On 1 January 2022, the Dutch Act on Gender Balance in Business Leadership (Wet evenwichtiger man-vrouw verhouding in de top van het bedrijfsleven) (the “Diversity Act”) entered into force. By virtue of the Diversity Act, three new provisions have been introduced to Book 2 of the Dutch Civil Code (Burgerlijk Wetboek) (“DCC”). The purpose of the Diversity Act is to balance the number of men and women at the top and sub-top of listed and large companies, since the aim is for everyone to have equal opportunities.
The new provisions following from the Diversity Act apply to three categories of Dutch companies:
- listed companies on Euronext Amsterdam (beursgenoteerde vennootschappen) (article 2:142b DCC) (“Listed Companies”);
- large public limited companies (grote naamloze vennootschappen,article 2:166 DCC) and large private limited companies (grote besloten vennootschappen, article 2:276 DCC) (“Large Companies”).
The diversity quota requires that at least one-third of the supervisory board members must be women, and at least one-third must be men. As long as this is not the case, an appointment of a new member of the supervisory board that does not make the composition more balanced, shall be null and void (nietig). The vacancy will thus remain unfulfilled.
In case of reappointment (herbenoeming) within eight years after the first appointment, the requirement of the diversity quota does not apply.
In addition, exceptional circumstances (uitzonderlijke omstandigheden) may prevent the diversity quota from being obligatory for a maximum period of two years. This is limited to circumstances in which deviation from the diversity quota is necessary in order to serve the long-term interests and sustainability of the Listed Company as a whole or to guarantee its viability.
Every appointment as of 1 January 2022, with exception of abovementioned cases of reappointment and exceptional circumstances, will need to be in accordance with the Diversity Act.
Large Companies (which may also apply to Listed Companies) need to fulfil two requirements in order to improve the gender balance in the management board (bestuur), the supervisory board and the sub-top. The sub-top includes categories of workers in managerial positions.
In pursuance of complying with the Diversity Act, the Large Companies must:
- set appropriate and ambitious target numbers to promote gender diversity in the boards and sub-top, as well as draw up a plan of action to achieve the set objectives;
- appropriate means that the target numbers depend on the size of the boards and sub-top as well as on the current gender diversity on these corporate bodies;
- ambitious means that the Large Companies should aim at a more equal gender diversity at these levels than the existing situation;
- report annually, within ten months after the end of the financial year, to the Dutch Social Economic Council (Sociaal-Economische Raad (SER) (the “SER”) the number of men and women at the end of the financial year who are members of the boards and sub-top, the target numbers and the action plan. In case the target numbers have not been met, the reason(s) thereof should also be reported. The SER will publish these reports annually. The information reported to SER information must also be included in the directors’ report (bestuursverslag).
The obligations under the Diversity Act will apply from 1 January 2022. Once the first of aforementioned requirements is met, the targets and the plan of action do not need to be adjusted every year or at a certain fixed moment. However, targets should remain appropriate and ambitious.
Regarding the second requirement, both reporting obligations (to the SER and in the Directors’ report) apply to financial years commencing on or after 1 January 2022.
Except for the nullification of the appointment for the supervisory board of the Listed Companies, there are no legal sanctions for failure to comply with the obligations under the Diversity Act (other than potentially naming and shaming), but the shareholders can question the corporate bodies in case of non-compliance. If they are not satisfied with the answers, they can – as an ultimum remedium – refuse to adopt the annual accounts. Additionally, not complying may have a detrimental impact on the reputation of the company.
What steps should you take as General Counsel to ensure compliance with the new rules?
- Advise the boards of your company about the new rules.
- If you are a General Counsel of a listed company, verify if appointments have been made on or after 1 January 2022. If yes, check whether these have been made in accordance with the Diversity Act. If not, check whether an exception applies. If no exception applies, the company has to be advised that a new member of the supervisory board has to be appointed.
- If you are a General Counsel of a Large Company (which may also be a Listed Company) (i) set – together with the relevant individuals/groups in your company – appropriate and ambitious target numbers, (ii) draft an action plan (e.g. draft a profile for the management board and/or supervisory board, revise the recruitment and selection process, etc.) and (iii) report annually, within then months after the end of the financial year of your company, the numbers and the actions plan to the SER. The SER has published on their website some examples of what qualify as appropriate and ambitious target numbers.