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EU Council approves law to improve gender balance on boards

© Shutterstock / Andrey_PopovPost Thumbnail

The European Council has given its approval to EU rules promoting more balanced gender representation on the boards of listed companies.

  • EU approves new rules on board level gender balance.
  • Research shows that gender balance tends to improve economic performance – more women on FTSE350 boards could see £58bn in benefits.
  • While not yet law, movement on board gender balance is expected to become more of an issue.

Marian Jurečka, Deputy Prime Minister and Minister of Labour and Social Affairs of Czechia said: “The new rules will help to remove the obstacles women often face in their careers. I also believe that companies would greatly benefit from women realising their potential in decision-making positions. The positive impact of the measures will surely trickle down to all levels of national economies.”

The directive, which will have to be transposed into national law, lays down that at least 40% of non-executive director positions in listed companies should be held by members of the underrepresented sex by 2026. If member states choose to apply the new rules to both executive and non-executive directors, the target would be 33% of all director positions by 2026.

According to statistics from the the European Institute for Gender Equality (EIGE), while women account for approximately 60% of university graduates in the EU, they are significantly under-represented on corporate boards, accounting for only 31.5% of total board members and 8% of board chairs.

The Council says that enhancing women’s presence on company boards, and thus their participation in economic decision-making, is expected to have a positive spill-over effect on women’s employment in the companies concerned and throughout the whole economy.

To put this is context, a recent analysis from diversity consultants The Pipeline, Women Count 2022,  said that more women on the board of FTSE350 companies could result in economic benefits of £58 billion to the UK.

The report also said that companies with executive committees that have more than a third female membership make 10x the profit of those companies with none.

Reporting and possible national adjustments

The core of the directive stipulates that listed companies which do not achieve the objectives will need to adjust their selection process. They will have to put in place fair and transparent selection and appointment procedures, based on a comparative assessment of the different candidates on the basis of clear and neutrally formulated criteria.

When companies have to choose between equally qualified candidates, they should give priority to the candidate of the underrepresented sex.

A country which has either come close to achieving the objectives or put in place equally effective legislation before the directive enters into force, may suspend the directive’s requirements relating to the appointment or selection process.

Once a year, companies must provide information about the gender representation on their boards and the measures they are taking to achieve the 33% or 40% objective. Member states will publish a list of the companies that have achieved the directive’s objectives, also on an annual basis.

Equality is a core EU principle but is proving hard to implement

Equality of treatment and opportunities between women and men is among the principles set out in Treaties of the EU, as well as in the European Pillar of Social Rights, a manifesto proclaimed by the Council, European Parliament and European Commission in 2017.

The Commission produced its first proposal on improving the gender position on boards in November 2012, so this is the latest in a long line of slow moves toward addressing the current gender imbalance.

The Employment and Social Affairs Council set out its position on the new law on 14 March 2022. On 7 June, Council representatives and the European Parliament concluded their negotiations on a compromise text, which is now being formally adopted by the co-legislators.

Member states have two years following the entry into force of the directive to adopt the required national measures. The directive will enter into force on the 20th day following its publication in the Official Journal of the European Union.

While this is a move in a positive direction, the directive still needs to be adopted by the European Parliament.

 


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