Our thoughts on the new EU law on gender balance on corporate boards by Hannu-Matias Nurmi and Tomi Arppe
Tomi: Hannu-Matias, I bet that you’ve heard the news. I’ll summarize this new law in a nutshell and let’s have a chat, shall we?
Hannu-Matias: Sure, we are going to have a thought-provoking discussion on this important topic.
Tomi: Great! Let’s proceed.
What is this new law about?
The European Parliament has formally adopted the new EU law on gender balance on corporate boards. By 2026, companies will need to have 40% of the underrepresented sex among non-executive directors or 33% among all directors.
Next steps
Once published in the Official Journal, the Directive will enter into force 20 days after publication and the Member States will have two years to transpose its provisions into national law. They will have to ensure that companies strive to meet the 40% target for non-executive boards, or 33% for all board members, by 30 June 2026.
Background
The Commission tabled the proposal on gender balance in company boards in November 2012. While the European Parliament adopted its position in 2013, the Council could not reach an agreement with some Member States considering that binding measures at the EU level were not the best way forward.
Finally, on 14 March 2022, the Council adopted its general approach, unblocking the file. On 23 March 2022, the European Parliament reconfirmed its position, allowing the negotiations with the Council of the EU to start. On 7 June 2022, the European Parliament and the Council reached a political agreement, paving the way for the final adoption of the file.
The adopted Directive aims to ensure that gender balance in corporate boards of large listed EU companies is established across the EU, that appointments to board positions are transparent, and that candidates for board positions are assessed objectively based on their individual merits, irrespective of gender.
Source: EU Statement/22/7074 22 November 2022
Hannu-Matias: Tomi, what are your primary thoughts on this?
Tomi: Well, to be honest, this is a good initiative as far as I’m concerned. Here in Finland our Gender Equality Index exceeds the EU average, but progress has been minimal. I think that gender balance drives innovation, and board members´ different ways of approaching challenges and finding solutions. Furthermore, I see an enhanced ability of companies to attract talent and retain employees. What about you, Hannu-Matias, what do you think?
Hannu-Matias: Great points Tomi, easy to agree. I also see more opportunities than threats. According to several studies, diverse groups tend to outperform homogeneous groups in the quality of decision-making. Of course, it needs to be mentioned that gender diversity is just one aspect of diversity, but it is a step in the right direction.
Another point I’d like to mention here is CEO succession planning. Boards are more and more often built in a way that there are one or two potential individuals that could, if the need arises, step in as a new CEO.Is there a flip side here, Tomi? What should be taken into a consideration?
Tomi: The principle of gender equality should not be confused with that of diversity: women are neither a group nor a minority, but more than half of the world’s population, not to mention 45% of the European workforce. The balanced participation of women and men in decision-making bodies is an essential imperative of the fundamental principles of democracy – and now more important than ever. Besides equal treatment with regard to age, cultural and social background, disabilities, sexual orientation, and gender identity, gender equality is a general ideological principle within the European Union and, the process of a sustainable transformation of organizational cultures and structures to combat and reduce gender imbalances and inequalities is still too slow.
Hannu-Matias, when contemplating the corporate board member recruitment, do you see some change in the way of the recruitment process we are about to experience?
Hannu-Matias: That’s a great question. In our work with nomination committees something I see often is thinking and building the Board of Directors as a high-performing team.
What I mean by this is that instead of just gathering a group of individuals with outstanding CVs, more emphasis should be put on building a team with strong trust, commitment, shared vision, open and frank but good-willing and constructive communication, self-reflection, and continuous learning. In board work, as in any team, ‘soft skills’ are what make it or break it. There are many dysfunctional boards with highly merited individuals out there. And that’s bad news for the shareholders.
What I believe will happen in the future is that high prestige and high status associated with the board positions will slowly be replaced by low egos and humble truth-seeking mentality. With this mentality, it’s more important to ask curious questions than come across as confident and knowledgeable. And this is great news for the success of companies.
What about you reading this blog? We would love to hear your thoughts on this! Please drop us a line or two on LinkedIn. You are more than welcome to contact us and to have a closer chat on the topic.