The Gender Balance Directive will impose quantitative targets on gender representation on the boards of EU listed companies. In 2022, the EU Parliament noted that only 30.6% of board members in the EU’s largest public companies were women. The Directive is intended to ensure a level of gender balance applies across member states.
EU listed companies will be required to:
- Meet targets on gender representation at board level
- Take steps to remedy a failure to meet those targets, and
- Report on gender representation at board level
Once introduced in Ireland, it will give the force of law to what were previously soft-reporting guidelines and recommendations for listed companies.
Who will the Gender Balance Directive apply to?
The Directive will apply to EU incorporated companies whose securities are admitted to trading on a regulated market in one or more Member States. Listed companies that are SMEs, i.e. micro; small and medium sized companies, are excluded from the scope of the Directive.
There is an opt-out included within the Directive, which would allow Member States to suspend the procedural requirements if they have equally effective national measures in place.
When will the Gender Balance Directive apply?
The Directive will enter into force 20 days after its publication in the Official Journal of the EU. Member States will then have two years to transpose it into national law. The Directive sets the target date of 30 June 2026 for relevant companies to achieve the quantitative targets set out below.
What targets does the Gender Balance Directive set?
The Directive imposes the following targets for relevant companies to be achieved by 30 June 2026:
- At least 40% of non-executive director positions in listed companies should be held by members of the underrepresented sex, or
- If Member States choose to apply the new rules to both executive and non-executive directors, the target would be 33% of all director positions.
If these targets are not met relevant companies are required by the Directive to adjust their selection process including fair and transparent selection and appointment procedures, based on a comparative assessment of the different candidates based on clear and neutrally formulated criteria. Where relevant companies are required to choose between equally qualified candidates that are required to give priority to the candidate of the underrepresented sex.
The Directive also imposes reporting requirements on relevant companies. Once a year these companies would be required to report on gender representation on boards and the measures being taken to achieve the 33% or 40% objective. This information is also required to be easily accessible on the websites of relevant companies. Member States will also be required to publish a list of the companies that have achieved the Directive’s objective on an annual basis.
What are the penalties for failure to comply?
The Directive requires that Member States establish penalties for relevant companies who fail to meet the targets and reporting requirements. The penalties are required to be "effective, proportionate and dissuasive", which "could include fines and nullity or annulment of the contested director's appointment". The exact scope of the penalties will be a matter for Irish legislators when transposing the Directive.
Conclusion
EU listed companies need to be aware of the quantitative targets now to implement effectively within their hiring and retention strategies over the next three years. In Ireland many listed companies have made progress on improving gender balance on their boards in recent years. Our review of the board composition of Irish main-market listed companies indicates however that 71% of companies who will fall within the scope of the Directive have some way to go in reaching the 40% target figure.
We will report on how far behind Irish listed companies are in achieving the required gender balance in our AGM Season Report 2022. This report will be launched at an event hosted in our offices from 5:45 to 7:30pm on Wednesday, 30 November and will be available on our website afterwards.
For more information on the likely impact the Gender Balance Directive will have on your organisation, contact a member of our Corporate team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
