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Jun 08, 2022

EU reaches landmark agreement for 40 percent female board representation

Companies that fail to comply with proposed directive face penalties including fines or having board directors ‘annulled’

A new quota to boost female representation on corporate boards across the EU was provisionally approved last night, having stalled in the European Council (EC) for the last decade.

The so-called Women on Boards directive targets the ‘under-represented sex’ – in the vast majority of cases women – and will see EU-listed companies required to have at least 40 percent female representation in non-executive director posts by mid-2026. A third of all director posts must also be occupied by the under-represented sex.

‘In cases where candidates are equally qualified for a post, priority should go to the candidate of the under-represented sex,’ according to a statement from the European Parliament (EP).

Evelyn Regner, MEP for Austria
Evelyn Regner,
MEP, Austria

The provisional bill, which still needs formal approval from the EP and the EC, also seeks to make recruitment processes at EU-listed firms more ‘transparent’, with Members of the European Parliament (MEPs) reportedly insisting that ‘merit must remain the key criterion in selection procedures’.

Under the new plans, public companies will be required to provide information to the ‘competent authorities’ once a year, detailing the gender representation on their boards – information that must be published on the company’s website ‘in an easily accessible manner’.

If the objectives have not been met, companies must explain how they plan to reach the quota. The proposal also includes what the EP describes as ‘effective, dissuasive and proportionate penalties’ for companies that fail to comply – examples of which include fines and the risk of companies having their selection of board directors annulled by a judicial body.

Lara Wolters, MEP for the Netherlands
Lara Wolters,
MEP, the Netherlands

‘Parliament has been asking for a directive for more women on boards for more than a decade,’ says Evelyn Regner, MEP for Austria and one of the lead negotiators for the EP on the directive, in a statement. ‘It was high time to have binding measures. More women on boards make companies more resilient, more innovative and will help to change top-down structures in the workplace.’

As well as quotas, Regner says transparency is one of the main goals of the proposed rules. ‘Selection processes have to be based on clear, predetermined criteria and, with this agreement, only the best candidates will be selected, thereby improving the overall quality of boards,’ she points out.

The EC first presented its proposal on boardroom equality in 2012, with the EP adopting its negotiation position a year later. The file was subsequently blocked in the EC for almost a decade, until ministers from the EP’s Committee on Employment and Social Affairs finally agreed on a position last March.

According to the EP statement, today 30.6 percent of board members in the EU’s largest publicly listed companies are women, though there are ‘significant differences’ among member states, with figures ranging from 45.3 percent in France, for example, to just 8.5 percent in Cyprus.

Lara Wolters, MEP for the Netherlands and the other lead negotiator on the directive, stressed the need for quotas. ‘All data shows that gender equality at the top of companies is not achieved by sheer luck,’ she says. ‘This quota can be a push in the right direction for more equality and diversity in companies.’

Small and medium-sized firms with fewer than 250 employees are excluded from the directive.

Garnet Roach

An award-winning journalist, Garnet Roach joined IR Magazine in October 2012, working on both the editorial and research sides of the publication. Prior to entering the world of investor relations, her freelance career covered a broad range of...