The number of women on the boards of directors and supervisory boards of (large) companies has been a topic of political concern for years. Various attempts have been made at both European and national level to achieve a better gender balance on boards of directors and supervisory boards. In the Netherlands, this has resulted in a temporary statutory regulation, laid down in Book 2 of the Dutch Civil Code (BW), which expired on 1 January 2020. This statutory regulation meant that large B.V.s and N.V.s had to strive for a balanced distribution of seats on the management and supervisory boards in accordance with the so-called ‘comply or explain’ principle.
The ‘comply or explain’ principle means that companies are in principle obliged to achieve a balanced composition of the management board and supervisory board, but if they are unable to do so, they can instead offer an explanation of their failure. Unfortunately, this approach has not led to the desired effect.
However, the number of women on the boards of large companies has increased from 7.4% at the end of 2012 to 12.4% at the end of 2018. Over the same period, the proportion of women on supervisory boards grew from 9.8% to 18.4%. Although this is an improvement, the increase is still insufficient.
This development prompted the Cabinet to ask the Social and Economic Council (SER) to write a report on ‘diversity at the top’. This resulted in an SER advisory report of 20 September 2019. In this report, the SER argues for specific measures aimed at promoting diversity and inclusion at the top of the business community. According to the SER, the policy pursued so far is insufficiently effective.
In response to the SER advisory report, the Minister of Legal Protection and the Minister of Education, Culture and Science submitted a bill to the House of Representatives on 9 November. This bill consists of two separate regulations aimed at stimulating the appointment of women to the boards of management and supervisory directors of (large) companies and, like the temporary regulation mentioned above, aims to amend Book 2 of the Dutch Civil Code.
For listed companies, a quota will be set for a balanced composition of the supervisory board. In concrete terms, this means that, in future, the supervisory board of listed companies must consist of at least one third men and at least one third women. The quota will be enforced at the appointment level. This means that compliance with the quota is checked when a new appointment is made to the supervisory board.
An appointment that does not contribute to the balance of the supervisory board is contrary to the bill and will be void. For example, if a supervisory board consists of 25% women, the company will not be able to appoint a man to the supervisory board. The company will only be able to appoint another man if at least one third of the supervisory board continues to be made up of women after the appointment of a man.
Upon the entry into force of the law, the ingrowth quota will only apply to new appointments to the supervisory board. A supervisory board member who is eligible for reappointment may be reappointed, even if his reappointment would not make the male-female ratio more balanced.
Large unlisted companies
In addition to the enforced quota for listed companies, the bill also introduces a new obligation for large B.V.s and N.V.s. The definition of a large company is in line with article 2:397, subsections 1 and 2 of the Dutch Civil Code. A company is considered to be a large company if it has fulfilled two of the following three criteria on two subsequent balance sheet dates:
The bill imposes an obligation on large companies to set appropriate and ambitious targets in the form of a target figure to make the ratio of men to women on the management and supervisory boards more balanced. In addition, targets must also be set for the ratio in the management layer to be determined by the company and which is part of the management board.
The targets sought should therefore be appropriate and ambitious. ‘Appropriate’ means that the company should provide tailored solutions. The target figure will depend on the size of the management board, the supervisory board, if any, and the management layer below it, as well as on the existing ratio of men to women. ‘Ambitious’ means that the target should aim to achieve a more balanced composition than at present.
Whereas an appointment that is contrary to the enforced quota for listed companies will be null and void, this does not apply to large, unlisted companies. There is no penalty for failure to meet the self-imposed target. However, large companies are required to be transparent about their targets and the progress they have made in achieving them. In order to ensure this transparency, large companies will be required to report annually on progress to the SER within ten months after the end of the financial year.
The bill was only very recently notified to the House of Representatives. It is not yet foreseeable when the bill will actually enter into force and whether it will become law in its current form.