Board gender quotas could mean some European boards now risk being disbanded entirely if they don’t comply with new rules, the European Parliament has said.
It comes as the bloc’s main democratic body finally adopted the directive. The new law will require European listed companies to have a minimum of 40 percent women on their boards by 2026.
Legislative process complete
The European Parliament and the Council of the European Union have adopted the directive requiring gender quotas for boards this week. It has been more than ten years in the making.
Parliament has described the new rules as “game-changing.”
Now, member states have two years to craft national laws to put the rules into effect.
Are the new rules welcome?
“Any move across the globe that further encourages gender balance in the workplace is hugely welcome,” says Anthony Quigley, co-founder of the Corporate Governance Institute.
“Diverse boards make better decisions as they consider more perspectives, so this legislation will only strengthen this. Most delegates coming through the Corporate Governance Institute are female, suggesting that the European Parliament seems to have its finger on the pulse.”
According to the board gender quotas directive:
- By July 2026, at least 40% of non-executive director positions should be filled by “the under-represented sex”.
- 33% of all director positions should be filled by the same.
- Small and medium-sized companies with less than 250 employees are exempt.
- Every company subject to the rules must report on representation once a year. If they aren’t following the rules, they need to explain why.
As the directive clears its final hurdles, boards across the EU will turn a concerned eye to what awaits them if they don’t comply. Here are the main points:
- The EU wants penalties that are “effective, proportionate and dissuasive.”
- It suggested fines as a possible measure. These could be a set figure or a percentage of the company’s wealth or annual income.
- More seriously, though, Parliament said that “a judicial authority could dissolve the board of directors appointed by a company that does not comply with the directive.” It is not clear how common this punishment would be, but it would surely set companies back a great deal as they scramble to get a new board together.
What if member states don’t transpose the directive in time?
Member states can be penalised financially for the late transposing of directives. It has happened before.
Because of this, the EU continues to urge all states to be quick about legislation and be specific in what it says. It does not want to see vague laws that leave room for loopholes.
So there’s no leeway on the two-year deadline?
Most likely not. However, as a first resort, your board should still have the option of explaining why. It’s intended that this opens a dialogue to resolve the issue.
The new rules were summed up by MEP Lara Walters (S&D, NL):
“During the 10 years during which this directive has been relegated to the bottom of a drawer, boards of directors have remained predominantly invested by men. But in countries where quotas binding rules have been introduced, a significantly higher number of women have been appointed.
“Thanks to this law, these countries will no longer be the exception, and gender balance will become the norm across the EU on boards of directors and the administration of listed companies.”