The EU’s Gender Balance Directive: Balance in the Boardroom

The recently transposed EU Gender Balance on Corporate Boards Directive (the Directive) will require large EU-listed companies to ensure that members of the “underrepresented sex” hold at least 40% of their non-executive director positions, and 33% of their director positions overall, by 30 June 2026.

Failure to do so could result in penalties including fines or the annulment of contested directors’ appointments, and missing out on the decision-making benefits that can come with more balanced boards. At present, 34% of corporate board members in the EU are women.

Steps companies will need to take

The Directive lays specific steps for businesses to take, including:

1. Specific binding measures for the selection procedure of board directors, with transparent and gender-neutral criteria; 
    
2. Individual commitments from listed companies to reach gender balance among executive directors; and 
    
3. Reporting annually on the composition of boards and obstacles in meeting the Directive’s targets and, where applicable, actions that have or will be taken to overcome these.

Importantly, when choosing between candidates who are equally qualified in terms of suitability, competence and professional performance, priority must be given to the candidate of the underrepresented sex - except in exceptional cases where other reasons carry enough legal weight to tip the balance. This may be the case where a decision is made in the pursuit of other diversity policies, based on non-discriminatory criteria and using an assessment approach that is objective. The Directive does not give examples of what these policies might be, however.

Listed companies will also be obligated to disclose information about their selection assessment process and criteria if asked to do so by the candidate. If a candidate from an underrepresented sex can prove that they were equally qualified for the role but didn’t get it, the burden of proof is shifted to the employer to prove that discrimination did not occur.

Finally, Member States must take steps in support of the Directive’s aims, including:

1. Imposing effective, proportionate and dissuasive penalties on companies who fail to comply, which could include fines or the annulment of contested directors’ appointments;
    
2. Publishing a list of companies that reached the gender balance targets; and
    
3. Designating bodies for the promotion, analysis, monitoring and support of gender balance on boards.

The case for the Directive

Since 2010, the representation of women on corporate boards has improved across EU Member States. However, the rationale behind the Directive was based on the discrepancy in the rate of progress between countries with binding targets and those without. 

In Member States with binding gender quotas, women accounted for 39.6% of the board members of the largest listed companies in 2024, up from 10.6% in 2010. Countries with “soft” measures had 33.8% female representation on corporate boards, up from 12.4% in 2010. EU countries which had taken no action at all had only 17% female representation, up from 13.2% in 2010.  Proponents of the Directive also relied on the fact that 55% of EU citizens were generally in favour of introducing measures to address women’s under-representation in key decision-making.

However, the introduction of this legislation has not been without its hurdles. First proposed by the European Commission in 2012, it was rejected by the European Council in preference of voluntary measures. This was linked to a fear that quotas would lead to the selection of inferior candidates to meet required numbers, despite the fact that the Directive states that gender-based preference will only be given where two candidates are equally qualified.

Other approaches to corporate gender equality

In implementing the Directive, the EU has diverged, for example, from the UK’s approach to equality in the workplace, which has centred around voluntary measures. While the UK government introduced the Gender Pay Gap Regulations in 2017, to require employers with at least 250 employees to report gender pay and bonus gaps, these do not go as far as to impose binding targets for equal representation in the boardroom. However, through a voluntary, business-led approach, a target was set to achieve 40% female representation across boards by 2025. Despite the lack of legislative targets, the UK achieved far quicker progress, meeting its 40% target three years early in 2022, up from just 9.5% female representation on boards in 2011.

A further question is what impact representation on boards has on gender equality in the workplace more generally. In the UK, despite improvements in board representation, the FTSE Women Leaders Review noted that the number of female CEOs remains flat and extremely low, although the number of female finance directors and Chief Information Officers has improved. The board roles which are often filled by women are those such as HR Director and Company Secretary, which are not roles that have traditionally produced CEOs.

What’s next?

It remains to be seen what wider impact the Directive can have on gender equality, but in the meantime, EU businesses will want to build on the work they are already doing on gender balance, to identify any gaps and start to put in place further policies and procedures to meet the Directive’s requirements. The additional disclosure obligations the Directive brings will also increase transparency and the potential for legal and reputational challenges for businesses that fall behind.