Gender diversity at board level – EU directive in force

It's been proven that a balanced representation of women and men has a positive impact on the working environment and on economic results. And although existing EU regulations prohibit gender discrimination, there are still considerably more men than women on management and supervisory boards throughout the EU. This gender imbalance is particularly pronounced in the private sector and especially in listed companies.

In 2022, 60% of university graduates in the EU were female, but women are significantly underrepresented in economic decision-making positions, especially at the top of companies. According to a survey from June 2022, only 31.5% of all executives were female. Only 8% of CEOs are women.

This has challenged the EU. According to Article 3 of the Treaty on European Union, the EU has the task of promoting equality between women and men. This is the subject of Directive (EU) 2022/2381 on improving the gender balance among directors of listed companies and related measures of November 2022. The deadline for national legislators to transpose the directive expired on 28 December 2024. New rules will apply from the beginning of this year at the latest.

All listed companies, except SMEs, must reach at least one of the following targets by 30 June 2026:

• The underrepresented gender must make up at least 40% of the non-executive directors.
• The underrepresented gender must make up at least 33% of all directors, including executive and non-executive directors.

If a company chooses the second option, it must ensure that individual quantitative targets are set to improve the balanced representation of genders among executive directors.

To achieve these objectives, companies have to observe these procedural requirements:

• Candidates for directorships should be selected based on a comparison.
• Selection criteria must be determined before the start of the procedure. They must be clearly neutrally phrased and unambiguous.
• In principle, if the suitability, qualifications and professional performance are the same, the candidate of the underrepresented gender should be given priority.

If a non-selected female candidate can credibly demonstrate in court that she has the same qualifications as the selected candidate, the company must prove in court that it hasn’t violated these principles in the selection process.

A member state can suspend these requirements if its national law requires that the under-represented gender constitutes at least 30% of the non-executive directors or at least 25% of all directors in listed companies and also requires that all listed companies not covered by this national law set individual qualitative targets for all director positions. Effective, proportionate and dissuasive enforcement measures must be in place for companies that don’t comply with the requirements. In this case, the targets of the directive are considered to have been met.

This is a noteworthy regulatory technique because it excludes member states from applying these quotas if a lower quota is legally required. Germany is also covered by this exception.

The Führungspositionengesetz (FüPoG) I sets a quota of 30% for supervisory boards of listed companies with parity co-determination, and the FüPoG II sets a minimum participation target of one woman and one man on a management board that has more than three members. Since an election of management or supervisory board members that conflicts with these requirements is invalid, this also constitutes an effective sanction.

In November 2024, the German government made use of the option to suspend the procedural requirements of the directive, which means that the quotas under the directive are also considered to have been met. The only trace the directive leaves in Germany is bureaucracy. At the same time as suspending the directive's requirements, the German government decided to establish a department for promoting a balanced representation of genders in listed companies within the Federal Ministry for Family Affairs, Senior Citizens, Women and Youth. Its main responsibility will be to submit reports.

The German government's lack of ambition is regrettable, especially in comparison to other European countries. In 2019, France had already achieved a 43% share of women on management and supervisory boards. Last August, Spain passed a law that serves to implement the directive but has a much broader scope.

According to the AllBright Foundation's report from autumn 2024, the proportion of women on the management boards of the 160 companies listed on the Frankfurt Stock Exchange rose to 19.7% between September 2023 and September 2024, and to 37% on supervisory boards. This is a smaller increase than in the previous year. The proportion of women at the top of supervisory boards (6.3%) and management boards (4.4%) is at the 2021 level.

It's recognized that the more diverse the composition of the decision-making body, the better the decisions the company makes. Diversity at board level isn’t only a socio-political obligation, but also wise corporate governance. But even more important than a legal quota is a change in mindset. In international comparison, the UK is at the forefront in this regard, without any legal quota. Comprehensive reporting requirements on the proportion of women in management have led to strong public pressure on companies. The framework for combining family and career is also significantly better, at least in the City, than it is here.

Further developments remain to be seen. But international investors are paying close attention to the issue, so it’s hoped that there will be continuous improvement.