In brief
The EU has reached a political agreement on long-mooted proposals for board gender quotas. If finalized, listed companies would need to ensure that either 40% of their non-executive directors (NEDs) or 33% of all directors are from the underrepresented gender by June 2026. Some jurisdictions may be exempt from implementing the new rules to some extent where existing national provisions already meet minimum requirements set out in the proposed directive.
Key takeaways
If implemented, the proposed directive will significantly push a greater gender balance in listed companies across the EU.
Where EU member states already have gender quotas for the boards of listed companies they may be exempt from implementing the new rules to some extent provided domestic requirements align with minimum requirements set out in the directive. Ultimately the impact for individual companies and the extent to which they are caught by the new rules will depend on how the directive is implemented in each of the relevant EU jurisdictions.
A UK perspective:
Although this is an EU measure, it clearly contributes to the transnational efforts to achieve greater inclusion and diversity. In the UK, there are currently no proposals for national rules on quotas. However, the financial services sector in particular has targets for listed companies under recent rules issued by the Financial Conduct Authority (which operate on a “comply or explain” basis). The directive, if passed could be a significant divergence between EU and UK employment law. The tie-breaker requirements of the directive (see below) requiring priority to be given to the under-represented sex would currently fall foul of UK discrimination law in respect of executive directors, which does not allow a general policy of giving preference to one gender over the other in a recruitment scenario, even in a tie-breaker situation. The application of these UK rules are less clear in respect of NEDs.
In more detail
The EU proposal for gender quotas for the boards of listed companies has been on the agenda for approximately ten years. A directive was proposed in November 2012 and discussed at various times since, but without agreement. By March this year, the European Council reached an agreement on revised draft proposals, leading to negotiations with the European Parliament. Those negotiations resulted, on 6 June, in a political agreement between the Parliament and Council about the proposals. Discussions will now continue with the aim of formally agreeing on a binding directive. If formally adopted in their current form, the key substantive measures would come into force on 30 June 2026.
The key provisions of the proposed directive are as follows:
- It will apply to listed companies, which broadly means those with their registered office in the EU and whose shares are admitted to trading on a regulated market in one or more member states.
- Member states must enforce one of the following quotas:
- 40% of the listed company’s NEDs must be from the under-represented sex; or
- 33% of all the listed company’s directors must be from the under-represented sex.
- Where the NEDs quota is adopted, listed companies will nevertheless also be required to set themselves quantitative objectives for achieving gender-balanced representation amongst their executive directors.
- The deadline for compliance is 30 June 2026.
- If non-compliant, listed companies will be required to adapt appointment or election procedures, which must be based on clear, neutrally formulated and unambiguous criteria established in advance of that process.
- Appointment/election to director positions should be non-discriminatory, save that in a tie-break situation (i.e., where two candidates are equally qualified) priority should be given to the candidate from the under-represented sex. This is subject to an exemption for “exceptional cases [where] reasons of greater legal weight […] tilt the balance in favor of” the other candidate. Those reasons include the “pursuit of other diversity policies, applied within the context of an objective assessment and based on non-discriminatory criteria, which takes into account the specific situation of a candidate of the other sex.” (Although the directive is not clear on this point, presumably the tie-break rules will cease to apply once the company has achieved the required quota.)
- Rights for candidates to receive information about the selection process (i.e., the criteria, the comparative assessment and, if applicable, the reasons for disapplying the tie-breaker provisions).
- In litigation, a reversal of the burden of proof if an unsuccessful candidate from the under-represented sex establishes a prima facie case that they were equally qualified as the successful candidate.
- Exemption: member states will be exempt from the directive’s quotas if they already have laws that require a listed company to have 30% of NEDs or 25% of all directors to be from the under-represented sex, coupled with enforcement measures and a requirement for out-of-scope listed companies to set individual targets. Alternatively, the exemption will apply if the 30% (or 25%) target has already been met in that state.
- The exemptions are subject to regular review.
- Annual reporting on quotas to approved bodies.
