The European Parliament passed a resolution to adopt, with certain amendments, the Commission’s proposal for a directive on gender balance among non-executive directors (“NEDs”) of listed companies on 20 November 2013 (the “Resolution”). The Directive would not apply to small and medium-sized enterprises (“SMEs”).

The Resolution confirms the Article 4(1) obligation that listed companies, where the under-represented sex represents less than 40% of NED board positions, should make appointments on the basis of a comparative analysis of the qualifications of each candidate in order to obtain 40% representation by 1 January 2020 (or by 1 January 2018 for public undertakings). The Resolution obliges companies to give priority to a candidate of the under-represented sex if that candidate is equally qualified (subject to an objective assessment tilting the balance in favour of the other sex). If companies do not meet the objective by the target date, they must provide an explanation. Companies are also required to set a voluntary target for the number of executive directors.

The Resolution places greater emphasis on the need for effective use by companies of criteria that is transparent, clearly defined and set in advance for the selection of NEDs. Such criteria should apply at all levels of the recruitment, pre-selection, selection and appointment process. Parliament also considers that election or voting procedures for the pre-selection of candidates should be adjusted to contribute to the attainment of the objective of increased gender balance on boards as a whole.

Under the Resolution, companies are obliged to disclose the number and gender of candidates in the selection pool, qualification criteria on which the selection was based, the objective comparative assessment of those criteria and, where relevant, the considerations tilting the balance in favour of the other sex. It will be for the company to prove that there was no breach of Article 4(1).

Sanctions are likely to include administrative fines and judicially declared nullity or annulment of an appointment or election made in breach of national provisions adopted under Article 4(1), as well as exclusion from public calls for tender and partial exclusion from the award of funding from the Union’s structural funds. In the case of serious and repeated infringements, there is the suggestion that this may include the forced dissolution of the company concerned.

In terms of next steps, the Resolution will now be forwarded to the Council of the European Union under the ordinary legislative procedure.