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Recent developments on the legal framework for gender balance among directors of listed companies

Dr. Iliana Christodoulou - Varotsi

The adoption of the European Union Directive 2022/2381 on improving the gender balance among directors of listed companies by the European Parliament in autumn 2022 and the publication of the Directive in the Official Journal of the European Union on 7 December 2022 (OJ L 315, 7.12.2022, p. 44), marks a change on the road to restoring gender balance. Despite voices from some Member States that the issue needs measures to be taken at national rather than EU level and that quotas are not the right approach, the Directive was finally adopted.

In our view, this demonstrates the significance of the strategy of quantitative targets when social developments and national approaches fail to achieve the desired result. It is noteworthy that the scope of the Directive does not include micro, small and medium- sized enterprises (SMEs).

The choice of listed companies in the scope of such measures, i.e. companies having their registered office in an EU Member State, whose shares are admitted to trading on a regulated market in one or more Member States, is not fortuitus, as listed companies have a particular economic importance, visibility and impact on the market as a whole. (It may be recalled on this point that the regulated market is defined by the Directive within the meaning of Article 4 (1) Point 21 of Directive 2014/65/EU).

It should also be noted that the case law of the Court of Justice of the European Union (C-450/93, C-409/95, C-407/98) provides that “priority can in certain cases be given to the underrepresented gender in selection for employment or promotion, provided that the candidate of the underrepresented sex is equally qualified as compared with the competitor of the other sex in terms of suitability, competence and professional performance, that the priority is not automatic and unconditional but can be overridden if reasons specific to an individual candidate of the other sex tilt the balance in that candidate’s favour, and that the application of each candidate is the subject of an objective assessment which specifically applies all the selection criteria to the individual candidates” (Preamble to the Directive, para. 38).

But what is the problem and what is the point? What is ultimately the purpose of Directive 2022/2381, which took so long to be adopted, and what mechanisms are to be used?

What is indicative of the difficulties and delicate balances, is the fact that the initial proposal of the European Commission was drafted a decade ago.

Gender equality is a fundamental principle of the EU. However, there is a difference between a declaration and its practical implementation, let alone at the level of top management positions where under-representation seems to be still an issue. Our country adopted a 25%-quota measure for the participation of women in the BoDs of Listed Companies under the Law on Corporate Governance passed on 17 July 2020. According to the press, although there are areas that need improvement, one year after the adoption of Law 4706/2020, developments had exceeded statutory requirements. 

Against this background, it is worth noting that EU Member States lack uniformity. According to the statistics, which come from various sources and are based on different methods and samples, 43.8% of the boards of top French companies in France are held by women. In Italy, the percentage is 36.5%. According to the most recent report of the European Commission on the subject (2021 Report on Gender Equality in the EU), 11 EU Member States including Cyprus, Romania, Bulgaria, and Croatia had not taken any substantive measures till then. In the UK, despite the progress made, only 8 out of the UK’s 100 largest companies had entrusted the reins for the position of CEO to women, i.e. 6% (The Female FTSE Board Report, 2021).

Interestingly, although 60% of University graduates are women, achieving gender balance on boards in Europe appears to be problematic. While there are talent pools with qualifications and responsible risk-taking, this potential is not fully exploited. In this context, the Directive aims to set minimum requirements for listed companies. It should be recalled that, contrary to EU Regulations, which are directly applicable in the EU Member States, the Directive, as a tool which allows greater flexibility but is subject to a time horizon for the adoption of its implementing measures, obliges Member States to take harmonization measures for its transposition in order to achieve its purpose.

At this point, the following are highlighted:

The Directive defines an ‘executive director’ as a member of a unitary board who is engaged in the daily management of a listed company or, in the case of a dual board system, a member of the board which carries out the management functions of a listed company.

A ‘non-executive director’ is a member of a unitary board other than an executive director or, in the case of a dual board system, a member of the board which carries out the supervisory functions of a listed company.

Member States of the European Union are invited, under the Damocles sword of sanctions in case of non-compliance, to set the objective for listed companies to have boards in which women must hold at least 40% of the non-executive director positions by 30 June 2026 or, alternatively, to have boards in which members of the under-represented gender hold at least 33% of all directorships (whether executive or non-executive) by 30 June 2026.

Member States shall adopt and publish by 28 December 2024 the legislative and other measures necessary for compliance purposes.

The Directive, which we have summarised here, provides for further obligations, some of which are aimed at the Member States themselves (reporting, etc.).

However, the protagonists will be the listed companies and ultimately the women with the right qualifications.

We believe that the technical aspects will find their way. In addition to this, we hope that the benefits of gender equality will be experienced and complemented by the necessary initiatives (e.g. educational, incentives and best practice initiatives, etc.) to bring about a change of mentality, where necessary.

Source: Maritime Intelligence, Liberty Press, March 2023, Issue 106

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