On 14 November the long awaited proposals from the European Commission on improving the gender balance on company boards were published
It has been widely reported that the idea of mandatory quotas, which was strongly opposed by the UK Government, has been abandoned by the EU, but the draft directive is not quite as toothless as has been suggested.
What does the directive say?
The new directive aims to accelerate progress towards more gender balanced company boards in the EU. Important points to note are:
- It will only apply to non-executive directors (NEDs) of companies listed on a regulated market.
- It will not apply unless the company has 250 or more employees and an annual turnover of more than 50 million Euros (or an annual balance sheet of 43 million Euros or more).
- Listed companies which are public undertakings (i.e. where a public authority exercises a dominant influence) are covered by the directive.
- The stated objective is for listed companies to reach at least a 40% quota for NEDs by 1 January 2020 and for listed companies which are public undertakings to reach that level by 1 January 2018.
- Positive action must be used to attain this objective i.e. priority must be given to the female candidate if they are as "equally qualified" as the male candidate in terms of "suitability, competence and professional performance".
- Companies will have to disclose to an unsuccessful candidate the criteria on which selection was based and the considerations tilting the balance in favour of the candidate of the other sex.
- Listed companies will be required to provide information to the relevant national authority every year about the gender representation on their boards and to publish this information on their websites.
- Member States will be required to lay down sanctions that are "effective, proportionate and dissuasive" to ensure compliance.
- Derogations will be available to Member States, although it remains to be seen whether the UK will take advantage of these. These include where a listed company can show that women hold at least one third of all director positions, regardless of whether these are executive or non-executive positions.
What happens now?
The Commission's proposal will now pass to the European Parliament and Council of the European Union for consideration under 'co-decision procedure' (the two institutions will decide on an equal footing whether or not to approve the directive).
The EU Justice Commissioner Viviane Reding has said she is confident that the proposals will have enough support to pass into EU law in 2014. Member States will then have two years to implement it into national law. The directive is due to expire on 31 December 2028.
The directive clearly requires the UK to implement "appropriate and dissuasive" sanctions and listed companies will want to avoid breaches for legal and reputational reasons. But what will amount to a breach: if a company misses the 40% objective will it still be considered in breach it can show there were no candidates of equal merit for it to appoint?
Although the directive is now being spoken about as imposing an "objective" rather than a "quota" it is far from clear exactly what this means. Using positive action as the mechanism for meeting this objective is far from ideal. Employers have always grappled with the ambiguities around the permitted extent of positive action provisions. It is not hard to see how this lack of clarity could lead to disputes in the future and unwelcome uncertainty for company boards.