3.3.5 Proposed binding quota – 2020

The Minister of ECS anticipated from the beginning that if a balanced gender distribution on company boards was not achieved, she would consider implementing other, more far-reaching, measures,1 for instance, in the form of mandatory quota. The reason for not introducing binding quota straight away is that the government considers quota a rough remedy that does not automatically fit within Dutch culture.2

In June 2018, the Dutch government asked the Social Economic Council (Sociaal Economische Raad) (SER)3 to advise them on measures that would be effective in reaching the required percentage (30 percent) of women on corporate boards.4 On 20 September 2019, the SER published its report.5 The SER argued that the target figure had not been sufficiently effective because the comply-or-explain mechanism does not work properly and only a limited number of companies complied with the legislation.6 The SER, therefore, proposed the introduction of two new measures: (1) mandatory quota for supervisory boards of listed companies and (2) ‘appropriate and ambitious targets’ (passende en ambitieuze streefcijfers) for the management boards and supervisory boards of large companies.7 The SER’s advice was integrally adopted in the legislative proposal concerning the realization of a balanced proportion of men and women in the management and supervisory boards of large companies, which legislative proposal was submitted to the House of Representatives on 4 November 2020.8

The first measure (mandatory quota) requires that listed companies9 have a supervisory board comprised of at least one-third women and one-third men.10 In contrast to the former target figure, which applied to large companies, this quota will only apply to listed companies, irrespective of their size.11 The quota does not apply to the management board because the SER anticipates that a quota for the supervisory board will also have an effect on the composition of the management board, as the supervisory board is either responsible for appointing the management board or for submitting a recommendation for the appointment of management board members to the general meeting.12 This viewpoint is actually quite surprising, because attaining a composition of one-third women on the supervisory board does not necessarily entail that the management board will also become more ‘gender diverse’, as the figures regarding the progress made in realizing the target figure in Table 3.2 revealed. The proposed quota only applies to the supervisory board and does, therefore, not concern the real positions of power that are responsible for developing and implementing the company strategy, such as the management board.13

The number of women has to be rounded up when calculating the quota.14 As long as the supervisory board is not yet comprised in accordance with the quota (at least one-third women and at least one-third men), a person cannot be newly appointed as supervisory board member if that person does not contribute to meeting or maintaining the quota requirement.15 The consequence will then be that the appointment of a supervisory board member that is not in accordance with the 30 percent quota requirement will be legally void,11216 effective immediately. Consequently, no supervisory board member will be appointed, leaving the position vacant. The voidness of the appointment does not have consequences for the validity of decisions taken by the supervisory board with which the board member whose appointment was void was involved.17 The quota also applies to non-executive directors if the company has a one-tier board.18

An exception applies in the event of reappointment of current supervisory board members within eight years of their initial appointment, in which case the reappointment is allowed even if it does not contribute to a more gender-balanced supervisory board.19 Another exception is in the event of exceptional circumstances. This is the case when the long-term interests and sustainability of the company as a whole are at stake, or the viability of the company cannot be guaranteed.20 The legislative proposal mentions the unexpected resignation of a large part of the supervisory board as an example of an exceptional circumstance.21 When an exceptional circumstance occurs it is possible to appoint a member of the supervisory board who does not contribute to a more gender-balanced board, with the caveat that this appointment is valid for two years only.22 It is not clear why such exceptions are considered justified, as this gives companies another extension of two or four years for their compliance with the quota legislation.

The second measure, ‘appropriate and ambitious targets’, applies to large public and private limited liability companies to which the former target figure also applied (see Section 3.3.3), including listed companies if they meet the requirements for large companies. According to the legislative proposal, companies have to formulate ‘appropriate and ambitious targets’ for achieving a more balanced representation of men and women.23 These targets have to be formulated not only for the management and supervisory boards, but also for management positions. This differs from the former target figure, which only applied to boards.24 The company has to decide which management positions will be subject to the targets.25 The SER proposed that the targets should be set by companies themselves because the type of companies to which the former target figure applied varied quite a lot, and the 30 percent was not appropriate for every company.26 For instance, the companies varied considerably within the sectors in which they operated, in size, in the number of employees and in whether or not they were family-owned businesses.27 With the proposed appropriate and ambitious targets, companies are left to set their own ambitious targets.28 The targets have to be: (1) appropriate, meaning that the size of the boards and the corporate top has to be taken into account; and (2) ambitious, meaning that the targets must set a higher percentage than the existing diversity ratio, thus signaling the intention of achieving a more balanced representation on the boards and in management positions. Should a company not yet have any women on the boards, then the appointment of at least one woman is required.29 When a company has achieved its targets it has then to determine what the next appropriate and ambitious targets will be.30 In the event the management board and the supervisory board both consist of one person, the targets may be formulated for the management board and the supervisory board collectively.31 In the event the management board consists of only one person and there is no supervisory board, the targets do not apply to that board.32

No strict sanctions apply for non-compliance with the second measure, i.e., the appropriate and ambitious targets.33 However, companies have to explain in their annual report what progress has been made in achieving the targets.34 However, as was shown in Section 3.3.4.1 above, the former reporting requirement that applied when the target figure was in force proved not to work properly because companies did not comply with their reporting requirements. It is questionable whether companies will now comply with their reporting requirements. Moreover, the proposal provides for additional disclosure requirements. Every year within ten months after the end of the financial year, a company must report to the SER35 on the number of men and women on the management board, supervisory board and in leadership positions as per the end of that financial year, the company’s gender diversity targets, its plan how to realize the targets and, should the targets not have been met, the reason(s) therefore.36 Similar to the former target figure regime that applied from 2013-2020, shareholders can express dissatisfaction in the general meeting if they are not satisfied with the underrepresentation of women on the boards or if the company fails to set any targets at all and, as a last remedy, they can also decide to not approve the annual report.37

The provisions regarding the quota and the appropriate and ambitious targets will apply for a period of eight years and will be evaluated after five years.38 At this point in time,39 it is not yet clear when the law will enter into force. The legislative proposal was adopted by the House of Representatives on 11 February 2021 and is currently under deliberation in the Senate.40