Listed companies will have to get balanced board of directors

Ten years after the first presentation of the proposal, the European Directive known as “Women on boards Directive” aiming at imposing a better balance between women and men among management positions in listed companies was finally published in the Official Journal of the European Union on December 7, 2022 after its adoption by the European Parliament on November 22.

Driven by the necessity of increasing the proportion of women on boards of directors and harmonizing practices inside the EU, the Directive provides for a common set of rules that Member States shall transpose before 28^th December 2024 with, as usual, the possibility to go beyond and provide for more favorable provisions.

In a communication dated 22^nd November 2022, the European Parliament reminded that in 2021, women only represented 30,6% within boards of directors of the biggest listed companies in the EU and only 8,5% among presidents. The Parliament also insisted on the disparities between Member States. As an example, in France, 45,3% of the members of the board of directors are women (mainly due to a strict legislation enacted few years ago) whereas in Cyprus, this percentage is only 8,5%.

The Directive applies to listed companies with more than 250 employees. Micro, small and medium-sized companies with less than 250 employees and whose annual turnover does not exceed 50 million euros or whose balance sheet does not exceed 43 million euros are excluded.

According to the Directive, Member States shall ensure that listed companies reach one of these two targets by June 30, 2026:

• At least 40% of non-executive directorships for members of the underrepresented gender,
• Or at least 33% of all directorships by members of the under-represented gender, both executive and non-executive

To achieve these objectives, the Directive provides that:

• Companies must adjust the process for selecting candidates to director positions. Hence, clear, neutral, and unambiguous criteria have to be applied in a non-discriminatory manner throughout the entire selection process;
• When choosing between candidates who are equally qualified in terms of suitability, competence and professional performance, priority is given to the underrepresented sex. By exception, reasons of greater legal significance can justify an exception such as diversity policies.

Transparency regarding criteria used is particularly promoted. First since, upon request, candidates will have the right to be informed of:

• Criteria relating to the qualifications on which the selection was based,
• The objective comparative assessment of the candidates in relation to these criteria, and;
• If applicable, special considerations that exceptionally tipped the balance in favor of a candidate who is not of the underrepresented sex.

Moreover, when candidates will be elected, listed companies will have to inform workers and/or directors of the provisions of the Directive and of the sanctions to which the company is exposed in case of non-compliance.

The Directive also implement a significant obligation of information. Indeed, listed companies will have to inform competent authorities, once a year, about the representation of women and men, and this by distinguishing between executive and non-executive administrators. They will also have to inform them regarding the measures taken to achieve these objectives.

This information will be published on the company's website "in an appropriate and easily accessible manner” as this is already the case in France for the gender equality index.

For their part, Member State will also have to publish and update the list of listed companies that will have achieved one of the objectives and the reasons why other listed companies did not reach them as well as a complete description of the measures already taken or that will be taken.

Finally, enforceability will be ensured through effective measures such as fines, but also by dissolving a board which would not comply with the Directive.