Achieving Gender Balance on Boards of Listed Companies in the EU
Rezumat
This article discusses the recent adoption of Directive (EU) 2022/2381 on improving the gender balance among directors of listed companies, after 10 years of hesitation by the European institutions. After providing a comprehensive overview of the process leading to the adoption of the Directive, and of its provisions, this article assesses whether the Directive was necessary in the sense that increasing the presence of women on boards will lead to statistically significant beneficial change for EU listed companies and for the EU economy overall, and whether the mandatory quotas chosen were necessary and set at the appropriate levels to represent the optimal method for accelerating progress towards gender balance, including by comparatively reviewing the current state of play in the 27 EU Member States and the United States. Moreover, this article assesses whether, overall, the Directive is fair and equitable to all those concerned by it, particularly given its provisions on positive discrimination and its potentially disproportionate effect on certain EU Member States.
Studiu publicat în volumul In honorem Corneliu Bîrsan, tomul III, Ed. Hamangiu, 2023, p. 366-403.
Introduction
In November 2012, the European Commission proposed the adoption of a directive meant to improve gender balance on boards of listed companies, through mandatory quotas, applicable only to non-executive directors (the Directive Proposal)[1]. The Directive Proposal was preceded by several initiatives and consultations, for example, the Women’s Charter[2] (March 2010), the Strategy for equality between women and men[3] (September 2010) and the European Pact for Gender Equality[4] (March 2011). Through a resolution adopted in March 2012, the European Parliament asked the Commission to propose regulations in order to raise women’s representation on boards, so as to reach 30% in 2015 and 40% in 2020[5].
Following this request, the Commission organized a public consultation on this topic[6]. The result was a strong consensus regarding the necessity of raising women’s percentage on boards, but there were wide divergences regarding the best method to achieve this goal. After performing an impact assessment, the Commission concluded that adopting mandatory measures applicable to all EU Member States would be more efficient in fulfilling the goal of raising women’s representation on boards than other types of measures[7]. Consequently, in November 2012, the Commission submitted the Directive Proposal.
The Commission’s proposal was transmitted to the Parliament and Council on 16 November 2012[8]. The European Economic and Social Committee rendered its opinion on 13 February 2013[9]. It noted that, while it generally favored voluntary self-regulatory measures, in the case of gender balance it was impossible to attain fundamental changes unless mandatory quotas were set. The next step was the opinion of the Committee of the Regions, on 30 May 2013[10]. It also supported the Directive Proposal, but made some suggestions and proposed certain amendments. On 20 November 2013, the Parliament adopted a resolution regarding the Directive Proposal, with 459 votes for, 148 against and 81 abstentions[11]. The resolution contained 66 amendments to the Directive Proposal, many of which were based on the opinions of the European Economic and Social Committee and the Committee of the Regions[12].
The next step was the debate of the Directive Proposal in the European Council, on December 11, 2014[13]. The Council was unable to adopt a position. In order to reach a compromise, the Presidency of the Council proposed further amendments and clarifications. Several debates in the European Council took place between 2015-2017, but no compromise could be reached that would result in a qualified majority in favor of the Directive Proposal, such that the item was removed from the European Council’s agenda. Much of the debate and lack of political consensus evolved around the notion of mandatory quotas, based on notions that they are inherently unfair in that they result in the promotion of candidates who would not be selected purely on merit („positive discrimination”).
All work on the Directive Proposal ceased from June 2017 until February 2022. However, the European Parliament continued to push for the adoption of a EU directive on gender balance in boards. Starting in 2019, renewed interest for the topic emerged. For example, Parental Leave Directive (EU) 2019/1158[14] was adopted, which promotes work-life balance for parents and carers, provides that EU Member States take the necessary measures to ensure an equal sharing of caring responsibilities between women and men by means of parental, paternity and carers’ leave, alongside the existing maternity leave. Then, in a communication of 5 March 2020 titled „A Union of Equality: the Gender Equality Strategy 2020-2025”, the European Commission emphasized that EU institutions, bodies, offices and agencies should ensure gender balance in leadership positions[15]. The adoption of a EU directive on gender balance in boards was included as a central priority of the Gender Equality Strategy 2020-2025. The EU institutions then adopted internal strategies meant to lead by example by aiming to achieve gender equality at management positions of the EU institutions.
Not all EU Member States supported EU-wide legislation to achieve the goals of the Directive Proposal. It was reported that the national parliaments of Denmark, the Netherlands, Poland, Sweden and the United Kingdom among others submitted opinions objecting to the Commission’s proposal, including on grounds that it did not comply with the principle of subsidiarity[16]. In February 2022, the Presidency of the European Council prepared a new compromise package. Following further discussions, a heavily revised proposal was approved by the European Council on 17 October 2022 and by the European Parliament on 22 November 2022.
It therefore took 10 years for Directive (EU) 2022/2381 on improving the gender balance among directors of listed companies and related measures[17] (the Directive) to be adopted. The Directive entered into effect on 27 December 2022, 20 days after its publication into the Official Journal of the EU. The 27 EU Member States have until 28 December 2024 to transpose its provisions into their national legislation, in order to ensure that the listed companies to which the Directive applies meet or are striving to meet gender boardroom goals of 40% of the underrepresented gender among non-executive directors or 33% among all directors, by 30 June 2026, and report against these quotas on their company website and to local authorities.
This article first provides an overview of the main provisions of the Directive (§1) and then proceeds to assess whether the adoption of the Directive was necessary or at least opportune (§2).
§1. Overview of the Directive
The Directive applies only to listed companies, but its scope of application might evolve (1.1.). The mandatory quotas apply to both executive and non-executive directors, irrespective of the particular corporate governance system (1.2.). The Directive also contains provisions on new reporting obligations (1.3.), penalties (1.4.), deadlines for implementation and further measures (1.5.), as well provisions permitting suspension of its applicability (1.6.). This article reviews these topics in turn.
1.1. Scope of application as to companies
Article 2 of the Directive provides that it applies to listed companies which are not “micro, small and medium-sized enterprises (SMEs)”. That means that the Directive only applies to large listed companies which employ more than 250 persons and have an annual turnover exceeding EUR 50 million or an annual balance sheet exceeding EUR 43 million. The term “listed companies” includes public undertakings which are listed on a regulated market.
1.1.1. Current application to listed companies
Geographically, the Directive only applies to companies that have their registered office in a EU Member State and shares admitted to trading on a EU regulated stock market (Article 3(1) of the Directive). A “regulated market” means “a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments – in the system and in accordance with its non-discretionary rules – in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly and in accordance with Title III of [the MIFID II Directive]”[18].
There are more than 100 regulated markets presently functioning in the EU. The most important groups are, according to their market capitalization: Euronext (which operates the stock exchanges of Paris, Amsterdam, Brussels and Lisbon), the Deutsche Börse group (which operates the Frankfurt stock exchange) and the group Nasdaq OMX, the European arms of the American Nasdaq (which operates the stock exchanges of Stockholm, Helsinki, Copenhagen, Reykjavik, Vilnius, Riga, Tallinn and Erevan)[19].
To resolve potential conflicts of laws, the Directive provides that a company covered by the Directive is regulated by the law of the EU Member State in which it has its registered office (Article 4 of the Directive), even if its shares are traded on a regulated market located in another EU Member State (or in several EU Member States).
a. Continued convergence of regulations
The Directive is merely among the latest instruments that continue the movement of convergence of regulations applicable to EU listed companies[20]. Listed companies are not characterized by their social form, their object of activity, their number of shareholders or even by the fact that the can offer their securities to the public, but by the fact that their shares are admitted to trading on a regulated market and are being traded on such a market[21]. Consequently, the characterizing feature of listed companies is that the market tends to express the value of its securities through the market stock price[22]. It is for this reason that listed companies are subject to special regulations, destined to ensure the transparency of the stock exchanges and the security of the operations that take place on the stock exchanges[23]. That is because listed companies not only affect private interests, and their correct functioning is part of the economic public order[24]. The Directive recognizes and emphasizes this reality by noting: “Listed companies have a particular economic importance, visibility and impact on the market as a whole. Such companies set standards for the wider economy and their practices can be expected to be followed by other types of companies. The public nature of listed companies justifies their being regulated to a greater extent in the public interest.” (recital 27).
The life of a listed company, from its initial public offering to the squeeze-out following a successful takeover bid, is subject to a complex legislative and regulatory framework. Unlike unlisted companies, whose life and operations are regulated from A to Z by classic company law, the delimitation of the law applicable to listed companies requires a double operation of regrouping followed by exclusion. It is first necessary to bring together usually separate rules and then to exclude other rules with which the first are usually associated. Mathematically, the operation translates into a union of sets followed by an operation of set intersection. Therefore, the law applicable to listed companies is an “orphan law” having as its adoptive parents of company law and financial law, which together form the hard core of the applicable regulations. This adoptive family is complemented by a peripheral set of distant cousins, represented by other branches of law (competition law, tax law, employment law, etc.) as well as by certain specific industry regulations (banking, insurance, etc.).
European law is now the most important source of (imposed) convergence, as well as of divergence, regarding the regulations that apply to EU listed companies. Company law is significantly less harmonized at the EU level than financial law. The Directive takes the harmonization of company law applicable to listed companies in the EU a step further.
b. Principles of subsidiarity and proportionality
The limited scope of application (to only listed companies) was necessary in light of the principles of subsidiarity and proportionality, set out in Article 5(3)-(4) TEU, which provides: “Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level. […] Under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties.” The preamble to the Directive goes to great lengths to explain how the Directive is in compliance with these principles, including because EU Member States “are given sufficient freedom to determine how the objectives laid down in this Directive should best be achieved taking national circumstances into account, in particular rules and practices concerning recruitment to boards” and the Directive “does not interfere with the possibility for listed companies to appoint the most qualified directors, and it grants a flexible framework and provides for a sufficiently long period of adaptation” (recital 52).
It is interesting to note that, contrary to most other European interventions affecting (and harmonizing) the company law applicable to listed companies in the EU, the legal basis used for the Directive is not the traditional Article 50(2)(g) of the Treaty on the Functioning of the European Union (TFEU), which provides: “The European Parliament, the Council and the Commission shall carry out the duties devolving upon them under the preceding provisions, in particular: […] (g) by coordinating to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies […] with a view to making such safeguards equivalent throughout the Union”. Rather, the legal basis invoked by the Directive is Article 157(3) of the TFEU, which provides: “The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, and after consulting the Economic and Social Committee, shall adopt measures to ensure the application of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation, including the principle of equal pay for equal work or work of equal value”.
1.1.2. Potential extension to non-listed companies
Although the preamble to the Directive relied heavily on its limited scope of application (to only large, listed companies) to bring the action under the principles of subsidiarity and proportionality, it is to be expected that, in the future, its scope of application will be extended to (large) non-listed companies. Article 13(4) of the Directive expressly provides that “the Commission shall consider […] whether there is a need to amend it, for instance by extending its scope to non-listed companies which do not fall within the definition of SMEs”.
The European Parliament has favored such an extension since 2013, when it requested that the Commission “collect and analyse facts and figures about the gender balance in non-listed large undertakings”, conduct an impact assessment “to evaluate whether measures at Union level are needed in order to bring such undertakings within the scope of this Directive at some point in the future”, and “explain the available options to that end, since special schemes may be necessary for such undertakings owing to specific national circumstances” (Amendment 34)[25]. The European Parliament had also asked the Commission to “evaluate whether public undertakings [whether listed or not] which would not fall within the definition of SME may be incorporated in the scope of this Directive at some point in the future” (amendment 33)[26].
1.2. Scope of application as to directors and quotas
The Directive applies to all directors, both executive and non-executive (1.2.1.) but provides for alternative quotas, at the option of the company: 40% of non-executive positions or 33% of all positions (1.2.2.). For companies that will fail to meet the applicable quota by 30 June 2026, provisions regarding the selection of candidates (including positive discrimination) will become applicable (1.2.3.).
1.2.1. Types of directors
The Directive applies to all directors (members of the board of a listed company), including to those who are employees’ representatives [Article 3(3) of the Directive], irrespective of the methods for selection, appointment or election. In particular, the directive applies to all systems of board structures: (i) the dual system, with both a management board and a supervisory board, (ii) the unitary system combining the management and supervisory functions in a single board, and (iii) mixed systems, which feature aspects of both systems or give companies an option between different models.
Moreover, in several EU Member States, a certain proportion of directors can or must, pursuant to national law or practice, be appointed or elected by the companies’ workforce, by employee organizations or by both. The Directive is also applicable to such directors. The preamble to the Directive notes that it should be possible for EU Member States to apply the quantitative objectives separately to shareholder representatives and employee representatives.
1.2.2. Alternative quotas
The key provision of the Directive is Article 5(1), which states that EU Member States “shall ensure that listed companies are subject to either of the following objectives, to be reached by 30 June 2026: (a) members of the underrepresented sex hold at least 40 % of non-executive director positions; (b) members of the underrepresented sex hold at least 33 % of all director positions, including both executive and non-executive directors”.
EU Member States must allow their companies to choose to comply with either alternative quota (40% of non-executive positions or 33% of all positions)[27] but companies not subject to the 33% of all positions quota will have to nevertheless “set individual quantitative objectives with a view to improving the gender balance among executive directors” and meet those self-imposed objectives by the same deadline of 30 June 2026 [Article 5(2) of the Directive].
In order to avoid the difficulties arising from decimal numbers, the Directive refers to the closest number to 40% or 33%, without surpassing 49% [Article 5(3) of the Directive]. An Annex to the Directive helpfully sets out those rounded numbers for board sizes ranging from 1 to 30 directors. For the most common board size among large EU listed companies, of 9 members, there will need to be at least 3 women on the board (33.3%) or, alternatively, 40% of the non-executive positions would have to be held by women (which means that, if the 9 member board consists of 3 executive positions and 6 non-executive positions, 2 out of the 6 non-executive positions (33.3%) would need to be held by women). Similarly, in a board of 15 members, there will need to be at least 5 women on the board (33.3%) or, alternatively, 40% of the non-executive positions would have to be held by women (which means that, if the 15 member board consists of 3 executive positions and 12 non-executive positions, 5 out of the 12 non-executive positions (41.7%) would need to be held by women). Conversely, in a board of 3 members, appointing a woman as either an executive or a non-executive director will meet both quotas.
The final version of the Directive differs in three important respects from the original Directive Proposal.
First, the original Directive Proposal provided for a shorter period of time (by 2 years) for public undertakings which were listed companies trading on a regulated market to comply with the quota. That more stringent requirement was eliminated because, de facto, public undertakings will be able to comply sooner than other listed companies, because EU Member States exercise a dominant influence over public undertakings and, due to that dominant influence, EU Member States have the instruments at their disposal to bring about the necessary change more rapidly and therefore serve as a model for the private sector (recital 36).
Second, the original Directive Proposal provided that the relevant quotas had to be met by 1 January 2020, which would have represented 7 years from the adoption of the Directive Proposal (assuming an adoption in December 2012) and 5 years for public undertakings. In contrast, listed companies subject to the Directive will need to reach one of the alternative quotas set forth in the Directive in 3.5 years (from 27 December 2022, the date when the Directive came into effect, to the deadline of 30 June 2026).
Third, the exemption for listed companies where the members of the underrepresented sex represented less than 10% of the workforce was removed (Article 4(6) of the Directive Proposal).
The alternative quotas (40% of non-executive directors and 33% of all director positions, non-executive and executive) are the same as those originally contemplated in the Directive Proposal, even though the second alternative was less visible and left to the discretion of the EU Member States [Article 4(1) and Article 4(7) of the Directive Proposal], who only needed to provide for an obligation for listed companies to undertake individual commitments regarding the representation of both sexes among executive directors [Article 5(1) of the Directive Proposal]. As such, both the Directive Proposal and the Directive recognize the fundamental distinction between non-executive directors and executive directors, as well as the larger potential for disruption in the day-to-day management of a company if top management needed to be replaced within a short period of time.
All EU board systems distinguish, de jure or de facto, between executive directors, who are involved in the daily management of the company, and non-executive directors, who perform a supervisory function and are not involved in the daily management of the listed company. The Directive defines a “non-executive director” as “a member of a unitary board other than an executive director or, in the case of a dual board system, a member of the board which carries out the supervisory functions of a listed company” and an “executive director” as “a member of a unitary board who is engaged in the daily management of a listed company or, in the case of a dual board system, a member of the board which carries out the management functions of a listed company” [Article 3(4)-(5) of the Directive].
The preamble to the Directive emphasizes the higher challenges of increasing gender balance at the management level: “Gender imbalances within companies are greater at more senior levels. Furthermore, many of those women who are represented at senior management level are to be found in fields such as human resources and communication, while men at a senior level are more likely to be employed in general management or line management within the company. As the main pool for recruitment to director positions is comprised largely of candidates with senior management experience, it is vital that the number of women advancing to such management positions within companies be increased” (recital 21).
The quotas set forth in Article 5(1) of the Directive represent only minimum requirements. As such, EU Member States may introduce or maintain quotas, and other provisions, which are more favorable to the underrepresented sex (women) than those stated in the Directive (Article 9 of the Directive).
1.2.3. Selection of candidates
Only for listed companies that do not meet the quotas, the Directive requires that such companies adapt the selection processes employed for board members by ensuring that transparent, gender-neutral and merit-based criteria are used during the entire selection process. The process for selecting the candidates to be presented to the shareholders for vote varies widely from company to company and from country to country, and often includes a nomination committee or recourse to executive search firms. Although the Directive notes that it “does not unduly interfere with the day-to-day management of listed companies, since they maintain the freedom to select candidates on the basis of qualifications or other objective relevant considerations” (recital 42), the specific provisions of the Directive paint a different picture.
Specifically, Article 6(1) of the Directive requires that EU Member States ensure that listed companies that do not meet the quotas “adjust the process for selecting candidates for appointment or election to director positions” to ensure that the candidates will be selected “on the basis of a comparative assessment of the qualifications of each candidate”. Article 6(1) of the Directive further requires that EU Member States ensure that listed companies establish in advance “clear, neutrally formulated and unambiguous criteria” which will be “applied in a non-discriminatory manner throughout the entire selection process, including during the preparation of vacancy notices, the pre-selection phase, the shortlisting phase and the establishment of selection pools of candidates”.
These provisions reflect a concern with lack of transparency in the selection process and qualification criteria for director positions in most EU Member States. Th preamble to the Directive explains that this “lack of transparency prevents potential candidates for director positions from applying to boards where their qualifications would be most required and from challenging gender-biased appointment decisions, thus restricting their freedom of movement within the internal market” and that “[m]ore transparency in the qualification criteria and the selection process for directors enables investors to better assess the company’s business strategy and to take informed decisions” (recital 23). While the Directive does not aim to harmonize national laws on the selection process and qualification criteria for director positions, “a transparent and clearly defined selection process and an objective comparative assessment of their qualifications in terms of suitability, competence and professional performance” (recital 24). It is suggested that each listed company develop a “gender equality policy” which “might include the nomination of both a female candidate and a male candidate for key positions, mentoring schemes and career development guidance for women, and human-resources strategies designed to encourage diverse recruitment” (recital 26).
Regarding the requirement for a “comparative assessment of the qualifications of each candidate”, the preamble to the Directive enumerates some examples of types of selection criteria that listed companies could apply: “professional experience in managerial or supervisory tasks, international experience, multidisciplinarity, leadership, communication skills, networking abilities and knowledge in specific relevant areas such as finance, financial oversight or human resources management” (recital 39).
Furthermore, EU Member States are to “ensure that, when choosing between candidates who are equally qualified in terms of suitability, competence and professional performance, priority is given to the candidate of the underrepresented sex unless, in exceptional cases, reasons of greater legal weight, such as the pursuit of other diversity policies, invoked within the context of an objective assessment which takes into account the specific situation of a candidate of the other sex and which is based on non-discriminatory criteria, tilt the balance in favour of the candidate of the other sex” [Article 6(2) of the Directive]. Previously, the affirmative action provision of the package concerned only non-executive directors, and applied to all companies, not just those not achieving the quotas [Article 4(3) of the Directive Proposal].
Such affirmative action represents an exception from the principle of equality. Gender equality is one of the fundamental values of the EU [Articles 2 and 3(3) of the TEU, Article 8 of the TFEU]. The principle of equality was recognized early in EU legislation and a series of directives and other measures were adopted to promote gender equality, especially regarding employment[28]. Article 157(4) of the TFEU permits positive action by allowing EU Member States to maintain or adopt measures providing for specific advantages in order to make it easier for the underrepresented sex to pursue a vocational activity or to prevent or compensate for disadvantages in professional careers. It provides: “With a view to ensuring full equality in practice between men and women in working life, the principle of equal treatment shall not prevent any Member State from maintaining or adopting measures providing for specific advantages in order to make it easier for the underrepresented sex to pursue a vocational activity or to prevent or compensate for disadvantages in professional careers”.
Similarly, Article 21(1) of the Charter of Fundamental Rights of the European Union[29] (the Charter) prohibits discrimination based on “any ground such as sex, race, colour, ethnic or social origin, genetic features, language, religion or belief, political or any other opinion, membership of a national minority, property, birth, disability, age or sexual orientation”. However, Article 23 of the Charter states that although “[e]quality between women and men must be ensured in all areas, including employment, work and pay”, it expressly provides that “[t]he principle of equality shall not prevent the maintenance or adoption of measures providing for specific advantages in favour of the under-represented sex.”
In its caselaw on affirmative action and the compatibility thereof with the principle of non-discrimination based on sex, the Court of Justice of the European Union (CJUE) accepted that priority can in certain cases be given to the underrepresented sex in selection for employment or promotion, provided that the candidate of the underrepresented sex is equally qualified as compared with the competitor of the other sex in terms of suitability, competence and professional performance, that the priority is not automatic and unconditional but can be overridden if reasons specific to an individual candidate of the other sex tilt the balance in that candidate’s favour, and that the application of each candidate is the subject of an objective assessment which specifically applies all the selection criteria to the individual candidates. The language in Article 6(2) of the Directive closely tracks the standard and factors used in previous rulings of the CJUE (none of which concerned specifically board members)[30].
Article 6(3) of the Directive pushes the desire for transparency further, by indicating that listed companies subject to Article 6 will have to provide to any “candidate”, upon request: (a) the qualification criteria upon which the selection was based, (b) the objective comparative assessment of the candidates under those criteria, and (c) the specific considerations exceptionally tilting the balance in favour of a candidate who is not of the underrepresented sex (if applicable). Presumably, these provisions apply both to candidates of both the underrepresented sex (women) and of the overrepresented sex (men), irrespective of the stage during which the candidate is rejected (selection or election) (recital 43). This requirement is likely going to trigger a limitation to the right to respect for private life and to the right to the protection of personal data that are recognized, respectively, by Articles 7 and 8 of the Charter[31]. It will also be difficult to put in practice where, for example, a female candidate and a man candidate are both presented to the shareholders for approval and the shareholders vote in favor of the candidate. In such a case, the requirement will mostly likely only concern the selection process prior to the shareholder vote, and should not require a company to disclose the percentage of shareholders (or what shareholders) voted in favor of each of the 2 candidates. Moreover, the provision seems overly broad in that it captures both successful and unsuccessfully candidates, contrary to the Directive Proposal, which clearly limited the information right to unsuccessful candidates [Article 4(4) of the Directive Proposal].
Article 6(4) of the Directive provides that EU Member States “shall take the necessary measures, in accordance with their national judicial systems, to ensure that where an unsuccessful candidate of the underrepresented sex establishes facts from which it may be presumed that that candidate was equally qualified as the appointed candidate of the other sex who was selected for appointment or election to a director position, it is for the listed company to prove that there has been no breach of Article 6(2)” of the Directive. Although this provision it seems to only attempt to regulate the allocation of the burden of proof (prima facie burden on the plaintiff, the unsuccessful candidate, followed by a shift in the burden of proof on the defendant, the company, to show lack of breach), the language might be interpreted in the sense that the unsuccessful candidate of the overrepresented sex [perhaps in case the priority rules of Article 6(2) of the Directive are given effect] does not have a recourse to challenge the decision and does not enjoy the same privileges in terms of burden of proof. However, a strong argument can be made in the sense that both an unsuccessful candidate of the underrepresented sex and an unsuccessful candidate of the overrepresented sex may dispute the selection (subject perhaps to different rules on burden of proof depending on who the plaintiff is), given that the provision seems merely evidentiary in nature when it states that it is not meant to prevent EU Member States “from introducing rules of evidence which are more favourable to plaintiffs”.
Lastly, Article 6(5) of the Directive states that when the process for selecting candidates for appointment or election to director position is made through a vote of shareholders or employees, which is almost always going to be the case, EU Member States shall require listed companies to ensure that voters are properly informed regarding the measures provided for in the Directive, including penalties for non-compliance by the listed company. This provision was not part of the Directive Proposal and was included as a result of a 2013 amendment proposed by the European Parliament, which proposed to eliminate the exception from the mandatory 40% quota for companies where women represented 10% or less of the number of employees, and provide instead that, whenever appointment of board members is through voting, that the companies must inform the shareholders or the employees regarding the relevant provisions and related sanctions.
1.3. Reporting obligations
Pursuant to Article 7(1) of the Directive, listed companies will have to provide information to the competent authorities, once a year, about the gender representation on their boards, distinguishing between executive and non-executive directors. The required information will include not only statistical/numerical information, but also the measures taken with a view to achieving the objectives set forth in Article 5(1) or 5(2) of the Directive. The EU Member States must publish and regularly update, a centralized list of the listed companies that have achieved the objectives set forth in Article 5(1) of the Directive. This represents the reverse of the “name and shame” approach successfully used by EU legislation in other areas (let’s call it the “hug and brag” approach).
The information about gender representation on the board will also need to be published in an appropriate and easily accessible manner on the company’s website. Many companies already do so on a voluntary basis[32]. It will be more difficult for the companies to publish the measures taken with a view to achieving the objectives in case of lack of compliance, which will have to include (i) the reasons for not achieving the objectives and (ii) a comprehensive description of the measures which the company has already taken or intends to take in order to achieve them [Article 7(2) of the Directive].
The information about gender representation on the board will also be included in the company’s corporate governance statement, pursuant to Directive 2013/34/EU[33]. Article 20 of Directive 2013/34/EU, which governs the contents of the annual corporate governance statement was amended in December 2022[34], to require the inclusion of additional information in this statement, namely “a description of the diversity policy applied in relation to the undertaking’s administrative, management and supervisory bodies with regard to gender and other aspects such as, age, disabilities or educational and professional background, the objectives of that diversity policy, how it has been implemented and the results in the reporting period” [Article 20(1)(g) of Directive 2013/34/EU]. Pursuant to the traditional “comply or explain” approach taken by EU regulations in other areas of corporate governance, “[i]f no such policy is applied, the statement shall contain an explanation as to why that is the case”. Companies may choose to place this information as part of their sustainability reporting and merely include a reference thereto in the corporate governance statement. The recent regulations on sustainability reporting provide, among others, that, as part of the disclosures about social and human rights factors, companies must discuss “equal treatment and opportunities for all, including gender equality and equal pay for work of equal value, training and skills development, the employment and inclusion of people with disabilities, measures against violence and harassment in the workplace, and diversity” [Article 29b(2)(b)(ii) of Directive 2013/34/EU].
Conversely, the Directive requires EU Member States to designate one or more bodies for the promotion, analysis, monitoring and support of gender balance on boards, such as the equality bodies designated pursuant to Directive 2006/54/EC[35].
1.4. Penalties
Article 8(1) of the Directive provides that the EU Member States will establish the penalties applicable to infringements by listed companies of the national provisions adopted pursuant to Article 5(2) and Articles 6 and 7 of the Directive. That means that only the following infringements will result in penalties: (i) failure to set individual quantitative objectives for improving gender balance among executive directors [Article 5(2) of the Directive], (ii) failure to respect the provisions of the Directive regarding the process for selecting candidates (including the provisions on affirmative action) (Article 6 of the Directive) and (iii) failure to comply with the reporting obligations in the annual report and on the website of the company (Article 7 of the Directive). Notably, failure to achieve the quotas set forth in the Directive [Article 5(1) of the Directive] will not, in itself, be subject to penalties, but rather only to the requirements laid out in Article 6 of the Directive (recital 48)[36].
In particular, the Directive provides that EU Member States must ensure that adequate administrative or judicial procedures are available to enable the obligations deriving from the Directive to be enforced. This will include the procedures referenced in Article 6(4) of the Directive. The Directive mentions two examples of penalties: (i) fines and (ii) judicial nullity or annulment of a “decision concerning the selection of directors made contrary to […] Article 6” of the Directive. Regarding this second type of penalty, the language in the Directive Proposal was “nullity or annulment declared by a judicial body of the appointment or of the election of non-executive directors made contrary to [the 40% of non-executive directors quota]”. Although the Directive eliminated the references to appointment or election, the end result is the same: if the selection is invalidated, then the shareholder vote is invalidated, and the entire process must be restarted. For a listed company, this can be very problematic. National legislation will hopefully provide that while appointments of board members in breach of the provisions of the Directive are null, the decisions adopted by a board with an irregular composition are not.
The Directive recognized this partially by providing in Article 8(2) that listed companies may be held liable only for acts or omissions which can be attributed to them. In particular, this means that, to the extent that a certain outcome is the result of actions taken, for example, by individual shareholders, companies will not be liable. It will be interesting to see if national regulations transposing the Directive will impose any penalties on individual shareholders. One can also imagine sanctions directed at the irregularly appointed board members or board members liable for the deficient selection process (for example, suspension or retrocession of remuneration).
The preamble to the Directive notes that the two penalties listed in the Directive are non-exhaustive, and encourages EU Members States to apply other penalties as well “especially in cases of serious and repeated infringements by a listed company” (recital 48). A suggestion had been made by the European Parliament in its 2013 amendments[37] that, in such a case, judicial dissolution of the company might be contemplated. At the same time, the European Parliament had suggested that two additional penalties be added to the list of examples: (i) exclusion from public calls for tenders and (ii) partial exclusion from the award of funding from EU Structural Funds. Although they were not ultimately retained in the Directive as examples, hints at these two potential additional penalties are given in Article 8(3) of the Directive, which provides that EU Member States “shall ensure that, in the performance of public contracts and concessions, listed companies comply with applicable obligations relating to social and labour law, in accordance with applicable Union law.”
1.5. Implementation and further measures
The Directive establishes the obligation of EU Member States to adopt national regulations necessary to comply with the Directive two years after its adoption, specifically, by 28 December 2024 [Article 8(1) of the Directive] and deliver periodical reports to the European Commission regarding the application of the directive by 29 December 2025 and every 2 years thereafter [Article 9(1) of the Directive].
The Directive came into effect on 27 December 2022. The 27 EU Member States have until 28 December 2024 to transpose its provisions into their national legislation. The listed companies then have until 30 June 2026 to comply with the quotas. That leaves a period of 3.5 years from the entry into effect of the Directive and respectively of 1.5 years from the adoption of national regulations for the covered listed company to reach the quotas. The 3.5 years period is half of what had been initially contemplated under the Directive Proposal (7 years)[38].
Both the 2-year deadline to transpose (applicable to EU Member States) and the 3.5-year deadline to comply (applicable to listed companies) are tight. During the initial discussions around the Directive Proposal, a 3-year deadline to transpose was contemplated by the Presidency of the Council, in order to allow both EU Member States and companies more time to prepare and adopt national/internal measures (adapted to the national context and/or the specifics of each company) and to make progress in reaching the quotas. The preamble to the Directive goes to great lengths to bring the Directive within the principles of subsidiary and proportionality by noting that the Directive “allow[s] listed companies sufficient time to make the necessary arrangements” and “does not interfere with the possibility for listed companies to appoint the most qualified directors, and it grants a flexible framework and provides for a sufficiently long period of adaptation” (recital 52). One might disagree.
The Directive will expire on 31 December 2038. The existence of an expiration date is in line with caselaw regarding affirmative action, in the EU and elsewhere[39]. Therefore, the projected lifespan of the Directive is currently 16 years from its adoption in late 2022 (2023-2038). Under the Directive Proposal, the Directive was set to expire on 31 December 2030, and had therefore an expected life span of 18 years since its potential adoption in late 2022 (2013-2030). The problem with both expiration dates, and life spans, is that they seem randomly chosen, with no justification for the choice made provided in the preamble to the Directive, especially given the potential for further extension.
The European Commission must review the application of the Directive and to prepare a report for the Parliament and the Council by 31 December 2030 (and every 2 years afterwards), and evaluate in particular whether the objectives of the Directive have been attained [Article 13(3) of the Directive]. In this report, the Commission must assess whether the Directive is an effective instrument for increasing the gender balance on boards (“in the light of developments in the representation of women and men on boards at different levels of decision-making throughout the economy and taking into account whether the progress made is sufficiently sustainable”) and indicate whether there is a need to (i) extend the duration beyond 2038 and/or (ii) amend the Directive [Article 13(4) of the Directive]. Two specific potential amendments are contemplated: (i) extension to non-listed companies (which are not SMEs) and (ii) revising the conditions for benefiting from the suspension provisions of Article 12(1) of the Directive (likely by increasing the quotas), which we discuss next.
1.6. Suspension of obligations
EU Member States that had already made significant progress towards increasing gender balance on the date when the Directive came into effect (27 December 2022) get a break from the application of the provisions of Article 6 of the Directive (process for selecting candidates and affirmative action for companies that fail to meet the quotas) and of Article 5(2) of the Directive (companies to set individual quantitative objectives for executive directors if only subject to the 40% quota for non-executive directors), and the objectives laid down in Article 5(1) of the Directive are deemed to have been achieved in that EU Member State, and thus the objectives laid down in the Directive in relation to non-executive directors or all directors do not replace and are not added to the relevant national measures (recital 45). If a EU Member State qualifies for the Article 12 suspension, the reporting obligations under Article 7 are also not applicable, if national law provides for reporting obligations that ensure the regular publication of information regarding the progress made by listed companies towards a more balanced representation of women and men on their boards [Article 7(4) of the Directive].
To benefit from the suspension, members of the underrepresented sex must hold, as of 27 December 2022, at least 30% of the non-executive director positions [as compared to 40% per Article 5(1)(a) of the Directive] or at least 25% of all director positions [as compared to 33% per Article 5(1)(b) of the Directive] in that particular EU member State [Article 12(1)(a) of the Directive]. Several EU Member States qualify for the suspension, including Belgium, Denmark, Germany, Spain, France, Italy, the Netherlands and Finland[40].
Alternatively, the suspension is also available to EU Member States if their national law, as of 27 December 2022, (a) requires the 30%/25% quotas (i.e. as mandatory quotas), (b) includes effective, proportionate and dissuasive enforcement measures in the event of non-compliance with the required quotas, and (c) requires that all listed companies not covered by that national law set individual quantitative objectives for all director positions [Article 12(1)(a) of the Directive].
Under the original Directive Proposal, to benefit from the suspension, EU Member States would have had to show that, prior to the entry into force of the Directive, they had “already taken measures to ensure a more balanced representation of women and men among the non-executive directors of listed companies” and that “those measures enable members of the under-represented sex to hold at least 40 per cent of the non-executive director positions of listed companies by at the latest 1 January 2020” (i.e. same deadline as that stated in the Directive Proposal, approximately 7 years after the entry into effect of the EU quotas) [Article 8(3) of the Directive Proposal]. The problem was that no specific content of the national regulations was required, and the assessment of whether the national measures “enabled” achieving the quota by the deadline was hard to evaluate. This is why the European Parliament had proposed that the suspension will be automatically lifted if insufficient progress was made (which would be deemed to be the case if the percentage of the underrepresented sex was lower than 30% by 2017) and the Presidency of the Council attempted to define various scenarios which would be deemed by law to guarantee measure of “equal effectiveness”. These amendments resulted in the final form of the suspension provisions included in the Directive.
The suspension must be immediately communicated to the European Commission, including information demonstrating that the conditions were fulfilled [Article 11(2) of the Directive]. If a EU Member State no longer qualifies for the suspension, the relevant provisions become applicable within 6 months after the conditions for the suspension have ceased to be fulfilled [Article 12(3) of the Directive].
Even EU Member States that have taken advantage of the suspension provisions must send annual reports to the European Commission under Article 13(1) of the Directive, in which they must include information showing whether and how the conditions laid down in Article 12 of the Directive are fulfilled and whether they continue to make progress towards a more balanced representation between women and men among non-executive director positions or all director positions in listed companies. The European Commission will issue specific periodic reports regarding the suspending EU Member States [Article 13(2) of the Directive].
The suspension provisions of the Directive were included in order to bring the Directive within the principle of subsidiarity. The Directive recognized the “legitimacy of different approaches” and acknowledged “the effectiveness of certain existing national measures, already adopted in this policy area, which have shown satisfactory results” (recital 45). Indeed, in some EU Member States, efforts to ensure a more balanced representation of women and men on boards had already been made through the adoption of binding measures or in other manners that, factually, were as effective as the quotas laid down in the Directive.
§2. Opportunity of the Directive
Assessing whether the Directive was an opportune intervention requires answering a number of questions. The basic question is whether the Directive was necessary in the sense that increasing the presence of women on boards will lead to statistically significant beneficial change for EU listed companies and for the EU economy overall. The second question is whether regulation through mandatory quotas, to be reached within a certain timeframe, was the best way of increasing the presence of women on boards of listed companies. The second question is whether the choice of the specific percentages for the mandatory quotas set forth in Article 5 of the Directive was made at appropriate levels (or even necessary) as compared to current percentages.
2.1. The anticipated effects of increasing the presence of women on boards
One of the main arguments made in support of the Directive was that the presence of more women on boards increases company performance and results in other benefits. Recital 16 of the Directive noted: “It is widely acknowledged that the presence of women on boards improves corporate governance, as team performance and the quality of decision-making are enhanced by a more diverse and collective mind-set incorporating a wider range of perspectives. Numerous studies have shown that diversity leads to a more proactive business model, more balanced decisions and enhanced professional standards on boards that better reflect societal realities and consumer needs. It also encourages innovation. Numerous studies have also shown that there is a positive relationship between gender diversity at top management level and a company’s financial performance and profitability, resulting in substantial long-term sustainable growth. Achieving gender balance on boards is therefore vitally important for ensuring the Union’s competitiveness in a globalised economy and would offer a comparative advantage vis-à-vis third countries.”
The studies referenced in this recital are likely those cited in Annex 3 to the impact assessment analysis performed back in 2012[41]. No update of that impact assessment was conducted prior to the adoption of the Directive in 2022. Moreover, studies on gender diversity and performance did not reach fully coherent and final conclusions[42]. In particular, even if a correlation between a larger proportion of women on boards and better performance was established, causality is unclear: it is possible that companies with higher performance attract more women on boards, without them being the cause of better performance.
Another justification for the Directive resides in its beneficial domino effect on two other major topics (gender employment gap and the gender pay gap): “Increasing the representation of women on boards not only affects the women appointed to boards, but also contributes to attracting female talent to the company and ensuring a greater presence of women at all levels of management and in the workforce. Therefore, a higher share of women on boards is likely to have a positive impact on closing both the gender employment gap and the gender pay gap.” (recital 17). However, the adoption of the Directive might have unintended effects that would frustrate its goals of gender equality and improved performance. It is possible that, at some companies, the new female board members appointed as a result of quotas will be seen as inferior members. Sudden changes in board composition, tensions in the boardroom and the fear of sanctions might divert attention from business matters and decrease performance.
2.2. The opportunity of regulation through mandatory quotas
In its April 2011 Green Paper titled “The EU corporate governance framework”, the European Commission noted the advantages which could be obtained by a larger presence of women on boards, and concluded: “The introduction of measures such as quotas or targets to ensure gender balance in boards … is not sufficient if companies do not adopt diversity policies that contribute to work-life balance for women and men and encourage notably the mentoring, networking and adequate training for management positions that are essential for women wanting to follow a career path that leads to eligibility for board positions. While it should be for companies to decide whether they introduce such a diversity policy, boards should at least be required to consider the matter and disclose the decisions that they have taken”[43]. Now, both mandatory quotas and diversity policies have been introduced.
However, most participants to the consultation that preceded the 2011 Green Paper answered in the negative regarding the opportunity of introducing mandatory measures regarding gender balance on boards[44] and some firmly rejected quotas, whether mandatory or not[45].
Alternatives to mandatory quotas established via EU legislation are: (i) mandatory quotas established via national legislation of the EU Member States (coupled with hard sanctions or soft sanctions of the “name and shame” or “hug and brag” type), (ii) recommendations in the national corporate governance codes (perhaps coupled with a “comply or explain” approach), (iii) regulations adopted by stock exchanges and/or (iv) self-regulation at the level of each listed company (or industry)[46]. In my opinion, any of these alternatives would have been preferable to EU-imposed mandatory quotas.
France, currently the most advanced EU Member State regarding gender balance on boards, successfully used a combination of these alternative approaches. A first step for correcting the underrepresentation of women on boards was made in April 2010, by introducing a series of provisions in the Corporate Governance Code applicable to French listed companies[47]. The Code established recommended targets of 20% and 40%, to be reached in 3 and respectively 6 years, based on the principle “comply or explain”[48]. The next step was to transform them into mandatory legal provisions, through the Copé-Zimmerman law, adopted in January 2011, which established a 40% quota of women on boards of listed companies, certain public undertakings, and certain large non-listed companies (approximately 2000 companies)[49]. The size threshold set forth in the French law is similar to that set forth in the Directive, but, in France, it applies to determine which non-listed companies fall under the scope of the law, while in the Directive, it is used to determine to which listed companies the Directive applies. The quota generally had to be reached by 2017. The Copé-Zimmerman law also provided, for all joint stock companies, whether listed or not and irrespective of size, that a balanced gender representation should be sought in the composition of boards, but no sanction was associated with this provision, which effectively made it a mere recommendation.
In my opinion, the EU has presented insufficient (updated) support for the proposition that mandatory EU-imposed quotas are the most efficient mechanism to ensure a durable increase of women’s presence on boards. The regulatory framework on this particular matter in the 27 EU Member States shows extreme diversity, in accordance with that generally existing with respect to corporate governance structures: mandatory versus recommended quotas, quotas established externally versus internally by each company, quotas only for companies of a certain size, quotas for just listed companies or also for non-listed companies, targets as a percentage of the total number of members versus only of non-executive members, the optimal percentage for the target or the reasonable time frame to reach it. That historical diversity should have been allowed to persist and converge naturally, without EU intervention. One thing is certain, though. There is a clear correlation between the increase of women’s presence on boards and the existence of some form of regulation based on quotas[50]: mandatory (established by law), recommended (in corporate governance codes or laws) or self-imposed.
As will be discussed below, the percentages of women on boards in the United States (US) are relatively similar to the EU-27 percentages both in 2012 (16% in the US v. 15.4% in the EU-27) and in 2023 (28.9% in the US v. 33.2% in EU-27), although the US has no uniform federal legislation mandating quotas or extensive disclosures. Since 2021, Nasdaq’s listing rules require a Nasdaq-listed company to have at least two diverse directors (including at least one woman and one member of an underrepresented minority or who self-identifies as LGBTQ+) or explain why it failed to meet the requirement, subject to certain exceptions. The Nasdaq listing rules also require annual board diversity disclosure that provides gender, racial/ethnic and LGBTQ+ demographic information in a matrix format. The New York Stock Exchange does not have diversity disclosure requirements similar to the Nasdaq markets, relying instead on private ordering to drive practice. Although the US Securities and Exchange Commission (SEC) adopted disclosure rules in 2009 requiring companies to disclose the role of diversity in identifying nominees to their boards of directors, companies have the flexibility to define diversity using a wide range of factors beyond gender, race and ethnicity, and need not include those traditional elements. The SEC has indicated that it intends to propose rules in 2023 that would require disclosure of more board diversity information, likely similar in scope to the Nasdaq board diversity disclosure requirements.
At the state level in the US, multiple states have adopted legislation regarding corporate board diversity, typically requiring corporations to provide information on board gender or racial/ethnic demographics. The State of California has been at the forefront of corporate board diversity legislation by adopting mandates for minimum numbers of women directors and directors from underrepresented communities on corporate boards. In the case of both statutes, not meeting the minimum requirements carries fines in the six figures for each violation. Both of the California diversity statutes have been successfully challenged in California courts in 2022, which found them to violate the Equal Protection Clause of California Constitution’s[51]. Similarly, at the federal level in the US, it is unlikely that broad (federal) mandatory gender quotas for company boards would survive constitutional scrutiny under the Equal Protection Clause of the Fourteenth Amendment of the US Constitution[52].
2.3. The choice of the specific percentages for mandatory quotas, as compared to current percentages
To assess whether the alternative quotas set forth in Article 5 of the Directive (40% of non-executive directors and 33% of all directors) were set at appropriate levels (or even necessary) it is useful to review the evolution of the presence of women on boards of EU companies in recent years. The chart below illustrates the evolution of the percentage of women on boards of listed companies in EU Member States from 2003 to 2023, as derived from the database maintained by the European Institute for Gender Equality[53]. It includes both executive and non-executive directors.
The data for the first half of 2012 indicates that women represented approximately 14% of the total number of members of boards of EU listed companies. The percentage does not change significantly if the United Kingdom (UK), which left the EU in 2020, is removed from the calculations (13.6% without the UK, 13.8% with the UK). Shortly afterwards, in November 2012, the Directive Proposal was presented by the European Commission.
As discussed, all debates on the Directive Proposal ceased in 2017. The data for the first half of 2017 indicates that women represented approximately 25% of the total number of members of boards of EU listed companies. The percentage once again does not change significantly if the UK is removed from the calculations (25.1% without the UK, 25.3% with the UK). The increase (by 78%) between 2012 and 2017 can be the result of 3 factors potentially: (i) voluntary actions by companies (self-regulation), (ii) compliance with national regulations enacted by EU Member States, and/or (iii) fear of future EU regulations.
Skipping ahead another 5 years, to the first half of 2022, when discussions around the Directive were restarted, women represented approximately 32% of the total number of members of boards of EU listed companies (31.6% without the UK, 32.3% with the UK). This represents another significant increase (128% as compared to 2012 and 28% as compared to 2017).
The Directive entered into effect on 27 December 2022. For the first half of 2023, women represented approximately 33% of the total number of members of boards of EU listed companies (33.2% without the UK, 34.0% with the UK).
The aggregate EU numbers as of 2022-2023 (32-33%) are already in line with what the Directive requires for all director positions (executive plus non-executive directors).
The chart below lists the percentages for each of the 27 EU Member States, and the UK, for the first half of 2012, 2017 and 2023, as compared to the average of the 27 EU Member States, and the UK as of each of those dates, for all director positions (executive plus non-executive directors).
Based on the 2023 column, the significant overperformers, which will not suffer much impact from the adoption of the Directive (and which are likely to rely on the suspension provision of Article 12 of the Directive) are Belgium, (39.2%), Denmark (42.3%), Germany (37.9%), Spain (37.4%), France (45.9%), Italy (42.3%), the Netherlands (41.0%) and Finland (38.2%). Based on the 2023 column, the significant underperformers, which will suffer the greatest impact from the adoption of the Directive are Bulgaria (19.4%), the Czech Republic (21.1%), Estonia (10.3%), Cyprus (11.6%), Hungary (10.9%), Malta (15.8%), and Romania (20.2%).
| Nr. | Country | 2012-B1 | 2017-B1 | 2023-B1 | |||
| Country | EU-28 | Country | EU-28 | Country | EU+UK | ||
| 1 | Belgium | 10.7 | 13.8 | 29.4 | 25.3 | 39.2 | 34.0 |
| 2 | Bulgaria | 15.6 | 13.8 | 12.8 | 25.3 | 19.4 | 34.0 |
| 3 | Czech Rep | 15.4 | 13.8 | 17.1 | 25.3 | 21.1 | 34.0 |
| 4 | Denmark | 16.1 | 13.8 | 28.0 | 25.3 | 42.3 | 34.0 |
| 5 | Germany | 15.6 | 13.8 | 29.7 | 25.3 | 37.9 | 34.0 |
| 6 | Estonia | 6.7 | 13.8 | 7.4 | 25.3 | 10.3 | 34.0 |
| 7 | Ireland | 8.7 | 13.8 | 17.3 | 25.3 | 36.1 | 34.0 |
| 8 | Greece | 7.4 | 13.8 | 9.3 | 25.3 | 24.5 | 34.0 |
| 9 | Spain | 11.5 | 13.8 | 12.5 | 25.3 | 37.4 | 34.0 |
| 10 | France | 22.3 | 13.8 | 42.1 | 25.3 | 45.9 | 34.0 |
| 11 | Croatia | 16.3 | 13.8 | 22.6 | 25.3 | 31.3 | 34.0 |
| 12 | Italy | 6.1 | 13.8 | 32.9 | 25.3 | 42.3 | 34.0 |
| 13 | Cyprus | 4.4 | 13.8 | 10.7 | 25.3 | 11.6 | 34.0 |
| 14 | Latvia | 25.9 | 13.8 | 27.9 | 25.3 | 23.3 | 34.0 |
| 15 | Lithuania | 14.5 | 13.8 | 14.1 | 25.3 | 25.0 | 34.0 |
| 16 | Luxembourg | 5.7 | 13.8 | 11.0 | 25.3 | 22.9 | 34.0 |
| 17 | Hungary | 5.3 | 13.8 | 13.9 | 25.3 | 10.9 | 34.0 |
| 18 | Malta | 3.0 | 13.8 | 7.0 | 25.3 | 15.8 | 34.0 |
| 19 | Netherlands | 18.5 | 13.8 | 30.2 | 25.3 | 41.0 | 34.0 |
| 20 | Austria | 11.2 | 13.8 | 19.3 | 25.3 | 33.5 | 34.0 |
| 21 | Poland | 11.8 | 13.8 | 19.0 | 25.3 | 26.3 | 34.0 |
| 22 | Portugal | 6.0 | 13.8 | 15.5 | 25.3 | 32.6 | 34.0 |
| 23 | Romania | 10.3 | 13.8 | 8.4 | 25.3 | 20.2 | 34.0 |
| 24 | Slovenia | 15.3 | 13.8 | 21.0 | 25.3 | 22.0 | 34.0 |
| 25 | Slovakia | 13.5 | 13.8 | 22.9 | 25.3 | 25.0 | 34.0 |
| 26 | Finland | 27.1 | 13.8 | 32.3 | 25.3 | 38.2 | 34.0 |
| 27 | Sweden | 25.2 | 13.8 | 35.5 | 25.3 | 36.2 | 34.0 |
| 28 | UK | 15.6 | 13.8 | 27.7 | 25.3 | 42.2 | 34.0 |
To become more granular, the following chart presents the percentages for (i) all directors, (ii) executive directors, (iii) non-executive directors, and (iv) CEO who were women on EU listed companies for the second half of 2012 (no data available for first half of 2012), first half of 2017 and first half of 2023, based on data from the European Institute for Gender Equality[54]. The percentages shown are first, excluding the UK and second, including the UK. As it can be easily observed, the percentages for women who were non-executive directors are significantly higher than those for women who were executive directors. Only very few women were and continue to be CEOs (upwards from 2% in 2012 to 8% in 2023).
| Women director | Women non-executive director | Women executive director | Women CEO | |
| 2012-B2 | 15.4/15.8 | 16.8/17.2 | 10.3/10.4 | 2.2/2.5 |
| 2017-B1 | 25.1/25.3 | 26.4/26.9 | 15.2/15.5 | 5.4/5.3 |
| 2023-B1 | 33.2/34.0 | 35.7/36.7 | 22.1/23.2 | 8.3/8.4 |
As an element of comparison, in the US, women represented approximately 16% of the total number of board members of the largest US listed companies in 2012 (compared to 11% in 2006 and 14% in 2012) and only 4% of the CEOs. Women held less board positions than men named John, Robert, James or William[55]. As of the first quarter of 2023, a report published by 50/50 Women on Boards (50/50WOB), a global nonprofit education and advocacy campaign organization, indicates that women held 28.9% of board seats at the largest US listed companies (Russell 3000 Index)[56]. It can be easily observed that the US percentages are relatively similar to the EU-27 percentages both in 2012 (16% in the US v. 15.4% in the EU-27) and in 2023 (28.9% in the US v. 33.2% in EU-27), although the US has no uniform federal legislation mandating quotas or extensive disclosures.
Overall, the Directive seems a useful tool to incentivize, in all EU Member States, the appointment of women as executive board members (which results in a more reduced quota: 33% instead of 40%) which, in turn, might also increase the percentage of women CEOs.
However, the Directive will disproportionately impact only certain EU Member States, especially given the suspension provisions of Article 12 of the Directive, which brings into question its legitimacy. Think of Romanian companies which will have to double their percentage (from the current 20% to the 40% quota) in 3.5 years[57]. It becomes even harder for companies from Estonia and Hungary which, as of now, are at 10%. The preamble attempts to mask this disproportionate effect: “While some Member States have taken regulatory action or encouraged self-regulation with mixed results, the majority of Member States have not taken action or indicated their willingness to act in a way that would bring about sufficient improvement. Projections based on a comprehensive analysis of all available information on past and current trends and intentions show that Member States acting individually will not achieve a balanced representation of women and men among directors across the Union in line with the objectives laid down in this Directive at any point in the foreseeable future. Inaction in this area slows down the pursuit of gender equality in the workplace more generally, including in terms of closing the gender pay gap, which results in part from vertical segregation. In the light of those circumstances and given the growing discrepancies between Member States in terms of the representation of women and men on boards, the gender balance on boards across the Union can only be improved by means of a common approach, and the potential for gender equality, competitiveness and growth can be better achieved through coordinated action at Union level rather than by means of national initiatives of varying scope, ambition and effectiveness. Since the objective of this Directive, namely to achieve a more balanced representation of women and men among the directors of listed companies […], cannot be sufficiently achieved by the Member States but can rather, by reason of the scale and effects of action, be better achieved at Union level, the Union may adopt measures in accordance with the principle of subsidiarity” (recital 52).
Conclusion
The EU institutions believed that the current gender imbalance (which still persists on boards of EU listed companies) had to be remedied, and could be remedied, significantly and durably, only by EU intervention through the Directive.
As discussed, the conclusion is debatable, and the adoption of the Directive was likely not the best solution for correcting gender imbalance on boards, even assuming that the studies on which it relied are accurate, for several reasons.
First, as with many other areas of corporate governance, an approach “one size fits all”, with identical targets established as abstract percentages, is not beneficial[58]. Many EU Member States with high percentages of women on boards did not employ mandatory quotas, and relied mostly on optional measures as recommendations in the national corporate governance codes and/or self-regulation. Soft law measures (quotas as recommendations or self-imposed, coupled with a comply or explain requirement rigorously applied) are efficient means conducive of progress. More fundamentally, Moreover, through the anticipation and discussions it generated over the last 12 years (2011-2022), it already provided the necessary impulse to both EU Member States and EU companies to reflect and adopt measures for a better representation of women on boards, tailored to their specific needs and situation.
Second, a mandatory quota generally applicable in the EU will create a disproportionate effect of the Directive in certain EU Member States that currently have very low percentages (compare impact in France versus Hungary or Romania, for example).
Third, the Directive will create a number of technical and practical difficulties, as well as increase the already burdensome disclosure obligations of listed companies. Overall, boards need stability in order to operate efficiently and too frequent modifications of the board structure (in order to comply with the mandatory quotas at all times) can have negative effects[59]. Moreover, because the Directive is of minimal harmonization (leaving many aspects to be regulated by national laws), it does not even solve the problem of diversity within the EU on this subject (which is problematic for cross-border companies), while at the same time relying on that diversity in order to justify the need for its adoption. In particular, it can already be anticipated that EU Member States will take widely divergent approaches as to the applicable sanctions.
Finally, the number of men and women in the world is roughly equal. According to the World Bank collection of development indicators[60], in 2022, men represented 50.2% and women represented 49.8%. If so, why not establish mandatory quotas of 50%/50% and provide for a longer period for them to be attained?
Footnotes
[1] European Commission, Proposal for a directive on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures, COM(2012) 614 final, 2012/299 (COD), 14 November 2012, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52012PC0614&qid=1434455144312&from=EN.
[2] European Commission, Communication, A Strengthened Commitment to Equality between Women and Men – A Women’s Charter, COM(2010) 78 final, 5 March 2010, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52010DC0078&from=EN.
[3] European Commission, Communication, Strategy for equality between women and men, COM(2010) 491 final, 21 September 2010, http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52010DC0491.
[4] European Council, European Pact for Gender Equality (2011-2020), 2011/C 155/02, 7 March 2011, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52011XG0525(01)&qid=1433697450386&from=EN.
[5] European Parliament, Resolution on a corporate governance framework for European companies, P7_TA(2012)0118, 2011/2181(INI), 29 March 2012, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52012IP0118&qid=1433726674878&from=EN. See also European Parliament, Resolution on women and business leadership, P7_TA(2011)0330, 2010/2115(INI), 6 July 2011, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52011IP0330&qid=1433728787579&from=EN; European Parliament, Resolution on equality between women and men in the European Union, P7_TA(2012)0069, 2011/2244(INI), 13 March 2012, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52012IP0069&qid=1433728970447&from=EN.
[6] B. Lecourt, Féminisation des conseils d’administration: vers un texte européen?, in Revue des sociétés, 2012, p. 664 et seq.
[7] European Commission, Impact assessment on costs and benefits of improving the gender balance in the boards of companies listed on stock exchanges, 2012, SWD/2012/0348 final, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52012SC0348&from=EN.
[8] For the legislative process regarding the Directive Proposal, see http://eur-lex.europa.eu/procedure/EN/202123.
[9] Opinion of the European Economic and Social Committee, 2013/C 133/13, 13 February 2013, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52012AE2444&from=EN.
[10] Opinion of the Committee of the Regions, 2013/C 218/06, 30 May 2013, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52013AR0242&from=EN.
[11] http://www.europarl.europa.eu/oeil/popups/summary.do?id=1324564&t=e&l=en.
[12] For the amendments proposed by the European Parliament, see http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT%20TA%20P7-TA-2013-0488%200%20DOC%20XML%20V0//en.
[13] http://www.europarl.europa.eu/oeil/popups/summary.do?id=1371523&t=e&l=en.
[14] Directive (EU) 2019/1158 of the European Parliament and of the Council of 20 June 2019 on work-life balance for parents and carers and repealing Council Directive 2010/18/EU, JOEU L 188, 12 July 2019.
[15] See the Reports on Gender Equality of the European Commission (2021, 2022, 2023), available at https://op.europa.eu/en/publication-detail/-/publication/11d9cab1-fa52-11eb-b520-01aa75ed71a1.
[16] A&L Goodbody, Gender balance on boards – signposting a sea change, 30 March 2023, available at https://www.algoodbody.com/insights-publications/gender-balance-on-boards-signposting-a-sea-change.
[17] Directive (EU) 2022/2381 of the European Parliament and of the Council of 23 November 2022 on improving the gender balance among directors of listed companies and related measures, J.O. L 315 from December, 7, 2022, p. 44-58, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32022L2381.
[18] Article 4(1)(21) of the Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast) (Directive MIFID II).
[19] An up to date list of regulated markets is available at https://registers.esma.europa.eu/publication/searchRegister?core=esma_registers_upreg#.
[20] R. Papadima, La convergence en matière de droit applicable aux sociétés cotées de l’Union européenne, doctoral thesis, University Paris II and University of Bucharest, 2017, passim. See also R. Papadima, Droit européen et comparé des sociétés et des affaires (European and Comparative Corporate and Business Law), Ed. Hamangiu, Bucharest, 2018, p. 109-216, 254-299.
[21] M. Boizard, La distinction entre la société cotée et la société non cotée comme summa divisio du droit des sociétés, doctoral thesis, University Paris II, 2002, p. 11-13, par. 6-12, p. 29, par. 41-42.
[22] H. Bouthinon-Dumas, Le droit des sociétés cotées et le marché boursier, Ed. LGDJ, Paris, 2007, p. 2, par. 3.
[23] Y. Guyon, Droit des affaires, t. 1 (Droit commercial général et Sociétés), 12th ed., Ed. Économica, Paris, 2003, p. 228, par. 219-220.
[24] M.-A. Frison-Roche, La distinction entre sociétés cotées et non cotées, in Mél. AEDBF-France, Ed. Revue Banque, Paris, 1997, p. 195.
[25] See all amendments proposed by the European Parliament in 2013, available at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT%20TA%20P7-TA-2013-0488%200%20DOC%210XML%20V0//en.
[26] Idem.
[27] The fact that the choice between what objective to comply with belongs to the company, and that EU Member States must allow companies to make that choice is supported by the drafting of Article 4(7) of the original Directive Proposal, which stated that EU Member States “may provide that the objective laid down in paragraph 1 [of 40% of non-executive positions] is met where listed companies can show that members of the under-represented sex hold at least one third of all director positions, irrespective of whether they are executive or non-executive”.
[28] For example, Directive 76/207/CEE (subsequently replaced by Directive 2006/54/CE), Recommendation 84/635/CEE, Directive 2000/43/CE, Directive 2000/78/CE, Directive 2004/113/CE and Directive 2010/41/UE.
[29] Available at https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12012P/TXT.
[30] See Judgment of the CJUE of 17 October 1995, Kalanke v. Freie Hansestadt Bremen, decision no. C-450/93, ECLI:EU:C:1995:322; Judgment of the CJUE of 11 November 1997, Marschall v. Land Nordrhein-Westfalen, decision no. C-409/95, ECLI:EU:C:1997:533; Judgment of the CJUE of 28 March 2000, Badeck and Others, decision no. C-158/97, ECLI:EU:C:2000:163; Judgment of the CJUE of 6 July 2000, Abrahamsson and Anderson, decision no. C-407/98, ECLI:EU:C:2000:367.
[31] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation), J.O. L 119 from May, 4, 2016.
[32] For an example, see https://www.loreal.com/en/governance/board-of-directors/.
[33] Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC, J.O. L 182 from June, 29, 2013 (as subsequently amended).
[34] Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting, J.O. L 322 from December, 16, 2022.
[35] Directive 2006/54/EC of the European Parliament and of the Council of 5 July 2006 on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation, J.O. L 204 from July, 26, 2006.
[36] “Without prejudice to national law on the imposition of penalties, as long as listed companies comply with those obligations, they should not be penalised for failing to attain the quantitative objectives concerning the representation of women and men among directors”.
[37] See all amendments proposed by the European Parliament in 2013, available at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT%20TA%20P7-TA-2013-0488%200%20DOC%20XML%20V0//en.
[38] See supra, section 1.2.2.
[39] US Supreme Court, Grutter v. Bollinger, 539 U. S. 306, 343 June 23, 2003 (recognizing that “[e]nshrining a permanent justification for racial preferences would offend” the Constitution’s unambiguous guarantee of equal protection, the court expressed its expectation that, in 25 years, “the use of racial preferences will no longer be necessary to further the interest approved today.”); US Supreme Court, Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, no. 20-1199, June 29, 2023, at 6 (“Twenty years have passed since Grutter, with no end to race-based college admissions in sight. But the Court has permitted race‑based college admissions only within the confines of narrow restrictions: such admissions programs must comply with strict scrutiny, may never use race as a stereotype or negative, and must – at some point – end”).
[40] See infra, section 2.2.
[41] European Commission, Impact assessment on costs and benefits of improving the gender balance in the boards of companies listed on stock exchanges, 2012, SWD/2012/0348 final, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52012SC0348&from=EN.
[42] M. Belcredi, G. Ferrarini, Corporate boards, incentive pay and shareholder activism in Europe: main issues and policy perspectives, in M. Belcredi, G. Ferrarini (eds.), Boards and shareholders in European Listed Companies, Cambridge University Press, Cambridge, 2014, p. 27-28; D. Ferreira, T. Kirchmaier, Corporate boards in Europe: size, independence and gender diversity, in M. Belcredi, G. Ferrarini (eds.), Boards and shareholders in European Listed Companies, cited supra, p. 213-215.
[43] European Commission, Green Paper, The EU corporate governance framework, COM(2011) 164 final, 5 April 2011, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52011DC0164&from=EN, p. 7-8.
[44] Statistics from 2011 showed that 88% of the EU citizens considered that women should be equally represented in decision-making positions. Regarding the measures to be taken, 31% considered that the measures should be set by companies, 26% that they should be established by law and 20% that they should not be mandatory.
[45] European Commission, Feedback statement. Summary of responses to the Commission green paper on the EU corporate governance framework, 15 November 2011, http://ec.europa.eu/internal_market/company/docs/modern/20111115-feedback-statement_en.pdf, p. 7-8.
[46] European Commission, Women in economic decision-making in the EU: Progress report, March 2012, http://ec.europa.eu/justice/gender-equality/files/women-on-boards_en.pdf, p. 17‑19; European Commission, Gender balance on company boards, March 2015, http://ec.europa.eu/justice/gender-equality/files/womenonboards/wob-factsheet_2015-04_en.pdf, p. 4-5.
[47] Code de gouvernement d’entreprise des sociétés cotées AFEP-MEDEF (the current version is from December 2022), available at: https://www.lafep.org/publications/doc-code-de-gouvernement-dentreprise-des-societes-cotees/.
[48] J. Redenius-Hoevermann, D. Weber-Rey, La représentation des femmes dans les conseils d’administration et de surveillance en France et en Allemagne, in Revue des sociétés, 2011, p. 203 et seq.
[49] H. Le Nabasque, Loi ‘Copé-Zimmerman’ n° 2011-103 du 27 janvier 2011 relative à la représentation équilibrée des femmes et des hommes au sein des conseils d’administration et de surveillance (de certaines sociétés) et à l’égalité professionnelle, in Revue des sociétés, 2011, p. 454 et seq.
[50] M. Belcredi, G. Ferrarini, Corporate boards, incentive pay and shareholder activism in Europe: main issues and policy perspectives, in M. Belcredi, G. Ferrarini (eds.), Boards and shareholders in European Listed Companies, cited supra, p. 27-28; D. Ferreira, T. Kirchmaier, Corporate boards in Europe: size, independence and gender diversity, in M. Belcredi, G. Ferrarini (eds.), Boards and shareholders in European Listed Companies, cited supra, p. 215-220.
[51] See D.A. Bell, D. Belt, R.C. Llewellyn, Diversifying the Boardroom: 2022 Disclosures, Harvard Law School Forum on Corporate Governance, 11 May 2023, available at https://corpgov.law.harvard.edu/2023/05/11/diversifying-the-boardroom-2022-disclosures/#:~:text=Nasdaq%20Rules&text=The%20rules%20also%20require%20annual,information%20in%20a%20matrix%20format.
[52] See US Supreme Court, Regents of the University of California v. Bakke, 26 June 1978, 438 U.S. 265 (use of racial quotas in the admission process of a public university was unconstitutional); US Supreme Court, Mississippi University for Women v. Hogan, 1 July 1982, 458 U.S. 718 (striking down the women-only admissions policy of a publicly-funded state nursing school); US Supreme Court, Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, no. 20-1199, June 29, 2023 (holding that the admissions programs at Harvard and University of North Carolina were unconstitutional because they lack sufficiently focused and measurable objectives warranting the use of race, unavoidably employ race in a negative manner, involve racial stereotyping, and lack meaningful end points). See also L. Alstott, Gender Quotas for Corporate Boards: Options for Legal Design in the United States, 21 November 2013, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2360253 (noting that, although affirmative action on the basis of gender is permitted in the US, adopting mandatory gender quotas for company boards would be a cultural and legal oddity).
[53] Available at https://eige.europa.eu/gender-statistics/dgs/browse/wmidm.
[54] Available at https://eige.europa.eu/gender-statistics/dgs/browse/wmidm.
[55] Ernst & Young LLP, Women on US Boards: What Are We Seeing?, 4 March 2015, available at http://corpgov.law.harvard.edu/2015/03/04/women-on-us-boards-what-are-we-seeing/. The percentages are based on the S&P 1500 group, representing the largest 1500 companies listed in the US.
[56] 50/50WOB, Gender Diversity Index, First Quarter 2023 Key Findings, 31 March 2023, available at https://5050wob.com/wp-content/uploads/2023/05/5050WOB-Q1-23-Infographic-FINAL.pdf.
[57] For an overview of Romania specifically, see R. Papadima, Recent Developments regarding Gender Balance on EU Corporate Boards, European Company Law, no. 5/2015, p. 245-252; R. Papadima, G.I. Caramihai, (Dez)echilibru de gen privind administratorii și directorii societăților europene cotate la bursă? Studiu de drept comparat [Gender (Im)balance on Boards of Listed Companies in Europe? Comparative Law Study], in R.R.D.A. no. 6/2015, p. 67-89; R. Papadima, A. Hinescu, Consiliile și managementul societăților tranzacționate pe piața reglementată BVB. Date statistice (Boards and Management of Companies Listed on the Romanian Regulated Market. Statistics), Juridice.ro, 6 July 2015, available at https://www.juridice.ro/384643/consiliile-si-managementul-societatilor-tranzactionate-pe-piata-reglementata-bvb-date-statistice.html (casting doubt on the accuracy of the percentages reported by the EU regarding gender balance on board of EU companies and concluding that the status quo was less negative than the EU statistics regarding women on boards indicated).
[58] See M. Belcredi, G. Ferrarini, Corporate boards, incentive pay and shareholder activism in Europe (…), cited supra, p. 50, 56; D. Ferreira, T. Kirchmaier, Corporate boards in Europe (…), cited supra, p. 221-222.
[59] Additionally, the application of the Directive only to listed companies of a certain size (based on certain size parameters which will vary from year to year) might create problems.
[60] https://databank.worldbank.org/source/world-development-indicators.