Out-Law / Your Daily Need-To-Know

EU agrees mandatory 40% quota for women on corporate boards

Out-Law News | 22 Jun 2022 | 9:08 am |

Gemma Herbertson tells HRNews about the EU’s plans to improve gender diversity on company boards from June 2026

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  • Transcript

    The EU has decided that companies will face mandatory quotas to ensure women have at least 40% of seats on corporate boards – companies could be fined if they fail to recruit enough women to their non-executive boards and could see board appointments annulled if they fail to comply with the new law. We’ll consider what that means for UK listed companies with a presence in the EU.

    As the Guardian reports, from 30 June 2026 large companies operating in the EU will have a goal of 40% of the ‘underrepresented sex’ among non-executive directors – the underrepresented sex will usually be women The EU has also set a 33% target for women in all senior roles, including non-executive directors and directors, such as chief executive and chief operating officer. The Directive will require listed companies to report annually, including on their web-site, on gender representation on their boards.

    So let’s get some reaction to this. Gemma Herbertson is part of our Glasgow team and she joined me earlier by video-link to discuss it. I started by asking Gemma how significant a development she thinks this is: 

    Gemma Herbertson: “Well, I think it's very significant across the EU, obviously. The European Union does recognise that a lot of European countries are doing very well in relation to gender diversity on board but there are some that are lagging behind and so by setting a minimum threshold for all EU countries it's hoping to level the playing field and encourage countries that are doing well to do better, and also to give a kickstart to the countries that are perhaps lagging behind.”

    Joe Glavina: “Although the Directive doesn’t apply to the UK there are plenty of UK firms with European headquarters – so it is relevant to them isn’t it, Gemma?” 

    Gemma Herbertson: “Yes, where there are companies in the UK that are part of a larger corporate framework that straddles the EU then I think there will be a corporate group-wide approach to responding to this Directive. So, if a company is in the UK, then it's going to be affected by implementation measures that the EU-wide group are going to implement.”

    Joe Glavina: “Is it just affecting board-level decision making, or is it wider than that?”

    Gemma Herbertson: “Well, the measure is focused on boards. Its primary aim is to get 40% of non-executive directors on listed companies in the EU of the underrepresented six, which is female, or 33% if they includes executive directors, but what the EU has said is that they hope that there will be a trickle-down effect so the drive for diversity will go down to all levels within the company. They also hope that there will be an increased focus on getting women into the top leadership positions such as chairperson or Chief Executive Officer.”

    Joe Glavina: “Tell me about the penalties, Gemma, because that is a striking feature of these proposals.” 

    Gemma Herbertson: “Yes, and I think this is the key differentiator between the more voluntary approach that the UK has adopted and the EU now and it will be a key differentiator since Brexit to show how UK employment policy is moving away from the EU's. So, the penalties are up for debate by each member state - they can choose what they consider an effective payment to be - but the European parliament has suggested that fines may be appropriate where for targets aren't met or, indeed,  even more controversially, that certain board appointments could be annulled.”

    Joe Glavina: “Final question, Gemma. Are there any action points for HR professionals to take as a result of this?”

    Gemma Herbertson: “I think they will need to wait and see how the company that they're part of, if they are part of a broader European framework, chooses to respond to this. I think they will need to also look at what's happening in the UK because it's important to remember the primary obligation in the UK which is to look at corporate governance and voluntary measures here and as we have reported on before the Financial Conduct Authority has finalised new rules for listing companies that effectively set a 40% target for women on boards in the UK and so I think they need to look at what's happening home and abroad, but at home first.”

    Gemma mentioned the FCA’s new rules requiring UK listed companies to set out in their annual reports whether they have met board diversity targets. Last month Anne Sammon talked to this programme about that and how the FCA has left decision-making in the hands of companies which, she explains, creates something of a challenge. That’s ‘New FCA rules to boost diversity on company boards’ and is available now for viewing from the Out-Law website.