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Regulatory Briefing: EU sets gender quotas for corporate boards

By Victor Smart

The EU has agreed that companies will face binding targets to appoint women onto corporate boards. The European Parliament and Council have reached a political agreement on a directive first proposed in 2012 that states that in large companies at least 40 per cent of the under-represented gender (usually women) must be represented in non-executive boards of listed companies or 33 per cent among all directors. This will apply to all EU companies listed on EU stock exchanges from June 2026.

Member states have to ensure companies “strive to achieve this objective”. Companies that do not currently achieve it must apply transparent and gender-neutral criteria in the appointment of directors. Where two candidates of different sexes are equally qualified, preference must be given to the female candidate in companies where the target for gender balance is not achieved.

Companies that fail to meet the objective are required to report the reasons for and the measures they are taking to address this shortcoming. Member states’ penalties for companies that fail to comply must be “effective, proportionate and dissuasive”, according to the EU. They could include fines, and even annulment of the contested director’s appointment. Member states must also publish information on companies that are reaching targets, to serve as peer pressure on the laggards. 

Brussels’ view. Commissioner for equality Helena Dalli said: “Talent has no gender and women’s leadership skills and vision matter. Yet 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. Beyond the moral reasons for diversity and inclusion, there are ample benefits of this directive for companies, including greater creativity and increased productivity.” 

A different view. Ann Cairns, global chair of the UK-based 30% Club and executive vice chair of Mastercard, said: “The 30% Club favours a business-led approach to delivering gender balance throughout the talent pipeline. We set targets and help our members improve their corporate culture so that all talent thrives…Quotas are a rules-based approach that penalise non conformity. But get the culture right and you don’t need quotas. The UK has already achieved 40 per cent women on boards across the FTSE 100 and is on course to reach parity in the next few years. At the executive level, there remains significant work to be done.”

There are several limitations to the directive. First, it does not simply mandate the 40 per cent figure on firms but offers various let-outs; it also only applies to large listed companies. Furthermore, like all EU directives, it depends on member states to enact and enforce it in national legislation. That said, it has still been hailed as a landmark.

The proposal it has been stuck in the European Council because of opposition from several EU countries, including Germany and some Nordic and Baltic states. They argued that the matter should be dealt with at a national, rather than EU-wide, level. 

Following the formation in Berlin of the coalition between the Social Democrats, the Greens and the Liberals, Germany appears to have had a change of heart.

In April, the UK’s Financial Conduct Authority announced that women should make up a minimum of 40 per cent of boards at British listed companies and at least one director should be from a minority ethnic background. In addition, at least one senior position – such as company chair, chief executive or chief financial officer – should be held by a woman, and companies that do not conform will be compelled to explain why.

Updated on June 9 with Anne Cairn’s comments.

A service from the Financial Times