BEERG Newsletter - EU: Gender Balance Directive approved

The European Parliament has approved the new Directive requiring large companies in the EU to have women make up at least 40% of non-executive board members. The 'Women on Boards' law also requires that at least a third of all company directors are women. The rules also demand that, where two candidates for a post are equally qualified, priority must go to the under-represented sex. 

"After ten years since its proposal by the European Commission, we will now have an EU law to break the glass ceiling of listed companies' boards," said Ursula von der Leyen, president of the European Commission. "There are plenty of women qualified for top jobs and with our new European law, we will make sure that they have a real chance to get them."

The Gender Balance Directive will impose quantitative targets on gender representation on the boards of EU listed companies. In 2022, the EU Parliament noted that only 30.6% of board members in the EU’s largest public companies were women. The Directive is intended to ensure a level of gender balance applies across member states.  EU listed companies will be required to:

• Meet targets on gender representation at board level
• Take steps to remedy a failure to meet those targets, and
• Report on gender representation at board level

The Directive will apply to EU incorporated companies whose securities are admitted to trading on a regulated market in one or more Member States. Listed companies that are SMEs, i.e., micro; small and medium sized companies, are excluded from the scope of the Directive. There is also an opt-out included within the Directive, which would allow Member States to suspend the procedural requirements if they have equally effective national measures in place.

The Directive will enter into force 20 days after its publication in the Official Journal of the EU. Member States will then have two years to transpose it into national law which means it will come into force in late 2024.

The Directive requires that Member States establish penalties for relevant companies who fail to meet the targets and reporting requirements. The penalties are required to be "effective, proportionate and dissuasive", which "could include fines and nullity or annulment of the contested director's appointment". The exact scope of the penalties will be a matter for national legislators when transposing the Directive.