The European Women on Boards Directive what it means and why it matters
In November 2022 the European Union (EU) adopted a Directive on improving the gender balance among directors of listed companies , the so-called Women on Boards Directive. Vilified by some, acclaimed by many, 10 years in the making. What change will it bring? And how does it differ from actions taken in the United Kingdom? This article brings some answers.
Why this EU Directive?
The Women on Boards Directive is a crucial part of the 2020-2025 EU Gender Equality Strategy. “Achieving gender equality in the workplace requires a comprehensive approach, which also includes fostering gender-balanced decision-making within companies at all levels, as well as closing the gender pay gap. It is a key prerequisite for reducing poverty among women.”
The text was approved by the European Parliament in 2012, but then blocked by the European Council. Some countries opposed regulation, preferring voluntary measures. Other countries thought that if actions had to be taken, it should be at national level.
At the end of 2021 the President of the European Commission, Ursula von der Leyen, soon after helped by the French Presidency, started a new round of talks amongst the political parties and States. European Women on Boards actively participated in the negotiations. In November 2022 the text was voted and approved by a very large majority of countries. It entered into force in December 2022.
What does the EU Directive foresee?
The Directive aims for gender balance among directors of listed companies. By mid-2026 every stock-listed company within the European Union needs to have at least 40% female non-executive directors or have a female representation of executive and non-executive of at least 33%.
Where does the EU stand now?
On average, large European companies currently have 30% female non-executive directors, with major differences though between countries as the graph below evidence.
How will countries ensure the implementation of the Directive?
Each country will have to foresee penalties that are effective, proportionate, and dissuasive, such as fines or annulment of nominations.
Companies that do not meet the target, must set quantitative objectives, adjust the process for selecting candidates, ensuring non-discrimination and an objective selection process. In addition, non-compliant companies will not be entitled for public contracts and concessions. Moreover, when 2 candidates are equally qualified, the underrepresented sex must be chosen. The company must motivate its decision upon request.
Are penalties needed?
Looking at the evolution in the last 20 years, countries with binding quotas have made the biggest progress. Soft quotas have helped as well, but their effectiveness is depending on many factors including the political and cultural environment. Countries that took no measures, have stagnated.
What are the main differences between the actions taken in the EU and the United Kingdom?
The Directive on women on boards and the voluntary measures adopted in the United Kingdom (UK) differ in terms of objective, scope, sanctions, but also time horizon.
The EU has adopted a regulation for all listed companies, except SMEs, with a target of 40% female non-executive directors or 33% female executive and non-executive directors to be achieved by each company by June 2026. In the UK, on the other hand, only FTSE 350 companies were affected, with the sole target of 40% women on the board on average by 31 December 2022.
The sanctions for non-compliance are also different. EU companies will face sanctions at national level, while in the UK there are no sanctions as such, but a name and shame campaign.
And what is the conclusion?
The United Kingdom managed to realise major progress through voluntary measures – extensively used in the country’s legislative system. The female representation on FTSE 350 Boards increased from 9,5% in 2011 to 40% end of 2022.This is an amazing result. The next objective is to have more women in key roles (Chair, Senior independent Non -Executive Director, CEO or Financial Director), and more women at executive level. And also, to have each single FTSE 350 company meet the 40% target.
In the European Union, voluntary measures have not brought change fast enough, this is why the EU Directive really matters, it will ensure progress amongst all countries, and all companies.
European Women on Boards will be facilitating the implementation of the EU Directive in the 27 EU countries, supported by its partner associations. We are also advocating for more diversity in general. This means having Board directors with various backgrounds, origins, nationalities, and ages. One of our objectives is to set up a talent pool of 1.000 women eager and ready to take a C-level or Board position. We are keen to have at least 20% coming from underrepresented groups.
The next step will be to ensure that the number of women in key roles (Chair, CEO, CFO, CRO) increases as well. Plenty to do, and keen to learn from our partner in the UK!
Chair, European Women on Boards
EWOB and the Institute of Directors signed a partnership agreement.
Visit europeanwomenonboards.eu to learn more about the organisation. All IoD members can benefit from a discount on EWOB’s individual membership.
- Preamble (5) of the EU Directive
- https://www.forbes.com/sites/paologaudiano/2022/11/30/eu-law-set-to-increase-gender-diversity-on-company-boards/?sh=2b7fee1733ea – Based on EIGE figures
- 350 out of approximately 1,000 companies listed on the London Stock Exchange https://www.londonstockexchange.com/raise-finance/equity/main-market?lang=en&tab=%20
- https://ftsewomenleaders.com/wp-content/uploads/2023/03/ftse-women-leaders-review-report-2022-v2.pdf – page 9 – “The FTSE 350 has met the 40% voluntary target three years ahead of the target end date. Women’s representation now stands at 40.2% on boards of FTSE 350 companies, an all time high and up from just 9.5% in 2011”