Gender balance among non-executive directors of companies listed on stock exchanges

KEY POINTS

• Article 23 of the Charter of Fundamental Rights of the European Union requires that equality between women and men be ensured in all areas, including employment, work and pay.
• Achieving gender balance in decision-making is one of the key objectives of the European Commission’s 2020–2025 gender equality strategy.

Scope

The directive applies to any large company with a registered office in a European Union (EU) Member State whose shares are admitted to trading on a regulated market in one or more Member States.

It does not apply to:

• micro, small and medium-sized enterprises, that is, companies that employ fewer than 250 people and have an annual turnover not exceeding €50 million or an annual balance sheet total not exceeding €43 million;
• micro, small and medium-sized enterprises with registered offices in a Member State whose currency is not the euro, where equivalent amounts of turnover or annual balance sheet total in the currency of that Member State apply.

Objectives

Member States must ensure that listed companies are subject to either of the following objectives, to be achieved by 30 June 2026:

• women hold at least 40% of non-executive board positions;
• women hold at least 33% of all director positions, both executive and non-executive.

The annex to the directive contains the target numbers of directors of the under-represented sex necessary to meet the objective depending on the size of the board.

Means to achieve the objectives

For listed companies that do not meet the targets, the directive requires that such companies adapt their board members’ selection processes by ensuring that transparent, gender-neutral and merit-based criteria are used during the entire selection process. Specifically, this entails:

• clear criteria, formulated in neutral and unambiguous terms, to be applied in a non-discriminatory manner throughout the entire selection process;
• where two candidates of different sexes are equally qualified, giving preference to a candidate of the under-represented sex;
• disclosing their qualification criteria, should an unsuccessful candidate request them, and the objective comparative assessment of the candidates under those criteria;
• undertaking individual commitments to reach gender balance among their executive directors;
• a requirement for listed companies that fail to meet the directive’s objectives to report the reasons and the measures they are taking or intend to take to address it;
• effective, proportionate and dissuasive penalties for listed companies that fail to comply with selection and reporting obligations.

Member States must also publish a list of the companies that have reached the objectives.

Suspension clause

A Member State that has either come close to achieving the objectives or put in place equally effective legislation before the directive applies (on 27 December 2022) may suspend the directive’s requirements relating to the appointment or selection process.

Annual reporting

• Each year, large listed companies must provide information about the gender representation on their boards, distinguishing between executive and non-executive directors and outlining the measures they are taking to achieve the relevant objectives; a listed company that fails to meet the objectives has to report the reasons for not achieving them and provide a comprehensive description of the measures that it has already taken, or intends to take, to achieve them.
• A list of companies that have achieved the directive’s objectives must also be published annually by Member States.