Gender Quotas on the Corporate Boards in the European Union

By: Florentyna Martyńska

I. Corporate background in the European Union

Men have traditionally dominated corporate boardrooms, leaving very little space for women to develop their leadership skills and pursue their ambitions. According to the European Institute for Gender Equality, 8.8 per cent of females in the European Union (“EU”) served as presidents of a corporate board.[1] Moreover, only 32.2 per cent of corporate board members (equal to the non-executive director) of the largest listed companies in the EU were female, reaching the lowest representation in Cyprus, Estonia, and Hungary - barely above 10 per cent.[2]

II. Directive background

To fight gender inequality in the corporate workplace, the European Commission presented its proposal for the Directive on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures in 2012.[3] Even though the European Parliament adopted its negotiating position in 2013, the Council blocked the proposal for almost ten years.[4] Finally, in March 2022, Employment and Social Affairs ministers reached an agreement.[5] The European Parliament reconfirmed its position, and the Council and the European Parliament reached a consensus in June 2022.[6] As a result, the Member States are now obligated to implement the Directive (EU) 2022/2381 of the European Parliament and the Council on improving the gender balance among directors of listed companies and related measures by 30 June 2026.[7]

III. Legal Basis of the Directive

The basis of the directive is Article 157 of the TFEU, which binds Member States to ensure the application of the principles of work of equal value, equal opportunities, and equal treatment.[8] Under Article 157(3) of the TFEU, the European Parliament and the Council, following the ordinary legislative procedure and after consulting the Economic and Social Committee, can take measures to guarantee the application of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation or the principle of work of equal value.[9]

Additionally, Article 157(4) of the TFEU provides that Member States are not only obliged to limit disadvantages in favour of the underrepresented sex representatives but also to provide specific advantages facilitating the pursuit of their professional activity.[10] Member States are also allowed to implement even more favourable conditions ensuring gender balance.[11]

IV. The Scope of the Directive

The directive aims to boost the presence of women on large companies’ corporate boards by improving the recruitment process’s transparency and inclusivity.[12] Under the directive, 40 per cent of non-executive director posts and 33 per cent of all directors must be performed by the underrepresented sex.[13] Executive directors are dedicated to day-to-day management, and non-executive directors fulfil.[14] In addition, small and medium-sized enterprises with fewer than 250 employees (“SME”) and an annual turnover of at most EUR 50 million or an annual balance sheet total at most EUR 43 million (or the equivalent amount in the national currency of a Member State) are excluded from the directive.

V. The Content of the Directive

The Directive provides for several mechanisms to protect gender equality. Firstly, companies are obliged to provide annual updates on gender representation to the competent authorities, attain potential objectives concerning their gender balance, and publish data on gender representation in an easily accessible manner.[15]

Secondly, Member States are required to implement rules on effective, dissuasive, and proportionate penalties when companies do not meet the Directive’s provisions, such as the requirements regarding transparent appointment procedures.[16]

Thirdly, in the selection procedure for director positions, priority ought to be given to equally qualified candidates of underrepresented gender.[17] Moreover, the unsuccessful candidate has a right to present facts before the court or other competent authority to challenge the rightfulness of the selection choice.[18] If the equal qualifications of candidates of both sexes can be assumed, the company must prove its decision’s fairness to the court or other competent authority.[19] In case of the candidate’s request, companies are obliged to provide information about the qualification criteria and the objective comparative assessment in line with the priority of the underrepresented gender.[20] The judicial body is entitled to annul the board of directors contrary to the directive rules.[21]

VI. Conclusion

In conclusion, the underrepresentation of women in corporate boardrooms has been a long-standing issue, and the European Union has taken steps to address this problem through the adoption of Directive (EU) 2022/2381. The Directive, based on Article 157 of the TFEU, aims to improve the gender balance among directors of listed companies by setting targets for the representation of women on corporate boards, promoting transparency in recruitment processes, and imposing penalties for non-compliance.[22] The Directive goes as far as the principles are concerned, fighting gender discrimination on the corporate and advocating for a level playing ground in the largest listed companies.[23] Furthermore, the rules make room for the development of domestic law in the Member States on gender balance in the workplace in a broader sense and further enforcement of the principles.[24]

[1] ‘Largest listed companies: presidents, board members and employee representatives’ (European Institute for Gender Equality, 2022). <https://eige.europa.eu/gender-statistics/dgs/indicator/wmidm_bus_bus__wmid_comp_compbm/datatable> accessed 19 February 2023. [2] ibid. [3]Proposal for a Directive of the European Parliament and the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures [2012] COM(2012) 614 final. [4] ibid. [5]Council of the European Union, ‘Proposal for a Directive of the European Parliament and of the Council on improving the gender balance among directors of companies listed on stock exchanges, and related measures - General approach,’ (2022), 6468/22, <https://data.consilium.europa.eu/doc/document/ST-6468-2022-INIT/en/pdf> accessed 19 February 2023. [6] ‘Council and European Parliament agree to improve gender balance on company boards’ (Consilium, 7 June 2022), <https://www.consilium.europa.eu/en/press/press-releases/2022/06/07/council-and-european-parliament-agree-to-improve-gender-balance-on-company-boards/> accessed 23 February 2023. [7]Directive 2022/2381/EC of the European Parliament and the Council on improving the gender balance among directors of listed companies and related measures [2022] OJ L315/44 (Directive 2022/2381). [8]Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union [2016] OJ C202/1 (TFEU) art 157. [9] ibid, art 157(3). [10] ibid, art 157(4). [11]Directive 2022/2381 (n 7) para 49. [12] ibid, para 22. [13] ibid, art 3(8). [14] ibid, art 3(4). [15] ibid, para 47. [16] ibid, para 48. [17] ibid, para 40. [18] ibid, para 44. [19] ibid. [20] ibid, para 43. [21] ibid, para 48. [22] Directive 2022/2381 (n 7) para 48. [23] ibid. [24] TFEU (n 8) art 157(4).