On 1 January 2022, a new Act on gender diversity in boards of Dutch companies has entered into force. The Act provides for quotas to apply to supervisory boards and non-executive directors of Dutch companies listed on Euronext Amsterdam (AEX). In addition, large Dutch companies (as defined below) have to adopt appropriate and ambitious targets for a more balanced ratio in the number of men and women on the management board, the supervisory board, and those just below board level.
- The law provides for a ‘gradual entry quota’ of 1/3 female gender for the supervisory board of companies listed on the Dutch stock exchange
This gradual entry quota means that where the composition of the supervisory board is not balanced, i.e. at least one-third male or at least one-third female, a person cannot be appointed to the supervisory board unless they contribute to a more balanced composition. Indivisible numbers should be rounded up. For example, a supervisory board consisting of four members must include two men and two women.
The gradual entry quota will apply to public and private limited companies whose shares are listed on the AEX.
Sanction: nullity of the appointment
The appointment of a person that does not contribute to a more balanced composition of the supervisory board is void. However, in order to avoid legal uncertainty for third parties who may not have been aware, or could not have been aware of the appointment being considered void, the sanction should not affect the legal validity of any decisions taken by the appointee.
Exceptions: reappointment and exceptional circumstances
A supervisory director who is eligible for reappointment may be reappointed, even if this reappointment would not improve the male-female ratio. However, the reappointment will only be possible if it takes place within eight years of the first appointment.
In exceptional circumstances, a company may deviate from the quota in order to serve the long-term interests and sustainability of the company as a whole, or to ensure its viability. Such an appointment is only permitted in exceptional circumstances and is limited to a period of two years.
- Appropriate and ambitious targets for the board of directors, the supervisory board and those just below board level of large companies
The law requires large companies to set appropriate and ambitious targets to improve the male-female ratio in (1) the board of directors, (2) the supervisory board and (3) those just below board level. The extent of those just below board level is determined by the company and may include, for example, those in senior management positions or the executive committee.
What is a large company?
A company qualifies as large if it meets at least two of the following criteria on two consecutive balance sheet dates:
- the value of the assets (according to the balance sheet) is more than 20 million EUR;
- the net turnover is more than 40 million EUR; or
- the average number of employees is at least 250.
Appropriate and ambitious targets
Large companies have to set appropriate and ambitious targets and draw up a plan of action. Targets are appropriate and ambitious if they improve the current male-female ratio. Each year the company will have to reconsider if the targets are still appropriate and ambitious. In addition, the company must set out a plan of action of how it intends to meet the target. For example, this could include changing the board profile or the recruitment/selection process.
Transparency obligations and the SEC
Large companies will be required to file an annual report to the Social Economic Council (SEC) within ten months of the end of the financial year (note: the first reporting obligation does not arise until 2023). This report must include:
- the number of men and women on the board of directors, supervisory board and those just below board level at the end of the financial year;
- the objectives in the form of target figures;
- the plan on how to achieve these targets;
- the extent to which the targets set in the previous financial year were achieved; and
- the reasons if one or more targets were not achieved.
Unlike the gradual entry quota, there are no sanctions where a company does not comply with these obligations.
The obligations already arise for companies with regard to the second financial year
What if a company meets the criteria of a large company in the first financial year, but does not yet know whether it will also meet that criteria in the second financial year? According to the SEC, the company will have to anticipate whether it will meet the criteria in the second financial year. This means that the company will have to set target figures and set out a plan of action, even if the company is not yet certain to meet the necessary criteria for reporting in the second year. If, at the end of the second year, it turns out that the company did meet the criteria, it will have to report to the SEC within ten months.
If you have any further questions, we are happy to assist.