Friday, November 16, 2012

European Commission Proposes Directive on Gender Equality for Company Non-Executive Boards

The European Commission has proposed legislation, a Directive, with the aim of attaining a 40 percent objective of the under-represented gender in non-executive board-member positions in publicly listed companies by 2020, with the exception of small and medium enterprises. Despite an intense public debate and some voluntary initiatives at national and European level, the situation has not changed significantly in recent years. At present, 91.1 percent of executive board members, 85 percent of non-executive board members and 96.8 percent of the boardroom chairs are men. Thus, legislation is needed. The Directive leaves it to the Member States to adopt appropriate sanctions for companies in breach of the Directive.

The proposal's objective of 40 percent only applies to non-executive directors, such as supervisory board members in the two-tier structure, who, while important actors in relation to corporate governance, are not involved in the day-to-day running of a company. This is so as not to interfere with the freedom to conduct a business and property rights, noted the Commission, two fundamental rights guaranteed by the EU's Charter of Fundamental Rights.But the proposal also includes an obligation for listed companies to set themselves individual, self-regulatory targets regarding the representation of both genders among executive board directors to be met by 2020. Companies will have to report annually on the progress made.

The Directive establishes a minimum harmonization of corporate governance requirements, as appointment decisions will have to be based on objective qualifications criteria. Inbuilt safeguards will ensure that there is no unconditional, automatic promotion of the under-represented gender. In line with the European Court of Justice's case law on positive action, preference must be given to the equally qualified under-represented gender, unless an objective assessment taking into account all criteria specific to the individual candidates tilts the balance in favor of the candidate of the other sex. Member States that already have an effective system in place will be able to keep it provided it is equally efficient as the proposed system in attaining the objective of a presence of 40 percent of the under-represented sex among non-executive directors by 2020. And Member States remain free to introduce measures that go beyond the proposed system.

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