Juan Carlos Benito Sánchez, LL.M. Candidate at KU Leuven — Twitter @jcbensan

The European Union faces a significant gender diversity challenge in its top corporate leadership positions. Although more than half of European university graduates are women, they remain underrepresented on company boards. Men outnumber women nearly four to one in these positions, with significant disparities among member states, ranging from under five percent female representation to over thirty percent. To address this, the European Commission, drawing upon the Women’s Charter and the Strategy for Equality between Women and Men 2010-2015, proposed a directive in 2012. This directive aimed to improve gender balance among non-executive directors in publicly traded companies.

The European Parliament supported the proposal, but the Council rejected it in 2014 due to a lack of consensus. Despite broad agreement on the need for improved gender balance, member states are divided on whether to implement EU-wide legislation or rely on national measures. The proposal targets publicly listed companies, excluding small and medium-sized enterprises (SMEs), with the expectation that increased gender diversity at the top would trickle down to other businesses. It sets a deadline of 2020 for these companies to achieve either forty percent female representation among non-executive directors or thirty-three percent across all director positions. Member states have the option to implement either target and can exempt companies with less than ten percent female employees.

The proposal mandates companies to document and publish their board’s gender composition and the steps taken to achieve the targets. They are also required to prioritize under-represented gender candidates in recruitment unless a comprehensive assessment favors another candidate based on pre-established criteria. This approach aligns with established case law from the Court of Justice of the European Union on gender quotas. Companies must be transparent with candidates about the selection process and bear the burden of proof in potential discrimination cases. While member states are solely responsible for enforcing procedural requirements and reporting obligations, non-compliance with numerical targets does not automatically lead to penalties. Companies are merely required to explain the reasons for not meeting targets and outline corrective actions.

The proposal is designed as a temporary measure, aiming to create societal conditions that naturally support gender-balanced corporate boards. Consequently, the directive includes a sunset clause, expiring in 2029. It emphasizes minimum harmonization, permitting member states to go beyond the directive’s measures if they do not create undue discrimination or hinder the EU single market.

The Flexibility Clause: A Point of Contention

The most contentious part of the revised proposal is Article 4b, the “equivalent efficacy” or “flexibility” clause. This clause allows member states with existing measures for gender balance on boards to suspend the directive’s procedural requirements, provided their measures are equally effective or show substantial progress toward the directive’s goals. For clarity, Article 4b outlines three scenarios considered legally equivalent in effectiveness, allowing for similar situations in member states. For instance, member states can forgo certain requirements if the under-represented gender holds at least twenty-five percent of non-executive director positions or twenty percent of all director positions, with a 7.5 percentage point increase over five years. Stricter conditions apply post-2020 for maintaining the suspension.

This flexibility clause has become a point of contention, dividing member states seeking increased flexibility from those advocating for stronger legislation. This disagreement has significantly hampered progress on the directive.

Comments

The proposal represents a positive step toward addressing gender imbalance in European corporate leadership, but its economic justification over principles of parity, diversity, and democracy is a point of concern. Instead of framing gender balance as an economic driver, potentially reinforcing stereotypes, the focus should be on rectifying existing power imbalances.

Furthermore, shifting from a “sex”-based to a “gender”-based approach in future iterations of the directive is recommended. This change would allow for inclusivity of individuals beyond the traditional male/female binary. The sanctioning regime could also be strengthened with measures like fiscal incentives or penalties related to public procurement, incentivizing compliance.

The flexibility clause, while intended to grant autonomy to proactive member states, creates a loophole for circumventing the directive’s core objectives through tailored national strategies. While respecting the principle of subsidiarity, the weak thresholds for equivalent efficacy due to compromises during negotiations raise concerns.

In conclusion, the prospect of impactful EU legislation on gender balance in corporate governance seems distant. Continued disagreements within the Council suggest further weakening of the legislation is likely. Currently, the representation in the European Union resembles twenty percent Venus and eighty percent Mars - a planetary imbalance demanding rectification.

Barnard & Peers: chapter 20

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