Gender quotas coming to boards of Finnish listed companies

The new Directive increases the share of women on boards of listed companies

On 22 November 2022, the European Parliament adopted a Directive that regulates improving the gender balance among directors of companies listed on stock exchange and aims to increase the share of women on company boards. Once the Directive has entered into force, it needs to be implemented into national legislation.

In the background of the gender balance regulation is the EU’s goal to support European economic growth and the competitiveness of companies as well as achieving true gender equality in the job market.

The regulation concerns all companies listed on stock exhange with at least 250 employees, and it targets the companies’ senior management, i.e. the board and, if applicable, the administrative council. The new regulation obliges companies to have a minimum of 40% of the under-represented sex among the non-executive directors by 30 June 2026. Member States can also decide to apply the minimum threshold to both executive and non-executive directors, in which case listed companies must strive for achieving a 33% presence of the under-represented sex among all directors. Nothing prevents Member States from adopting even tighter targets in order to achieve gender balance in company boards.

Member States must also lay down effective, proportionate and dissuasive sanctions that will apply in case the obligations under the Directive are not fulfilled. According to the EU, such sanctions could include fines or annulling appointments and elections.

Increased transparency in the selection procedure of board members

If a company does not achieve the gender balance targets, it must adapt how it selects its board members. The company must adopt fair and transparent processes for electing and appointing board members that are based on comparing the candidates against clear and neutral predetermined criteria. If the candidates are equally qualified, the candidate of the under-represented sex should be given priority.

Companies under the scope of the Directive must prepare yearly reports on the gender composition of their boards and, if they have not achieved their gender balance targets, on the actions with which they aim to achieve these targets.

What does this mean for Finland?

The current approach in Finland is to guide listed companies towards increasing the share of women on boards through recommendations without any specific quotas. The Finnish Corporate Governance Code for listed companies, published by the Securities Market Association, includes recommendations on the composition of the board with respect to gender balance and diversity. Pursuant to the recommendations, listed companies should also define and report the principles with which they promote board diversity. This means that listed companies are no strangers to reporting their targets for equal gender representation on the board, the means to achieve these targets and the progress they have made. The recommendations follow the principle of comply or explain, and there are no consequences for failing to comply with them.

The recommendations of the Corporate Governance Code have been effective. According to a report by the Finland Chamber of Commerce, women currently hold approximately 31% of board positions in Finnish listed companies, and in companies with a high market value their share is approximately 35%. According to the report, one half of Finnish listed companies already comply with the Directive’s gender balance requirement. Even though the share of women on the boards of Finnish listed companies is already high by international standards, the reform will inevitably lead to an increased share of women holding leadership positions in Finnish listed companies.