’s new coalition government, a proposal has been put forward to oblige listed German companies to have women in 30% of non-executive board seats from 2016 and to set and publish binding targets to increase female representation in top management by 2015. Until now German companies have set themselves voluntary targets to increase female representation in key management positions. This change of direction in Germany may make it more likely that the Directive will now be voted through in the Council.