Implications of the Women on Boards Directive

The European Parliament and the Council finally reached an agreement on 7 June on a Women on Boards Directive requiring gender balance on the boards of directors of public companies. Proposed in 2012, it took a decade of discussion to see if the issue should be addressed at the European level. Some Member States, such as the Netherlands or Germany, did not wait for the outcome of the discussion to take the lead in enacting similar national legislation.

The directive, to be incorporated into national law by 2024, sets a target for a minimum representation threshold of 40% female non-executive directors. Alternatively, listed companies will be able to combine a 33 percent quota for women among executive and non-executive directors.

While regretting the need to use quotas, Stephanie Ferring, partner at Clifford Chance Luxembourg, nonetheless believes it is “a good tool to help make a difference quickly.” As chair of her company’s “diversity and inclusion committee”, she has noticed that in recent years the importance of mainstreaming gender equality in the financial and legal sectors has increased. “We see it both within our firm and in the international companies we work with: there is a growing interest in diversity in all its forms.”

Regardless of the law

The issue of gender diversity in teams has even become key to getting contracts. “For our clients, the diversity of their service provider teams has become an expectation when submitting proposals,” explains Stephanie Ferring, adding, “Regardless of legislation, promoting diversity is now an inevitable reality for many companies.”

Even if the European directive only applies to boards of directors, Stephanie Ferring sees an opportunity for gender diversification at all levels of companies. “In financial sector companies, gender equality is pretty well represented at the beginning of a career,” she says. On the other hand, over time, “many societies lose women as soon as they have a child.” This is why it is “important to build a ‘talent pool’ of women and identify the high potential of women as soon as they are hired in order to promote their retention.”

“role models”

“Intention is not enough,” notes Stephanie Ferring, emphasizing that the acquisition of specific funds is still necessary. “We need to have more female ‘role models’ in leadership positions, like women who have children and demonstrate that it is possible to combine family life with professional responsibilities.” In this respect, she recalls the development of affinity networks such as the Luxembourg Ladies in Law Association (LILLA).

In this way, Stephanie Ferring wants to illustrate that the business world can be a driving force for initiatives that go beyond legislation. “During job interviews, more and more young candidates are asking us questions about what we have implemented in terms of diversity and inclusion. Ten years ago, no one would have asked such questions.” Similarly, many employees want to benefit from “mentoring” in order to gain more personal validation. To do this, many companies in the financial sector use external coaches.

Until such provisions are extended within companies, the Women on Board Directive provides for the monitoring of relevant companies. In the event of non-compliance, companies will be required to disclose the reasons as well as report on the measures taken to address it. Violating companies may also be subject to fines or the complete removal of the appointment of the relevant director.