Far too often company boards remain characterised by persistent gender imbalances. Progress in addressing this issue has been slow. However, a decade of deadlock was broken in the EU on 7 December 2022 when a new Directive on the gender balance of boards of listed companies was published in the Official Journal. This Directive will come into force on 27 December 2022, 20 days following its publication, and must be implemented into national law by member states by 28 December 2024.
The aims of the new EU Directive
The new EU Directive stipulates that EU member states must require that at least 40% of non-executive director positions, or at least 33% of all director positions, in listed companies are held by members of the underrepresented sex by 30 June 2026.
This Directive aims to:
- boost gender equality on corporate boards of listed EU companies established across EU member states; and
- ensure that appointments to board positions are transparent.
Why gender diversity on boards is important
The Davies Report, published on 24 February 2011, identified four key business reasons why companies must take the issue of gender diversity on their boards seriously:
- improving corporate performance – empirical evidence in the Davies Report found that companies with strong female representation at board level achieved a 42% higher return in sales, 66% higher return on invested capital, along with a reduced risk of insolvency where at least one board member is a woman;
- corporate governance – a Harvard Business School study suggested that women are more assertive on governance issues, such as evaluating board performance;
- accessing the wider talent pool – around six in 10 graduates in the US and Europe are women, so companies need to attract this top talent to remain competitive; and
- market responsiveness – companies need to understand their customers and women are thought to make about 70% of household purchasing decisions.
What are the next steps?
Countries across the EU have two years to turn the Directive into national law. Publicly listed companies across the EU have until 2026 to have met the required targets. However, to meet these targets, meaningful actions must be taken to improve female representation across company boards. For example, promoting shared parental leave to encourage women to return to work after maternity leave may help individual women’s career progression while also increasing the opportunities available for them to be selected to join company boards.
Although member states will have to meet the minimum requirements stipulated in the Directive when implementing them into domestic law, member states or listed companies could go further than these requirements. For example, member states may decide to place targets on non-listed companies as well when they implement the Directive into national law.
Many member states are considering ways to improve gender diversity more generally across society by breaking down barriers faced by women, such as by ensuring the equality of family friendly rights.
The proposed targets given in the Directive are only one way to address the gender imbalance on company boards across the EU. However, the adoption of the Directive is certainly a step towards increasing diversity on boards although some would argue that it should not be confined to gender.
Although the Directive will not be implemented in the UK following Brexit, in February 2022 almost 40% of UK FTSE 100 board positions were held by women which put the UK second in international rankings for board representation at this level. To continue to retain and attract top talent as Member States improve their female representation on company boards, UK companies should continue to be proactive in their approach to promoting gender diversity on their boards.