# EUR-Lex - 52012PC0614 - EN

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# 52012PC0614

**Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures /* COM/2012/0614 final - 2012/0299 (COD) */**

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EXPLANATORY MEMORANDUM

1.           CONTEXT OF THE PROPOSAL

Background

Company boards in the EU are characterised by
persistent gender imbalances, as evidenced by the fact that only 13.7% of
corporate seats in the largest listed companies are currently held by women
(15% among non-executive directors).[1]
Compared to other areas of society, especially to the public sector[2], the under-representation of
women on the boards of publicly listed companies is particularly significant.

Member States and the EU institutions have
undertaken numerous efforts in the course of several decades to promote gender
equality in economic decision-making, notably to enhance female presence in
company boards, by adopting recommendations and encouraging self-regulation. Two
Council Recommendations (in 1984 and 1996) encouraged the
private sector to increase the presence of women at all levels of
decision-making, notably by positive action programmes, and called upon the Commission to take steps to achieve balanced gender
participation in this regard.[3]
National self-regulation and corporate governance initiatives were aimed at
encouraging companies to appoint more women into top-level positions.

However, progress in increasing the
presence of women on company boards has been very slow, with an average annual
increase in the past years of just 0.6 percentage points.[4] The
rate of improvement in individual Member States has been unequal and has
produced highly divergent results. The most significant progress was
noted in those Member States and other countries where binding measures had been
introduced.[5]
Self-regulatory initiatives in a number of Member States have not yielded any similarly
noticeable changes. At the current pace it would take
several decades to approach gender balance throughout the EU.

Growing discrepancies
between Member States are likely to increase given the very different
approaches pursued by individual Member States. Some Member States have
developed national legislation but addressed different groups of companies and
with differing legal approaches. National legislations, if they address the
problem at all, are evolving in different directions. Some Member States have
privileged a "comply or explain" model, where companies not complying
with a gender balance objective have to disclose the reasons for not doing so.
Others establish an outright binding legal gender balance objective with
sanctions. Some Member States target listed companies, while others focus on
large companies (regardless of listing) or state-owned companies only. Some
Member States are focusing their measures on non-executive board members of
listed companies while others cover both executive and non-executive board
members of listed companies.

The divergence or the absence of regulation at national level does not only lead
to the discrepancies in the number of women among executive and non-executive
directors and different rates of improvement across Member States, but also
poses barriers to the internal market by imposing divergent corporate
governance requirements on European listed companies. This varied evolution of
national legislations has led to a fragmentation of the legislative frameworks
across the EU, which translates into inconsistent legal obligations of
difficult comparability, confusion and higher costs for companies, investors
and other stakeholders, and, ultimately, hinders the proper functioning of the internal
market. In particular, these differences in legal and self-regulatory
requirements for the composition of corporate boards can lead to practical
complications for listed companies operating across borders, notably when
establishing subsidiaries or in mergers and acquisitions, as well as for
candidates for board positions. The current lack of transparency of the
selection procedures and qualification criteria for board positions in most
Member States represents an important barrier to more diversity of board
members and negatively affects both board candidates' careers and their freedom
of movement, as well as investor decisions. The opacity of board appointments
makes it more difficult for women with the necessary qualifications for board
positions to apply for such positions in general and even more so in another
Member State. Lack of transparency on qualification criteria for company directors
may also have a negative impact on investors' confidence in a company, in
particular in cross-border situations. Disclosing relevant information on
gender composition of boards would also translate into better accountability of
companies, better informed and sounder decision-making, better allocation of
capital, and, ultimately, higher and more sustainable growth and employment in
the EU.

The under-utilisation of the skills of highly
qualified women’s constitutes a loss of economic growth potential. Fully mobilising
all available human resources will be a key element to addressing the EU's
demographic challenges, competing successfully in a globalised economy and
ensuring a comparative advantage vis-à-vis third countries. Moreover, gender
imbalance in the boards of publicly listed companies in the EU can be a missed
opportunity at company level in terms of both corporate governance and
financial company performance[6].
The core of the problem lies in the persistence of multiple barriers faced by the
constantly growing number of highly qualified women who are available for board
seats[7]
on their way to the top positions in corporations. The reluctance to appoint
female candidates to board positions is often rooted in gender stereotypes in
recruitment and promotion, a male-dominated business culture and the lack of
transparency in board appointment processes. These elements, which are often referred
to in their entirety as a 'glass ceiling', undermine the optimal functioning of
the labour market for top management positions throughout the EU.

The persistent under-representation of
women on boards is a key element of a broader lack of board diversity in
general with its negative consequences. In boards with a predominance of
members of one sex there is a considerably higher likelihood of a narrow
"group think". This can contribute to the failure of an effective
challenge of the management decisions, as the lack of diverse views, values,
and competences may lead to less debate, ideas and challenge in the boardroom.
Insufficient board diversity is linked above all to insufficient market
incentives for companies to change the situation. In this respect, inadequate
recruitment practices for board members contribute to perpetuating the
selection of members with similar profiles. The selection often draws on a too
narrow pool of people, non-executive directors are still often recruited
through an “old boys' network” from among business and personal contacts of the
current board members. The inadequate transparency on board diversity is
reinforcing the problem, as the level of information and the extent to which
this information is available to the public at large is often insufficient.

As far as the objectives for board
composition, the transparency of recruitment and reporting on gender diversity
of boards are concerned, the identified problems affect the overall performance
of companies, their accountability, the ability of investors to assess and
factor appropriately and timely all relevant information, and the efficiency of
the EU financial markets. As a consequence, the internal market potential for
sustainable growth and employment may not be fully exploited. Clear
requirements as regards the targets to be achieved by companies as regards the
gender of the non-executive directors, the transparency of the recruitment
process (qualifications criteria) and reporting obligations as regards gender
diversity of boards are therefore necessary.

Policy context

Recently, the issue of enhancing female
participation in economic decision-making has become increasingly prominent in
the national, European and international arenas, focusing particularly on the
economic dimension of gender diversity.

The European Commission reaffirmed its
support for an increased participation of women in positions of responsibility,
both in its Women's Charter[8]
and its Strategy for Equality between Women and Men 2010-2015,[9] whilst also publishing several
reports taking stock of the situation.[10]

In the European Pact for Gender Equality
2011-2020, adopted on 7 March 2011, the Council acknowledged that gender
equality policies are vital to economic growth, prosperity and competitiveness
and urged action to promote the equal participation of women and men in
decision-making at all levels and in all fields, in order to make full use of
all the talents.

The European Parliament repeatedly called upon companies and Member States to increase female
representation of women in decision-making bodies and invited the Commission to
propose legislative quotas to attain the
critical threshold of 30 per cent female membership of management bodies by
2015 and 40 per cent by 2020.[11]

The European social partners have
reaffirmed their commitment to further action in this
area in their work programme for 2012-2014.

Purpose of the proposal

The purpose of the proposal is to
substantially increase the number of women on corporate boards throughout the
EU by setting a minimum objective of a 40% presence of the under-represented
sex among the non-executive directors of companies listed on stock exchanges
and by requiring companies with a lower share of the under-represented sex
among the non-executive directors to introduce pre-established, clear,
neutrally formulated and unambiguous criteria in selection procedures for those
positions in order to attain that objective.

The proposal seeks to promote gender
equality in economic decision-making and to fully exploit the existing talent
pool of candidates for more equal gender representation on company boards,
thereby contributing to the Europe 2020 objectives. The proposed Directive will
lead to breaking down the barriers that women face when aiming for board
positions and to improved corporate governance, as well as enhanced company
performance.

Minimum harmonisation as
regards both a requirement for listed companies to take appointment decisions
on the basis of an objective comparative assessment of the qualifications of
candidates and the setting of a quantitative objective
for the gender balance among non-executives directors seems essential to ensure
a competitive playing field and to avoid practical complications for listed
companies in the internal market.

The quantified objective of 40% set by this
Directive only applies to non-executive directors in order to strike the right
balance between the necessity to increase the gender diversity of boards on the
one hand and the need to minimise interference with day-to-day
management of a company on the other hand. Non-executive directors and
supervisory boards have an essential role in appointing the highest level of
management and shaping the company's human resources policy. A stronger
presence of the under-represented sex among non-executive directors will
therefore have positive ripple effects for gender diversity throughout the career
ladder.

The proposal focuses on publicly listed
companies, due to their economic importance and high visibility. They set
standards for the private sector at large. Moreover, they tend to have larger
boards and have a similar legal status across the EU, providing the necessary
comparability of situations.

The proposed objective of 40% for the
minimum share of both sexes is in line with the targets currently under
discussion and set out in a number of EU Member States/EEA countries. This
figure is situated between the minimum of the 'critical mass' of 30%, which has
been found necessary in order to have a sustainable impact on board performance
and full gender parity (50%).

Consistency with other policies and
objectives of the Union and with the Charter of Fundamental Rights of the
European Union

Equality between women and men is one of
the Union's founding values and core aims under Articles 2 and 3(3) TEU. In
accordance with Article 8 TFEU the Union shall aim to eliminate inequalities,
and to promote equality, between men and women in all its activities.

There are several important legal measures in
place to promote equal treatment and equal opportunities of men and women in
matters of employment and occupation, including self-employment[12].

The proposal is consistent with the Charter
of Fundamental Rights of the European Union ('Charter'). It will help to promote fundamental rights,
particularly those related to equality between women and men (Article 23) and
to the freedom to choose an
occupation (Article 15). The proposal also touches upon the freedom to
conduct a business (Article 16) and on the right to property (Article 17). It
does so in a justified manner: in line with the principle of proportionality the
proposal's focus is on non-executive board members who – while being important
actors in particular in relation to corporate governance – are not involved in
the day-to-day running of operations.

Article 21(1) of the Charter prohibits, in
principle, any discrimination based on sex. Article 23 recognises, however,
that the principle of equality does not prevent the maintenance or adoption of
measures providing for specific advantages in favour of the under-represented
sex.

This principle of positive action is
also recognised in Article 157(4) TFEU.

The Court of Justice of the European Union
(CJEU) has established the criteria that need to be met in order to reconcile
the two concepts of formal equality of treatment and positive action aimed at
bringing about de facto equality, both of which are recognised in the Charter
as well as in Article 157 TFEU and in Article 3 of
Directive 2006/54/EC.

The criteria are:

(1)
the measures must concern a sector in which
women are under-represented;

(2)
they can only give priority to equally
qualified female candidates over male candidates:

(3)
they must not give automatic and
unconditional priority to equally qualified candidates, but must include a "saving
clause" which includes the possibility of granting exceptions in
justified cases which take the individual situation into account, in particular
the personal situation of each candidate.

The proposal is in compliance with these criteria
(see Article 4(3)).

2.           RESULTS OF CONSULTATIONS WITH THE
INTERESTED PARTIES AND IMPACT ASSESSMENTS

Consultation and expertise

From 5 March to 28 May 2012, the
Commission organised a public consultation to gather stakeholders' views on
whether any action should be taken to tackle gender imbalance on corporate
boards, and, if so, what kind of action. Of the total number of 485 replies,
161 were sent by individual citizens and 324 were sent by organisations. These
included 13 Member States, 3 regional governments, 6 cities or municipalities,
79 companies (both large listed companies and SMEs), 56 business associations
at EU and national level, 53 NGOs (most of them women's organisations), trade
unions, professional associations, political parties, associations of investors
and shareholders, actors involved in corporate governance and others.

There was a broad consensus on the
urgent need to increase the share of women on company boards. By far the
majority of respondents agreed that a gender-diverse workforce and board
structure is a driver of innovation, creativity, good governance and market
expansion for companies and that it would be short-sighted to leave untapped
the economic potential of qualified women. Views varied among stakeholders as
to the appropriate means to bring about change. While some, predominantly the
business stakeholders, favoured continued self-regulation, other stakeholders,
including trade unions, women organisations, other NGOs and a number of
regional and municipal authorities, advocated a more ambitious approach in the
form of binding objectives. Some stakeholders suggested focusing in the first
place on non-executive board members and supervisory boards, as this would
constitute a less significant interference with the daily management of
companies, while executive board members should follow later.

A 2011 Eurobarometer survey[13] revealed that 88% of Europeans
think that women should be equally represented in company leadership positions.
When given the possibility to choose between three options to achieve gender
balance on company boards, opinion is divided between self-regulation by
companies (31%), binding legal measures (26%), and non-binding measures such as
Corporate Governance Codes and Charters (20%). Nevertheless, 75% of Europeans
are in favour of legislation provided that it takes qualifications into account
and does not automatically favour members of one sex.

Impact assessment

The Impact Assessment (IA) analysed
five policy options, fully described in the IA Report:

–
Option 1: the baseline
scenario (i.e. no further action at EU level);

–
Option 2: a Commission
Recommendation encouraging Member States to achieve the objective of at least
40% of board members of each gender by 2020;

–
Option 3: a Directive
introducing a binding objective of at least 40% of each gender by 2020 for
non-executive directors;

–
Option 4: a Directive
introducing a binding objective of at least 40% of board members of each gender
by 2020 for non-executive directors and a flexible objective for executive
directors, which would be set by the companies themselves;

–
Option 5: a Directive
introducing a binding objective of at least 40% of board members of each gender
by 2020 for both executive and non-executive directors.

The outcome of the comparison of the
consequences of the different policy options was that (i) binding measures are
more effective in meeting the policy objectives than non-binding measures, (ii)
measures that target both executive and non-executive board members are more
effective than measures only targeting one group and (iii) binding measures
will generate more societal and economic benefits than non-binding measures.

At the same time the effectiveness of
the different policy options is directly linked to the extent of interference
with the rights of the companies and the shareholders as their owners,
including their fundamental rights. Compared to a non-binding measure with a tangible
yet limited effect, a substantial increase of the impact in terms of the policy
objectives would require an instrument with binding force, which would prescribe
minimum requirements for the composition of boards.

Binding measures would entail comparatively
larger costs and administrative burdens which, however, remain rather modest in
comparison to the projected economic benefits. The administrative burden is
expected to be minimal for all policy options, given that these options would
cover only publicly listed companies which are expected to be able to use
existing reporting mechanisms.

The current proposal opts for the
increased effectiveness of fixed objectives and the resulting economic and
wider societal benefits in relation to non-executive board members which
justify a higher degree of interference with fundamental rights. The proposal
refrains from establishing a fixed binding objective for executive board
members, due to the greater need for sector-specific knowledge and experience in
the day-to-day management of a company. However, companies should be obliged to
make commitments in relation to executive directors that reflect their specific
circumstances, and to report on the compliance with these commitments. The
proposal is therefore based on Option 4.

3.           LEGAL ASPECTS OF THE PROPOSAL

Legal base

Article 157(3) TFEU is the legal basis for
any binding measures aimed at ensuring the application of the principle of
equal opportunities and equal treatment of men and women in matters of employment
and occupation, including positive action.

The proposal is based on Article 157(3)
TFEU.

Subsidiarity

Measures introduced by some Member States to
strengthen the gender balance on company boards vary widely, and a substantial
number of Member States, in particular those where the share of women among
directors is particularly low, have not taken any action in this area. They do
not show any willingness or face resistance to act on their own initiative. At
the same time, there are discrepancies in terms of the numbers of women on
boards in Member States, with the key indicator ranging from 3% to 27% - a
situation which jeopardises the attainment of the fundamental objective of
gender equality in economic decision-making across the Union.

The projections in the IA report based on
comprehensive information on existing or planned legislative and
self-regulatory initiatives in this area in all Member States show that without
EU action the female representation in boards of publicly listed companies is
expected to evolve from 13.7% in 2012 to 20.4% (20.84% excluding SMEs) in 2020
for the EU. Only one Member State (France) will have achieved a 40% female
representation in boards by 2020 as the result of national binding quota
legislation. Only 7 more Member States - Finland,
Latvia, the Netherlands, Slovakia, Spain, Denmark and Sweden - are estimated to reach 40% before 2035. In addition to being
unsatisfactory from a gender equality perspective, this would not be sufficient
to bring about the “critical mass” of women on boards across the Union which,
as research shows, is needed to generate positive effects on company
performance. Based on this scenario, the EU as a whole is not expected to even achieve
40% of women on boards by 2040. Irrespective of the general possibility for
Member States to act efficiently, the concrete indications of Member States regarding
their intentions, including their replies to the public consultation and the
projections based on all available information, clearly demonstrate that action
by Member States individually will not achieve the objective of a more balanced
gender representation on company boards in line with the policy objectives set
out in this proposal by 2020 or at any point in the foreseeable future.

This situation entails a certain number of
risks for the attainment of the fundamental objective of gender equality across
the Union. The Founding Treaties intended to create a competitive level-playing
field between Member States by enshrining the principle of equal pay and of
gender equality on the labour market, to avoid any downward competition between
Member States in labour and equal treatment matters. Member States may indeed
hesitate to regulate in this area on their own, as they could perceive a risk
of putting their own companies at a disadvantage with companies from other
Member States. This perception, reinforced by pressure from the business
community, represents an additional major obstacle preventing Member States
from taking adequate action.

Furthermore, scattered and divergent
regulation at national level is bound to create practical problems in the
functioning of the internal market. Different company law rules and sanctions
for not complying with a national binding quota, such as exclusion from public
procurement, could lead to complications in business life and have a deterrent
effect on companies' cross-border investments and the establishment of
subsidiaries in other Member States. Diverging rules or the absence of rules on
the selection procedure for the key positions of non-executive board members without
any minimum standards and the impact of these differences for corporate
governance and the assessment of corporate governance by investors could
further lead to problems in the functioning of the internal market.

The potential for competitiveness and
growth inherent in making full use of the talent pool of the best qualified
women for board positions can be realised more effectively, by reasons of
scale, if all Member States engage in that direction, in particular those where
figures are currently low and no action has been taken or even envisaged. Only
an EU-level measure can effectively help to ensure a competitive level-playing
field throughout the Union and avoid practical complications in business life
by means of minimum harmonisation of corporate governance requirements relating
to appointment decisions based on objective qualifications criteria in order to
attain gender balance among non-executives directors.

It can therefore be concluded that the objectives
of the envisaged action cannot be sufficiently achieved by the Member States on
their own and may be better achieved through coordinated action at EU level
rather than through national initiatives of varying scope, ambition and
effectiveness. The proposal therefore complies with the principle of
subsidiarity.

Proportionality

Non-binding measures such as past EU-level
recommendations and calls for self-regulation have not achieved and cannot be
expected to achieve the objective of improving gender equality in economic
decision-making throughout the EU. Further-reaching action to be taken at
EU-level is therefore necessary to achieve those aims. This should, however,
not go beyond what is strictly required to achieve sustainable progress in the
share of women on company boards, without impinging on the functioning of
private companies and the market economy.

This minimum harmonisation proposal is
limited to setting common objectives, giving Member States sufficient freedom
to determine how they should be best achieved at national level, taking into
account national, regional or local circumstances including national
company law and company board recruitment practices. In particular, the
proposal requires only such changes to national company law that are strictly
necessary for the minimum harmonisation of requirements for the appointment
decisions and it respects the different board structures across Member States.
It does not cover small and medium-sized enterprises (SMEs), for which such
measures could represent a disproportionate burden. In addition, as explained
above, the proposal establishes quantitative objectives only for non-executive
board members, thereby considerably limiting interference in the daily
management of the company. As non-executive directors perform mainly supervisory
tasks, it is also easier to recruit qualified candidates from outside the
company or the specific sector – a consideration which is of importance for
areas of the economy where members of a particular sex are especially under-represented
in the workforce.

The temporary nature of the proposed
Directive (see Article 10) underpins its compliance with the principles of
subsidiarity and proportionality.

Choice of instrument

A directive is the instrument that best
ensures a coherent minimum level of gender diversity among non-executive
directors in boards of publicly listed companies across the EU, whilst allowing
Member States to adjust the detailed regulation to their specific situations in
terms of national company law and to choose the most appropriate means of
enforcement and sanctions. It also allows individual Member States to go beyond
the minimum standard, on a voluntary basis.

European Economic Area

This is a text of relevance to the European
Economic Area and the Directive will be applicable to the non-EU member States
of the European Economic Area following a decision of the EEA Joint Committee.

4.           BUDGETARY IMPLICATION

The proposal has no implications for
the Union budget.

5.           DETAILED EXPLANATION OF THE SPECIFIC
PROVISIONS

Article 1: Purpose

This provision states the aim of this
Directive.

Article 2: Definitions

This Article sets out the key definitions,
which are based on those in Commission Recommendation 2005/162/EC on the role
of non-executive or supervisory directors of listed companies and of the
Committees of the (supervisory) board[14],
on Commission Recommendation 2003/361/EC of 6 May 2003 concerning the
definition of micro, small and medium-sized enterprises[15] in
relation to the definition of SMEs, and on Commission Directive 2006/111/EC of
16 November 2006 on the transparency of financial relations between Member
States and public undertakings, as well as on financial transparency within
certain undertakings[16]
in relation to the definition of public undertakings.

The definitions ensure in particular that
the Directive is equally applicable to various systems of board structures for
listed companies that exist in the Member States, i.e. to a dual ('two-tier')
system in which there are separate management and supervisory boards, to a
unitary ('one-tier') system combining the management and supervisory functions
in one single board, as well as to mixed systems featuring elements of
'one-tier' and 'two-tier' systems or giving companies an option between different
models.

The definition of 'director' clarifies that
the objectives set by the directive cover all non-executive directors,
including employee representatives in those Member States where a certain
proportion of the non-executive directors can or must be appointed or elected
by the company's workforce and/or organisations of workers pursuant to national
law or practice while the practical procedures for ensuring that the objectives
provided for in this Directive are attained should be defined by the Member
States concerned (see Recital 21).

Article 3: Exclusion of small and
medium-sized enterprises

This Article excludes from
the scope of the Directive listed companies which are small and medium-sized enterprises (SMEs), as defined by Commission
Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro,
small and medium-sized enterprises.[17]

Article 4: Objectives with regard to
non-executive directors

Paragraph 1 imposes on listed companies
which do not have a presence of the under-represented sex of at least 40 per
cent of non-executive directors an obligation to make the appointments to those
positions on the basis of a comparative analysis of the qualifications of each
candidate, by applying pre-established, clear, neutrally formulated and
unambiguous criteria, in order to attain the said percentage at the latest by 1
January 2020. A shorter deadline for achieving the objective (1 January 2018)
is set for listed companies which are public undertakings within the meaning of
Article 2(b) of Commission Directive 2006/111/EC of 16 November 2006 on the
transparency of financial relations between Member States and public
undertakings as well as on financial transparency within certain undertakings.[18] Member States exercise a
dominant influence over such companies and therefore have more instruments to
bring about the change more rapidly.

Paragraph 2 specifies the method of
calculation of the exact number of non-executive director positions necessary
to meet the objective mentioned in paragraph 1. The exact number of board
positions necessary to comply with the objective should be the number closest
to 40 per cent, whether below or above that threshold, but at the same time
listed companies should not be obliged to appoint members of the under-represented
sex to half or more of the non-executive board positions in order to avoid
excessive constraints.

Paragraph 3 imposes a preference rule with
the aim of meeting the objective laid down in paragraph 1. This preference rule
provides that, in the presence of equally qualified candidates of both sexes priority
shall be given to the candidate of the under-represented sex unless an
objective assessment taking account of all criteria specific to the individual
candidates tilts the balance in favour of the candidate of the other sex. This procedural
requirement is necessary to ensure that the objectives comply with the case-law[19] of the Court of Justice of the
European Union concerning positive action. The requirements laid down in this paragraph should be met at the
appropriate stage of the selection process depending on national law and the
articles of association of listed companies.

Paragraph 4 imposes a disclosure obligation
and a burden of proof rule applicable in cases of challenges to the selection
procedure by an unsuccessful candidate.

Paragraph 5 provides for a possibility of
justifying non-compliance with the objective where the members of the
under-represented sex represent less than 10 per cent of the workforce.

Paragraph 6 provides that the objective
laid down in Paragraph 1 can also be met where the members of the
under-represented sex hold at least one third of all director positions,
irrespective of whether they are executive or non-executive.

Article 5: Additional measures by
companies and reporting

Paragraph 1 imposes an obligation for
listed companies to undertake individual commitments regarding the
representation of both sexes among executive directors to be achieved by 1
January 2020, or by 1 January 2018 in the case of listed companies which are
public undertakings.

Paragraph 2 imposes an obligation for
listed companies to provide and publish information on the gender composition
of their boards and on compliance with Article 4(1) and Article 5(1) on a
yearly basis.

Paragraph 3 imposes on listed companies which
fail to meet the objectives concerning the non-executive directors or
commitments concerning executive directors an additional obligation to explain the
reasons and to include the description of measures taken and planned in order to
meet the objectives or commitments in the future.

Paragraph 4 concerns the competences of the
national equality bodies established under Directive 2006/54/EC.

Article 6: Sanctions

This Article obliges Member States to lay
down rules on sanctions applicable in case of breach of this Directive. These sanctions
must be effective, proportionate and dissuasive. A non-exhaustive list of
possible concrete measures is set out in paragraph 2.

Article 7: Minimum requirements

This provision states the minimum harmonisation
nature of the Directive.

Article 8: Implementation

Member States are under an obligation to adopt
the relevant transposition measures within two years from the date of adoption
of the Directive. The Article further specifies the obligations concerning
those measures and their communication to the Commission. Paragraph 3 enables
Member States which before the entry into force of this Directive have already
taken measures to ensure a more balanced representation of women and men among
the non-executive directors of listed companies to suspend the application of
the procedural requirements related to appointments contained in Article 4(1),
(3), (4) and (5), provided that they can demonstrate that the measures taken
are of equivalent efficacy in order to attain the objective set in Article
4(1).

Articles 9, 10 and 11: Review; Entry
into force and expiry; Addressees

The Directive imposes a reporting
obligation on Member States. The Commission is obliged to review and report on
the application of the Directive every two years, in particular on whether the
aims of the Directive have been achieved.

The objectives remain in force only until
sustainable progress in gender composition of boards has been achieved and the
Directive includes a 'sunset clause' to that effect.

2012/0299 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL

on improving the gender balance among
non-executive directors of companies listed on stock exchanges and related
measures

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 157(3) thereof,

Having regard to the proposal from the
European Commission,

After transmission of the draft
legislative act to the national Parliaments,

Having regard to the opinion of the
European Economic and Social Committee,[20]

Acting in accordance with the ordinary
legislative procedure,

Whereas:

(1)       Equality between women and
men is one of the Union's founding values and core aims under Article 2 and
Article 3(3) of the Treaty on European Union. Under the terms of Article 8 of
the Treaty on the Functioning of the European Union (hereinafter referred to as
the Treaty), the Union shall aim to eliminate inequalities, and to promote
equality, between men and women in all its activities. Article 157(3) of the
Treaty provides a legal basis for the adoption of Union measures to ensure the
application of the principle of equal opportunities and equal treatment of men
and women in matters of employment and occupation.

(2)       The principle of positive
action and its importance for achieving effective equality between women and
men in practice are recognised in Article 157(4) of the Treaty and in Article
23 of the Charter of Fundamental Rights of the European Union, which provides
that equality between women and men must be ensured in all areas and that the
principle of equality shall not prevent the maintenance or adoption of measures
providing for specific advantages in favour of the under-represented sex.

(3)       Council
Recommendation 84/635/EEC of 13 December 1984 on the promotion of positive
action for women[21] recommended that Member States should take steps to ensure that
positive action includes, as far as possible, actions having a bearing on
active participation by women in decision-making bodies. Council Recommendation 96/694/EC of 2 December 1996 on the balanced
participation of women and men in the decision-making process[22] recommended that Member States
should encourage the private sector to increase the presence of women at all
levels of decision-making, notably by the adoption of, or within the framework
of, equality plans and positive action programmes.

(4)       In recent years the
European Commission has presented several reports taking stock of the situation
concerning gender diversity in economic decision-making.[23] The Commission has encouraged
publicly listed companies in the European Union to increase the number of women
on their boards by self-regulatory measures and to make concrete voluntary
commitments in that regard. [24]
In its Women's Charter[25]
of 5 March 2010, the European Commission underlined that women still do not
have full access to the sharing of power and decision-making in political and
economic life and reaffirmed its commitment to use its powers to promote a
fairer representation of women and men in positions of responsibility. Improving
the gender balance in decision-making was defined by the Commission's strategy
for equality between women and men 2010-2015[26]
as one of its priority tasks.

(5)       In the European Pact for
Gender Equality 2011-2020, which was adopted on 7 March 2011, the Council
acknowledged that gender equality policies are vital to economic growth,
prosperity and competitiveness, reaffirmed its commitment to close the gender
gaps with a view to meeting the objectives of the Europe 2020 Strategy,
especially in three areas of great relevance to gender equality, namely
employment, education and social inclusion, and urged action to promote the
equal participation of women and men in decision-making at all levels and in
all fields, in order to make full use of all available talent.

(6)       The European Parliament,
in its resolution on women and business leadership of 6 July 2011[27], urged companies to attain the
critical threshold of 30 per cent female membership of management bodies by
2015 and 40 per cent by 2020. It called on the Commission, if the steps taken
by companies and the Member States were found to be inadequate, to propose
legislation by 2012, including quotas. The European Parliament reiterated that
call for legislation in its resolution of 13 March 2012 on equality between
women and men in the European Union – 2011.[28]

(7)       The efficient use of human
capital is the most important determinant of an economy's competitiveness and
is key to addressing the EU's demographic challenges, to competing successfully
in a globalised economy and to ensuring a comparative advantage vis-à-vis third
countries. The pool of highly trained and qualified women is constantly growing
as evidenced by the fact that 60 per cent of university graduates are female. A
continued failure to draw on this pool in appointments to economic
decision-making positions would amount to a failure to fully exploit skilled
human capital.

(8)       At company level, it is
widely acknowledged that the presence of women on boards improves corporate
governance, because team performance and the quality of decision-making are
enhanced due to a more diverse and collective mind-set incorporating a wider
range of perspectives and therefore reaching more balanced decisions. Numerous
studies have also shown that there is a positive relationship between gender
diversity at top management level and a company's financial performance and
profitability. Enhancing female representation on the boards of publicly listed
companies in the Union can therefore have a positive impact on the performance
of companies concerned.

(9)       Existing evidence also shows
that labour market equality can improve economic growth substantially.
Enhancing female presence in the boardrooms of listed companies in the Union
not only affects the women appointed to boards, but also contributes to
attracting female talent to the company and ensuring a greater presence of
women at all levels of management and in the workforce. Therefore, a higher
share of women on company boards has a positive impact on closing both the
gender employment gap and the gender pay gap. Making full use of the existing
female talent pool would constitute a marked improvement in terms of return on
education for both individuals and the public sector. Female under-representation
in the board rooms of publicly listed companies in the EU is a missed
opportunity in terms of achieving long-term sustainable growth for Member
States' economies at large.

(10)     Despite the existing Union
legislation aimed at preventing and combating sex discrimination, the Council
recommendations aimed specifically at increasing the presence of women in
economic decision-making and Union-level actions encouraging self-regulation,
women continue to be strongly outnumbered by men in the highest decision-making
bodies of companies throughout the Union. In the private sector and especially
in listed companies this gender imbalance is particularly significant and
acute. The Commission's key indicator of gender representation on corporate
boards shows that the proportion of women involved in top-level business
decision-making remains very low. In January 2012, women occupied on average
just 13.7 per cent of board seats in the largest publicly listed companies in
Member States. Among non-executive directors only 15 per cent were women.

(11)     The proportion of women on
company boards is progressing very slowly, with an average annual increase of
just 0.6 percentage points during the past years. The
rate of improvement has differed in individual Member States and has led to highly
divergent results. Much more significant progress was noted in the Member
States where binding measures have been introduced. Growing
discrepancies between Member States are likely to increase given the very
different approaches pursued by individual Member States to increase the representation
of females on boards that are being pursued by individual Member States.

(12)     The
scattered and divergent regulation or the absence of regulation at
national level as regards the gender balance on boards of listed companies does
not only lead to discrepancies in the number of women among non-executive
directors and different rates of improvement across Member States, but also
poses barriers to the internal market by imposing divergent corporate
governance requirements on European listed companies.
Those differences in legal and self-regulatory requirements for the
composition of corporate boards can lead to practical complications for listed
companies operating across borders, notably when establishing subsidiaries or
in mergers and acquisitions, as well as for candidates for board positions.

(13)     The current lack of
transparency of the selection procedures and qualification criteria for board
positions in most Member States represents a significant barrier to more gender
diversity among board members and negatively affects both the board candidates'
careers and freedom of movement, as well as investor decisions. Such lack of
transparency prevents potential candidates for board positions from applying to
boards where their qualifications would be most required and from challenging
gender-biased appointment decisions, thus restricting their freedom of movement
within the internal market. On the other hand, investors have different
investment strategies that require information linked also to the expertise and
competence of the board members. More transparency in the qualification
criteria and the selection procedure for board members enables investors to
better assess the company's business strategy and to take informed decisions.

(14)     While this Directive does
not aim to harmonise national laws on the selection procedures and
qualification criteria for board positions in detail, the introduction of
certain minimum standards as regards the requirement for listed companies without
balanced gender representation to take appointment decisions for non-executive
directors on the basis of an objective comparative assessment of the
qualifications of candidates in terms of suitability, competence and
professional performance is necessary in order to attain gender balance among
non-executives directors. Only an EU-level measure can effectively help to ensure
a competitive level-playing field throughout the Union and avoid practical
complications in business life.

(15)     The Europe 2020 Strategy
for Smart, Sustainable and Inclusive Growth[29]
ascertained that increased female labour force participation is a precondition
for boosting growth and for tackling demographic challenges in Europe. The
Strategy set a headline target of reaching an employment rate of 75 per cent
for women and men aged 20-64 by 2020, which can only be reached if there is a clear commitment to gender equality and a reinforced
effort to tackle all barriers to women's participation in the labour market.
The current economic crisis has magnified Europe's ever-growing need to rely on
knowledge, competence and innovation and to make full use of the pool of
available talent. Enhancing female participation in economic decision-making, on
company boards in particular, is expected to have a positive spill-over effect
on female employment in the companies concerned and throughout the whole
economy.

(16)     The Union should therefore
aim to increase the presence of women on company boards, in order both to boost
economic growth and the competitiveness of European companies and to achieve
effective gender equality on the labour market. This aim should be pursued
through minimum requirements on positive action in the form of binding measures
aiming at attaining a quantitative objective for the gender composition of
boards of listed companies, in the view of the fact that Member States and
other countries which have chosen this or a similar method have achieved the
best results in reducing the under-representation of women in economic
decision-making positions.

(17)     Companies listed on stock
exchanges enjoy a particular economic importance, visibility and impact on the
market as a whole. The measures provided for in this Directive should therefore
apply to listed companies, which are defined as companies incorporated in a
Member State whose securities are admitted to trading on a regulated market
within the meaning of Article 4(1) (14) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on
markets in financial instruments,[30]
in one or more Member States. These companies set standards for the economy in
its entirety and their practices can be expected to be followed by other types
of companies. The public nature of listed companies justifies that they be
regulated to a greater extent in the public interest.

(18)     This Directive should not
apply to micro, small and medium-sized enterprises (SMEs),
as defined by Commission Recommendation 2003/361/EC of 6 May 2003 concerning
the definition of micro, small and medium-sized enterprises,[31] even if they are listed
companies.

(19)     There are various systems
of board structures for listed companies in the Member States, the main
distinction being between a dual ('two-tier') system with both a management
board and a supervisory board and a unitary ('one-tier') system combining the
management and supervisory function in a single board. There are also mixed
systems, which feature aspects of both systems or give companies an option
between different models. The measures provided for in this Directive should
apply to all board systems in the Member States.

(20)     All board systems
distinguish between executive directors, who are involved in the daily
management of the company, and non-executive directors who are not involved in
the daily management, but do perform a supervisory function. The quantitative objectives
provided for in this Directive should apply only to the non-executive directors
in order to strike the right balance between the need to increase the gender
diversity of boards and the need to minimise interference with the day-to-day management of a company. As the
non-executive directors perform supervisory tasks, it is also easier to recruit
qualified candidates from outside the company and to a large extent also from outside
the specific sector in which a company operates – a consideration which is of
importance for areas of the economy where members of a particular sex are especially
under-represented in the workforce.

(21)     In several Member States, a
certain proportion of the non-executive directors can or must be appointed or
elected by the company's workforce and/or organisations of workers pursuant to
national law or practice. The quantitative objectives provided for in this
Directive should apply to all non-executive directors including employee
representatives. However, the practical procedures for ensuring that those
objectives are attained, taking into account the fact that some non-executive
Directors are employee representatives, should be defined by the Member States
concerned.

(22)     Listed companies in the
Union should be imposed obligations of means providing for appropriate procedures
with a view of meeting specific objectives regarding the gender composition of
their boards. Those listed companies in whose boards members of the
under-represented sex hold less than 40 per cent of non-executive director
positions should make the appointments to those positions on the basis of a
comparative analysis of the qualifications of each candidate, by applying
pre-established, clear, neutrally formulated and unambiguous criteria, in order
to attain the said percentage at the latest by 1 January 2020. Therefore, the
Directive establishes the objective of at least 40 per cent of non-executive
directors of the under-represented sex by that date. This objective in
principle only concerns the overall gender diversity among the non-executive
directors and does not interfere with the concrete choice of individual
directors from a wide pool of male and female candidates in each individual
case. In particular, it does not exclude any particular candidates for director
positions, nor does it impose any individual directors on companies or
shareholders. The decision on the appropriate board members thus remains with
the companies and shareholders.

(23)     Member States exercise a dominant
influence over listed companies which are public undertakings within the
meaning of Article 2(b) of Commission Directive 2006/111/EC of 16 November 2006
on the transparency of financial relations between Member States and public
undertakings, as well as on financial transparency within certain undertakings.[32] Due to that dominant influence,
they have the instruments at their disposal to bring about the necessary change
more rapidly. Therefore, in such companies the objective of least 40 per cent
of non-executive directors of the under-represented sex should be set at an earlier
date.

(24)     Determining the number of
non-executive director positions necessary to meet the objective requires further
specification since for most board sizes it is mathematically possible only to go
beyond or remain below the exact share of 40 per cent. Therefore, the number of
board positions necessary to meet the objective should be the number closest to
40 per cent. At the same time, in order to avoid discrimination of the
initially over-represented sex, listed companies should not be obliged to appoint
members of the under-represented sex to half or more of the non-executive board
positions. Thus, for example, members of the under-represented sex should hold
at least one position on boards with three or four non-executive directors, at
least two positions on boards with five or six non-executive directors, and at
least three positions on boards with seven or eight non-executive directors.

(25)     In its case-law[33] on positive action and the compatibility
thereof with the principle of non-discrimination on ground of sex (now also
laid down in Article 21 of the Charter of Fundamental Rights of the European
Union), the Court of Justice of the European Union accepted that priority may
in certain cases be given to the under-represented sex in selection for employment
or promotion, provided that the candidate of the under-represented sex is
equally qualified as the competitor of the other sex in terms of suitability,
competence and professional performance, that the priority is not automatic and
unconditional but may be overridden if reasons specific to an individual
candidate of the other sex tilt the balance in that candidate's favour, and that the application of each candidate is subject of an objective
assessment which takes account of all criteria specific to the individual
candidates.

(26)     In line with that case-law,
Member States should ensure that the selection of the best
qualified candidates for non-executive directors is based on a comparative
analysis of the qualifications of each candidate on the basis of
pre-established, clear, neutrally formulated and
unambiguous criteria. Examples of types of selection
criteria that companies could apply include professional experience in
managerial and/or supervisory tasks, knowledge in specific relevant areas such
as finance, controlling or human resources management, leadership and
communication skills and networking abilities. Priority
should be given to the candidate of the under-represented sex if that candidate
is equally qualified as the candidate of the other sex in terms of suitability,
competence and professional performance, and if an
objective assessment taking account of all criteria specific to the individual
candidates does not tilt the balance in favour of a candidate of the other sex.

(27)     The methods of recruiting
and appointing directors differ from one Member State to another and from one company
to another. They may involve the pre-selection of candidates to be presented to
the shareholders' assembly, for example by a nomination committee, the direct
appointment of directors by individual shareholders or a vote in the
shareholders' assembly on individual candidates or lists of candidates. The
requirements concerning the selection of candidates should be met at the
appropriate stage of the selection process in accordance with national law and the
articles of association of the listed companies concerned. In this respect, this
Directive only establishes a minimum harmonisation of selection procedures,
making it possible to apply the conditions provided for by the case-law of the
Court of Justice with a view to attaining the objective of a more balanced
gender representation in the boards of listed companies.

(28)     This Directive aims to
improve the gender balance among directors of companies listed on stock
exchanges and thus to contribute to the realisation of the principle of equal
treatment between men and women, recognised as a fundamental right of the
Union. Listed companies should therefore be required to disclose, upon the
request of an unsuccessful candidate, not only the qualification criteria upon
which the selection was based, but also the objective comparative assessment of
those criteria and, where relevant, the considerations tilting the balance in
favour of a candidate who is not of the under-represented sex . These
limitations to the right to respect for private life with regard to the
processing of personal data, recognised by the Articles 7 and 8 of the Charter,
and the obligation for listed companies to supply that information, upon request,
to the unsuccessful candidate, are necessary and, in conformity with the
principle of proportionality, genuinely meet recognised objectives of general
interest. They are therefore in line with the requirements for such limitations
laid down in Article 52(1) of the Charter and with the relevant case-law of the
Court of Justice.

(29)     Where an unsuccessful
candidate of the under-represented sex establishes the presumption they were
equally qualified as the appointed candidate of the other sex, the listed
company should be required to demonstrate the correctness of the choice.

(30)     Member States should
provide for effective, proportionate and dissuasive sanctions for breaches of
this Directive, which could include, inter alia, administrative fines and nullity
or annulment declared by a judicial body of the appointment or of the election
of non-executive directors made contrary to the national provisions adopted
pursuant to Article 4(1).

(31)     Since the gender
composition of the workforce has a direct impact on the availability of
candidates of the under-represented sex, Member States may provide that where
the members of the under-represented sex make up less than 10 per cent of the
workforce the company concerned should not be required to meet the objective
laid down in this Directive.

(32)     Since listed companies
should aim to increase the proportion of the under-represented sex in all decision-making
positions, Member States may provide that the objective laid down in this
Directive should be considered to be met where listed companies can show that
members of the under-represented sex hold at least one third of all director
positions, irrespective of whether they are executive or non-executive.

(33)     In addition to the measures
relating to non-executive directors, and with a view also to improving the
gender balance among directors involved in daily management tasks, listed
companies should be required to make individual commitments regarding the
representation of both sexes among executive directors, to be achieved at the
latest by 1 January 2020. These commitments should aim to achieve tangible
progress from the individual company's current position towards better gender
balance.

(34)     Member States should
require listed companies to provide information on the gender composition of
their boards as well as information on how they managed to meet the objectives laid
down in this Directive, on a yearly basis to the competent national authorities
in order to enable them to assess the progress of each listed company towards
gender balance among directors. Such information should be published and, where
the company in question has not met the objective, it should include a
description of the measures that it has taken so far and intends to take in the
future in order to meet the objective.

(35)     Member States may have
already taken measures providing for means to ensure a more balanced
representation of women and men in company boards before the entry into force
of this Directive. Such Member States should have an opportunity to apply those
measures in place of the procedural requirements relating to appointments where
they can demonstrate that the measures taken are of equivalent efficacy in
order to attain the objective of a presence of the under-represented sex of at
least 40 per cent among non-executive directors of listed companies at the
latest by 1 January 2020 or at the latest by 1 January 2018 in case of listed
companies which are public undertakings.

(36)     This
Directive respects fundamental rights and observes the principles recognised by
the Charter of Fundamental Rights of the European Union. In particular, it
contributes to the fulfilment of the right to equality between women and men
(Article 23 of the Charter), the freedom to choose an occupation and the right
to engage in work (Article 15 of the Charter). This Directive seeks to ensure
full respect for the right to an effective remedy and a fair hearing (Article
47 of the Charter). The limitations on the exercise of the freedom to conduct
business (Article 16 of the Charter) and of the right to property (Article
17(1) of the Charter) respect the essence of those rights and freedoms and are
necessary and proportionate. They genuinely meet objectives of general interest
recognised by the Union and the need to protect the rights and freedoms of
others.

(37)     While some Member States
have taken regulatory action or encouraged self-regulation with mixed results,
the majority of Member States have not taken action or indicated their
willingness to act in a way that would bring about sufficient improvement. Projections
based on a comprehensive analysis of all available information on past and
current trends as well as intentions show that a balanced gender representation
among non-executive board members across the Union in line with the objectives
set out in this Directive will not be achieved by Member States acting
individually at any point in the foreseeable future. In the light of those
circumstances and given the growing discrepancies between Member States
in terms of the representation of women and men on company boards, the gender
balance on corporate boards across the Union can only be improved through a
common approach, and the potential for gender equality, competitiveness and
growth can be better achieved through coordinated action at Union level rather
than through national initiatives of varying scope, ambition and effectiveness.
Since the objectives of this Directive cannot be
sufficiently achieved by the Member States and can, therefore, by reason of the
scale and effect of action, be better achieved at Union level, the Union may
adopt measures in accordance with the principle of subsidiarity as set out in
Article 5 of the Treaty on European Union.

(38)     In
accordance with the principle of proportionality, as set out in that same
Article, this Directive is limited to setting common
objectives and principles and does not go beyond what is
necessary in order to achieve those objectives. Member
States are given sufficient freedom to determine how the objectives laid down
in this Directive should best be achieved taking national circumstances into
account, in particular rules and practices concerning recruitment for board
positions. This Directive does not interfere with the possibility for companies
to appoint the most qualified board members, and it grants a sufficiently long
period of adaptation for all listed companies.

(39)     In accordance with the
principle of proportionality, the objective to be met by listed companies
should be limited in time and remain in force only until sustainable progress has
been achieved in the gender composition of boards. For that reason, the
Commission should regularly review the application of
this Directive and report to the European Parliament and the Council. The Directive is due to expire on 31 December 2028. The Commission should
assess, in its review, if there is a need to extend the duration of the
Directive beyond that period.

(40)     In accordance with the
Joint Political Declaration of Member States and the Commission of 28 September
2011 on explanatory documents,[34]
Member States have undertaken, in justified cases, to accompany the
notification of their transposition measures with one or more documents
explaining the relationship between the components of a directive and the
corresponding parts of national transposition instruments. With regard to this
Directive, the legislator considers the transmission of such documents to be
justified.

HAVE ADOPTED THIS DIRECTIVE:

Article 1
Subject matter

This Directive
lays down measures to ensure a more balanced representation of men and women
among the non-executive directors of listed companies by establishing measures
aimed at accelerated progress towards gender balance while allowing companies
sufficient time to make the necessary arrangements.

Article 2
Definitions

For the
purposes of this Directive, the following definitions shall apply:

(1)
‘listed company’ means a company incorporated in
a Member State whose securities are admitted to trading on a regulated market
within the meaning of Article 4(1) (14) of Directive 2004/39/EC, in one or more
Member States;

(2)
‘board’ means any administrative, managerial or
supervisory body of a company;

(3)
‘director’ means any member of a board,
including an employees' representative;

(4)
‘executive director’ means any member of a
unitary board who is engaged in the daily management of the company and any
member of a managerial board in a dual board system;

(5)
‘non-executive director’ means any member of a
unitary board other than an executive director and any member of a supervisory
board in a dual board system;

(6)
‘unitary board’ means a single board that
combines the management and the supervisory functions of a company;

(7)
‘dual board system’ means a system in which the
management and supervisory functions of a company are carried out by separate
boards;

(8)
‘small and medium-sized enterprise’ or ‘SME’
means a company which employs less than 250 persons and has an annual turnover
not exceeding EUR 50 million or an annual balance sheet total not exceeding EUR
43 million, or, for an SME which is incorporated in a Member State whose
currency is not the euro, the equivalent amounts in the currency of that Member
State;

(9)
‘public undertaking’ means an undertaking over
which the public authorities may exercise directly or indirectly a dominant
influence by virtue of their ownership thereof, their financial participation
therein, or the rules which govern it. A dominant influence on the part of the
public authorities shall be presumed when these authorities, directly or
indirectly in relation to an undertaking:

–
hold the major part of the undertaking’s
subscribed capital; or

–
control the majority of the votes attaching to
shares issued by the undertakings; or

–
can appoint more than half of the members of the
undertaking's administrative, managerial or supervisory body.

Article 3
Exclusion of small and medium-sized enterprises

This Directive shall not apply to small and
medium-sized enterprises ('SMEs').

Article 4
Objectives with regard to non-executive directors

1.           Member
States shall ensure that listed companies in whose boards members of the under-represented
sex hold less than 40 per cent of the non-executive director positions make the
appointments to those positions on the basis of a comparative analysis of the
qualifications of each candidate, by applying pre-established, clear, neutrally
formulated and unambiguous criteria, in order to attain the said percentage at the latest by 1 January 2020 or at the
latest by 1 January 2018 in case of listed companies which are public undertakings.

2.           The number of
non-executive director positions necessary to meet the objective laid down in
paragraph 1 shall be the number closest to the proportion of 40 per cent, but
not exceeding 49 per cent.

3.           In order to attain the objective
laid down in paragraph 1, Member States shall ensure that, in the selection of
non-executive directors, priority shall be given to the candidate of the under-represented
sex if that candidate is equally qualified as a candidate of the other sex in
terms of suitability, competence and professional performance, unless an
objective assessment taking account of all criteria specific to the individual
candidates tilts the balance in favour of the candidate of the other sex.

4.           Member States shall ensure
that listed companies are obliged to disclose, on the request of an
unsuccessful candidate, the qualification criteria upon which the selection was
based, the objective comparative assessment of those criteria and, where
relevant, the considerations tilting the balance in favour of a candidate of the
other sex.

5.           Member States shall take
the necessary measures, in accordance with their national judicial systems, to
ensure that where an unsuccessful candidate of the under-represented sex
establishes facts from which it may be presumed that that candidate was equally
qualified as the appointed candidate of the other sex, it shall be for the
listed company to prove that there has been no breach of the rule laid down in
paragraph 3.

6.           Member States may provide
that listed companies where the members of the under-represented sex represent
less than 10 per cent of the workforce are not subject to the objective laid
down in paragraph 1.

7.           Member States may provide
that the objective laid down in paragraph 1 is met where listed companies can
show that members of the under-represented sex hold at least one third of all
director positions, irrespective of whether they are executive or
non-executive.

Article 5
Additional measures by companies and reporting

1.           Member States shall ensure
that listed companies undertake individual commitments regarding gender-balanced
representation of both sexes among executive directors to be achieved at the
latest by 1 January 2020, or, in
case of listed companies which are public undertakings, by 1 January 2018.

2.           Member States shall
require listed companies to provide information to the competent national
authorities, once a year as from [two years after adoption], about the
gender representation on their boards, distinguishing between non-executive and
executive directors and about the measures taken in view of the objectives laid
down in Article 4(1) and in paragraph 1 of this Article, and to publish that
information in an appropriate and accessible manner on their website.

3.           Where a listed company
does not meet the objectives laid down in Article 4(1) or its own individual
commitments taken pursuant to paragraph 1 of this Article, the information
referred to in paragraph 2 of this Article shall include the reasons for not reaching
the objectives or commitments and a description of the measures which
the company has adopted or intends to adopt in order to meet the objectives or
commitments.

4.           Member States shall take
the necessary measures to ensure that the body or bodies designated in
accordance with Article 20 of Directive 2006/54/EC of the European Parliament
and of the Council of 5 July 2006 on the implementation of the principle
of equal opportunities and equal treatment of men and women in matters of
employment and occupation (recast)[35]
are also competent for the promotion, analysis, monitoring and support of
gender balance on the boards of listed companies.

Article 6
Sanctions

1.           Member States shall lay
down rules on sanctions applicable to infringements of the national provisions
adopted pursuant to this Directive and shall take all necessary measures to
ensure that they are applied.

2.           The sanctions must be
effective, proportionate and dissuasive and may include the following measures:

(a)
administrative fines;

(b)
nullity or annulment declared by a judicial body
of the appointment or of the election of non-executive directors made contrary
to the national provisions adopted pursuant to Article 4(1).

Article 7
Minimum requirements

Member States
may introduce or maintain provisions which are more favourable than those laid
down in this Directive to ensure a more balanced representation of men and
women in respect of companies incorporated in their national territory,
provided those provisions do not create unjustified discrimination, nor hinder
the proper functioning of the internal market.

Article 8
Implementation

1.           Member States shall adopt
and publish, by [two years after adoption] at the latest, the laws,
regulations and administrative provisions necessary to comply with this
Directive. They shall forthwith communicate to the Commission the text of those
provisions.

2.           When Member States adopt
those provisions, they shall contain a reference to this Directive or be
accompanied by such a reference on the occasion of their official publication.
Member States shall determine how such reference is to be made.

3.           Without
prejudice to Article 4(6) and (7), Member States which before the entry into
force of this Directive have already taken measures to ensure a more balanced
representation of women and men among the non-executive directors of listed
companies may suspend the application of the procedural requirements relating
to appointments contained in Article 4(1), (3), (4) and (5), provided that it
can be shown that those measures enable members of the under-represented sex to
hold at least 40 per cent of the non-executive director positions of listed
companies by at the latest 1 January 2020, or at the latest 1 January 2018 for
listed companies which are public undertakings.

The Member State in question shall notify this
information to the Commission.

4.           Member States shall
communicate to the Commission the text of the main provisions of national law
which they adopt in the field covered by this Directive.

Article 9
Review

1.           Member
States shall communicate to the Commission by 1 January 2017 at the latest and
every two years thereafter a report on the implementation of this Directive.
These reports shall include, amongst others, comprehensive information about the
measures taken with a view to attaining the objectives laid down in Article 4(1),
information provided in accordance with Article 5(2) and information about individual
commitments taken by listed companies pursuant to Article 5(1).

2.           Member
States having suspended pursuant to Article 8(3) the application of the
procedural requirements relating to appointments contained in Article 4(1),
(3), (4) and (5) shall include information in the reports mentioned in
paragraph 1 demonstrating the concrete results obtained by the national
measures  referred to in Article 8(3). The Commission shall then issue a
specific report ascertaining whether those measures effectively enable members
of the under-represented sex to hold at least 40 per cent of the non-executive
director positions by 1 January 2018 for listed companies which are public
undertakings, and by 1 January 2020 for listed companies which are not public
undertakings. The first such report shall be issued by the Commission by 1 July
2017, and subsequent reports shall be issued within six months after
notification of the respective national reports under paragraph 1.

Member States in question shall ensure that
listed companies, which by applying the national measures referred to in
Article 8(3) have not appointed or elected members of the under-represented sex
for at least 40 per cent of the non-executive director positions of their
boards by 1 January 2018, where they are public undertakings, or by 1 January
2020, where they are not public undertakings, apply the procedural requirements
relating to appointments contained in Article 4(1), (3), (4) and (5)  with
effect respectively from those dates.

3.           The
Commission shall review the application of this Directive and report to the
European Parliament and the Council by 31 December 2021 at the latest and every
two years thereafter. The Commission shall evaluate in particular whether the
objectives of this Directive have been achieved.

4.           In its report, the
Commission shall assess whether, in the light of developments in the
representation of men and women in the boards of listed companies and at
different levels of decision-making throughout the economy and taking into
account whether the progress made is sufficiently sustainable, there is a need
to extend the duration of this Directive beyond the date specified in Article
10(2) or to amend it.

Article 10
Entry into force and expiry

1.           This Directive shall enter
into force on the [twentieth] day following that of its publication in
the Official Journal of the European Union.

2.           It shall expire on 31 December
2028.

Article 11
Addressees

This Directive is addressed to the Member States.

Done at Brussels,

For the European Parliament                       For
the Council

The President                                                 The
President

[1]               This gender imbalance is striking in all EU Member
States, with national averages ranging from around 5% in MT, CY, HU, LU, LU,
PT, IT, EE and EL to around 25% in SE, LV and FI. The share of women varies
across Member States between around 3% and around 28% for non-executive
directors and between 0% and around 21% for executive directors. See Progress
report: Women in economic decision-making in the EU, March 2012 (http://ec.europa.eu/justice/gender-equality/files/women-on-boards_en.pdf).

[2]               Some examples: 30% of women at the highest level of national
public administrations, 33% of women among members of supreme courts. In
research institutions, 22% of board members are women (2007). Only national
central banks have remained against all trends almost exclusively male
dominated strongholds: 83% of their board members are men and there is at the
moment not a single female central bank governor in the EU.

[3]               OJ L 331, 19.12.1984, p. 34 and OJ L 319, 10.12.1996,
p. 11.

[4]               See Progress report, footnote 1.

[5]               From October 2010 to January 2012, the by far largest
increase of the share of women on company boards has been registered in France
(increase of 10 percentage points to 22%), where companies reached the first
target introduced by a new law in January 2011 (20% by 2014, 40% by 2017) ahead
of schedule. Norway increased the female share of board members from 18% in
2006, when the binding target was introduced, to 40% within only three years.

[6]               Most recently: Credit Suisse Research Institute
(August 2012), "Gender diversity and corporate performance". Other
important studies include: Catalyst (2004), "The Bottom Line: Connecting
Corporate Performance and Gender Diversity"; McKinsey (reports of 2007,
2008 and 2010), "Women Matter"; Deutsche Bank Research (2010), "Towards
gender-balanced leadership"; Ernst & Young (2012), "Mixed
leadership".

[7]               Women account for around 60% of university graduates
in the EU. More importantly, the European Business Schools Women on Board
Initiative was able to quickly identify more than 7000 'boardable' women who
are highly qualified, professionally experiences and ready to take over a board
position (http://www.edhec.com/html/Communication/womenonboard.html).

[8]               COM(2010) 78 final.

[9]               COM(2010) 491 final.

[10]             See Commission report 'More women in senior positions',
January 2010; Commission Staff Working Paper 'The Gender Balance in Business
Leadership', March 2011 (SEC(2011) 246 final); Progress Report 'Women in
economic decision-making in the EU', March 2012; Commission Staff Working
Document 'Progress on equality between women and men in 2011', April 2012
(SWD(2012) 85 final).

[11]             See e.g. Resolution of 6 July 2011 on women and
business leadership (2010/2115(INI)), Resolution of 13 March 2012 on equality
between women and men in the European Union – 2011 (2011/2244(INI)).

[12]             In particular Directives 2006/54/EC and 2010/41/EU.

[13]             Special Eurobarometer 376 (2012), Women in
decision-making positions (http://ec.europa.eu/public_opinion/archives/eb_special_379_360_en.htm#376).

[14]             OJ L 52, 25.2.2005, p. 51.

[15]             OJ L 124, 20.5.2003, p. 36.

[16]             OJ L 318, 17.11.2006, p. 17.

[17]             OJ L 124, 20.05.2003, p. 36

[18]             OJ L 318, 17.11.2006, p. 17.

[19]             C-450/93: Kalanke (1995 ECR I-3051), C-409/95:
Marschall (1997 ECR I-6363), C-158/97: Badeck (2000 ECRI I-1875), C-407/98:
Abrahamsson (2000 ECR I-5539).

[20]             OJ C , , p. .

[21]             OJ L 331, 19.12.1984, p. 34.

[22]             OJ L 319, 10.12.1996, p.11.

[23]             Commission report 'More women in senior positions'
(2010); Commission Staff Working Paper 'The Gender Balance in Business
Leadership' of 1.3.2011 (SEC(2011) 246 final); Progress Report 'Women in
economic decision-making in the EU' of 5.3.2012; Commission Staff Working
Document 'Progress on equality between women and men in 2011' of 16.4.2012
(SWD(2012) 85 final).

[24]             'Women on the Board Pledge for Europe', IP/11/242.

[25]             COM(2010) 78 final.

[26]             COM(2010) 491 final.

[27]             2010/2115(INI).

[28]             2011/2244(INI).

[29]             COM(2010)
2020 final.

[30]             OJ L 145, 30.4.2004, p. 1.

[31]             OJ L 124, 20.5.2003, p. 36.

[32]             OJ L 318, 17.11.2006, p. 17.

[33]             C-450/93: Kalanke (1995 ECR I-3051), C-409/95: Marschall
(1997 ECR I-6363), C-158/97: Badeck (2000 ECRI I-1875), C-407/98:
Abrahamsson (2000 ECR I-5539).

[34]             OJ C 369, 17.12.2011, p. 14.

[35]             OJ L 204, 26.7.2006, p. 23.