The European Union has committed itself to promoting gender equality in the labour market for more than 50 years with the introduction of an equal pay rule for men and women in 1957. Gender equality is one of the core objectives of the EU. The Treaty on the Functioning of the EU states that in all its activities, the EU must seek to eliminate inequalities and promote equality between men and women. Equality in the labour market and in access to board-level positions forms a key part of this work.

Companies must apply criteria to meet the minimum 40 per cent objective by January 1, 2020- Josette Grech

The issue of gender equality in the boardroom has been discussed at EU level for some time. In recent years the prospect of specific European measures to raise the proportion of women appointed to board-level positions has come to the fore.

Until now, member states have taken the primary responsibility for improving gender diversity and have done so in different ways. Indeed, particular member states have already taken, or are in the process of taking, measures aimed at increasing women’s participation on corporate boards. The UK has introduced voluntary self-regulatory initiatives by adding, as a supporting principle of the procedure for the appointment of new company directors, the value of gender diversity in boardrooms. France, Italy and Belgium took a position in favour of quotas for a minimum percentage of women representation on boards, including sanction for companies which do not comply with the quotas.

Denmark, Greece, Austria, Slovenia and Finland have introduced gender requirements in legislation for the composition of the boards of state-owned companies.

Member states that favour the voluntary approach have opposed the introduction of quotas at an EU level. They contend that self-regulation needs to be allowed to demonstrate its potential before legislation is considered.

Member states, however, all tend to agree that a more proportionate body of women board members would better tap into the wealth of available talent in the labour market. The divergence relates to the way to pursue and achieve a greater representation of women on boards.

The EU has now decided to take a proactive approach, considering intervention through legislation a better alternative towards achieving a more likely success. In the light of the under-representation of women on corporate boards and the belief that self-regulation may not produce the desired results, the European Commission has published a draft Directive which aims to improve gender diversity on boards of companies incorporated in the EU and listed on any EU-regulated market having more than 250 employees and an annual worldwide turnover of more than €50 million.

It aims to improve gender diversity in these companies by introducing legislative quotas on boards. Quotas are legal mechanisms that require companies to ensure that a specified proportion of boards are made up of the gender least represented.

Under the draft Directive, member states would be required to implement measures where members of the under-represented sex hold less than 40 per cent of the non-executive director positions on the board, to ensure appointments to the boards of EU-listed companies are made on the basis of a comparative analysis of the qualifications of each candidate.

Where candidates are equally qualified in terms of suitability, competence and professional performance, priority will be given to the under-represented sex, unless an objective assessment of all the criteria specific to the individual candidates tilts the balance the other way.

These companies must apply clear criteria to meet the minimum 40 per cent objective by January 1, 2020 at the latest or January 1, 2018 in the case of listed public undertakings in which public authorities have a dominant influence.

Member states may exempt listed companies from the minimum objective where women make up less than 10 per cent of the workforce of the company; or a third of all directors on the company’s board are women, regardless of whether they are executive or non-executive directors.

Where member states have already adopted alternative measures to address board gender diversity, they are permitted to rely on those measures instead of adopting new provisions to implement the draft Directive, provided that these measures enable women to hold at least 40 per cent of non-executive directorships in listed companies.

The draft directive requires member states to lay down rules on sanctions to be applied in the event of breach of the national implementing measures, and take necessary steps to ensure that these sanctions are applied.

The proposal will now be considered by the European Parliament and the European Council. If the Directive is adopted by the EU, it is proposed that member states would have two years to implement it into national law.

jgrech@demarcoassociates.com

Josette Grech is an associate with Guido de Marco & Associates and heads its European law division.

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