The boardroom gets a gender reset: The Women on Boards Directive

Authors: Ann Bugeja, Pamela Dingli & Andrew Joseph Mifsud

Directive (EU) 2022/2381, adopted  on November 23rd 2022, and often referred to as the Women on Boards Directive, sets out measurers to improve gender balance among directors of listed companies and related measures, which forms part of the 2020-2025 EU Gender Equality Strategy, acknowledges that boards of relatively large, listed companies should be comprised solely of members who collectively possess diversity of knowledge, judgment and experience to properly execute their duties, irrespective of sex.

Malta has transposed this legislation by introducing a new chapter to the Capital Markets Rules – Chapter 13: ‘Gender Balance among Directors of Listed Companies’ (‘Chapter 13’), exactly on the deadline, that is 28 December 2024.

Who must comply with the Directive

Both the Women on Boards Directive, and the Maltese Implementing rules, apply to listed companies, and do not apply to micro, small and medium sized enterprises (SMEs). Chapter 13 follows suit and excludes SMEs from its application, together with debt issuers. The Directive is addressed at listed companies because the latter set standards for the wider economy and their practices tend to be followed by other types of companies. Furthermore, their public nature justifies their regulation since this is seen to be in the public interest.

Listed companies are defined as any company having its registered office in a Member State (MS) and whose shares are admitted to trading on a regulated market in one or more MS. Chapter 13 defines a ‘listed company’ as a company which has its registered office in Malta and whose shares are admitted to trading on a regulated market within the meaning of Article 2(1) of the Financial Markets Act. SMEs are defined as businesses with fewer than 250 employees and an annual turnover of less than €50 million or an annual balance sheet total of less than €43 million.

In line with the general principle of company law, it is the law of the MS in which the listed company has its registered office which applies.

The Directive applies to all types of Board systems in companies, as including those which have a management and supervisory board, those which have a unitary system combining the two, as well as to those listed companies with mixed systems.

Gender balance targets and timeline

Listed companies are subject to either of the following objectives, to be reached by 30 June 2026:

(a) Members of the underrepresented sex hold at least 40 % of non-executive director positions.

(b) Members of the underrepresented sex hold at least 33 % of all director positions, including both executive and non- executive directors. If a company has its registered office in a MS which chooses to achieve and enforce the achievement of this objective, then they must set individual quantitative objectives with a view to improving the gender balance among executive directors, and such quantitative objectives shall still be reached by 30 June 2026.

It must be noted that the Annex to the Directive, as well as the Appendix to Chapter 13, provide guidelines on exact ratios of men and women in order for a company to be compliant.

What if companies miss the target?

Listed companies which do not achieve the objectives set in the previous section shall adjust the process for selecting candidates for appointment or election to director positions.

The selection shall be based on a comparative assessment of the qualifications of each candidate and on clear, neutrally formulated and unambiguous criteria in advance. Such criteria shall be applied in a non-discriminatory manner throughout the entire selection process. The most contentious provision seems to be the one stating that when choosing between candidates who are equally qualified in terms of suitability, competence and professional performance, priority is given to the candidate of the underrepresented sex.

The listed shall inform the candidate, upon the latter’s request, with regards to the qualification criteria, the objective comparative assessment of the candidates under those criteria and where relevant, the specific considerations exceptionally tilting the balance in favour of a candidate who is not of the underrepresented sex.

In any case, unsuccessful candidates of the underrepresented sex have every right to institute action before the competent courts to enforce any rights granted by the Directive in their regard. During such proceedings, and as is the case with other equality and anti-discrimination directives, the burden of proof shifts onto the listed company.

The Directive also holds that where appointment or election to director positions is done by means of a vote taken by shareholders or employees, MS must require that listed companies ensure that the voters are properly informed of this Directive and its provisions and objectives, as well as the penalties which may result in case of non-compliance.

Annual reporting under the Women on Boards Directive,  MS  must require listed companies to provide the competent authorities in that MS – in the local scenario, MFSA – with an annual report containing information about the gender representation on that Company’s board, and explaining the measures taken to ensure compliance with the directive. If the listed company is non-compliant, in its annual report it must provide reasons for this, accompanied by the measures it has taken or intends to take to remedy the situation.

Such information must also be published on the company’s website, and MS must have an easily accessible list of listed companies which are compliant with the directive. Where applicable, the information shall also be included in the company’s corporate governance statement.

Enforcement measures and penalties

When it comes to enforcement, MS shall lay down penalties for infringements by listed companies which are uncompliant with the directive. It also empowers MS to take all necessary measures to make uncompliant companies comply with the Directive, including having sufficient administrative and judicial procedures available to enforce compliance. With the ever-present wording, ‘penalties are to be effective, proportionate and dissuasive’, there is no suggested quantum or range when it comes to penalties. The directive does however state that penalties need not be solely pecuniary but may take the form of judicial orders annulling company appointments of directors in case of non-compliance. Since the Directive affects public listed companies which are not SMEs, for a fine to be dissuasive and effective at punishing non-compliance, fines may be rather hefty.  

Impact of the Women on Boards Directive Across the EU, women make up 34% of the share of members of boards in largest quoted companies, supervisory boards or boards of directors, even though 60% of university graduates are female.

Although the Women on Boards Directive took about ten years of discussions until agreement on the text was reached in 2022, gender equality on company boards have indeed improved since then. In fact, the 2024 European Institute for Gender Equality (EIGE) Index rated women’s empowerment in economic decision-making at 57,6 points out of 100, 2,9 points higher than in 2023. This shows that legislative action to address gender imbalance does drive progress. Indeed, in 2026, the European Commission will adopt a Roadmap for Women’s Rights to further strengthen its commitment to a Union of Equality by strengthening further women’s rights in both in the labour market and in leadership positions.