Equity is under the microscope across the EU. A new law has been agreed that seeks to create a better balance of men and women holding senior level business positions in listed companies. Here’s what you need to know...
What does the new law say?
· If a listed company has more than 60% of its non-executive director positions held by one gender, it should work to reduce that inequality. The ask is for the currently underrepresented gender (usually women) to end up holding between 40% and 49% of these positions.
· If two candidates are equally qualified in terms of suitability, competence and professional performance, preference must be given to the candidate of the underrepresented gender. The company may still choose either candidate, but they have to be transparent and objective about the reasons for their choice.
Which companies are affected? This law currently targets listed companies, but if it’s successful, it may well be rolled out to all companies in the future.
Are there any exceptions? This doesn’t apply to small or medium companies. And depending on how the law is implemented locally, if a listed company can show that members of the underrepresented sex hold at least one third of all director positions (executive or non- executive) this obligation is waived.
Why is this happening now? Company boards in the EU are known for their persistent gender imbalances. Currently only 13.7% of corporate seats in the largest listed companies are held by women. In the words of the EU:
“...entrenched selection patterns of corporate board members continue to largely overlook women candidates. Change in this sector only materialised in countries that set quotas by law or policy.”
What does this all mean in practice?
· This law comes in the shape of an EU Directive. This means that each member country will have to draft their own national law – with potential national variations – to fulfil the spirit of the Directive.
· A high degree of transparency would be expected.
· Listed companies will be required to report on this issue, either annually or more frequently, depending on local laws.
· Underrepresented candidates who don’t gain a position will be entitled to know exactly why.
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