On 28 September 2021, the Dutch Senate (Eerste Kamer) adopted the legislative proposal for a “More balanced ratio between men and women on management and supervisory boards” (the “Bill”). The Bill aims to make the ratio between the number of men and women at the top of large companies more balanced and is expected to enter into force on 1 January 2022. What does this diversity law mean for businesses?

The Bill

The Bill includes two measures to create a balanced composition of management boards (“Management Board”) and supervisory boards (“Supervisory Board”):

• the composition of the Supervisory Board and non-executive directors of public and private limited liability companies whose shares or depositary receipts for them have been admitted for trading on a regulated market within the meaning of Section 1:1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht) must be balanced in the sense that it consists of at least one third men and one third women (diversity quota);

• ‘large companies’ will be obliged to set appropriate and ambitious targets for the Supervisory Board, Management Board and second tier management (target).

Scope

In the Bill, the diversity quota applies solely to Supervisory Board members and non-executive directors of public and private limited liability companies whose shares are listed on a stock exchange. The Bill aligns with the definition of ‘large’ company within the meaning of Article 2:397 of the Dutch Civil Code (DCC). 

A ‘large’ company is understood to be a legal entity (including consolidated group companies) that, on two consecutive balance sheet dates and without interruption on two consecutive balance sheet dates thereafter, satisfies at least two of the following requirements:

• the value of the assets value must be more than €20 million;
• the net turnover must be more than €40 million;
• the average number of employees must be more than 250.

Diversity quota for a listed company

According to the diversity quota, until the Supervisory Board is composed of at least one third women and one third men, nobody can be appointed to the Supervisory Board if their appointment would not make it more balanced. If the company has a one-tier management model, then the diversity quota applies to the non-executive directors. In other words, if a Supervisory Board consists of five members, four of whom are men and one of whom is a woman, a woman must be appointed when the term of one of the male members comes to an end. If the decision is nevertheless taken to appoint a man or a woman whose appointment means the composition of the body is at odds with the target, then this appointment is contrary to the law and therefore null and void. To avoid any legal uncertainty, the law provides that the nullity of the appointment decision has no consequences for the validity of any decision-making process in which the new supervisory board member has taken part. On the one hand, this meets the desire for a severe sanction on the appointment of a supervisory board member contrary to the diversity quota and, on the other, it takes into account the position of third parties who are possibly unaware of the nullity of the appointment beforehand.

Exceptions

There are two exceptions to the diversity quota:

1. A supervisory board member or non-executive director who becomes eligible for reappointment within eight years may be reappointed, even if this appointment means that the diversity quota is then not met.
2. In exceptional circumstances, as referred to in Article 2:135a(5) DCC, a reappointment can be made that does not produce a balanced distribution of supervisory board members or non-executive directors. Any such appointment is limited to a period of two years, pursuant to paragraph six.

Target

The Bill also contains an obligation for ‘large’ companies to set appropriate and ambitious objectives in the form of targets to create a more balanced ratio between the number of men and women on the management board and the supervisory board as well as in their second tier of management.

The Bill aligns with the definition of ‘large’ company within the meaning of Article 2:397 DCC. A ‘large’ company is defined as a legal entity (including consolidated group companies) that, on two consecutive balance sheet dates and without interruption on two consecutive balance sheet dates thereafter, satisfies at least two of the following requirements:

• the value of the assets value must be more than €20 million;
• the net turnover must be more than €40 million;
• the average number of employees must be more than 250.

Whereas, until 2020, the minimum target was set at one third, it is now being left to the companies themselves to set the target (obviously with the exception of the Supervisory Board). The legislature’s use of the term ‘appropriate’ means that the target depends on the size of the Management Board and the Supervisory Board and the current ratio of men to women within those bodies. The term ‘ambitious’ means that the target must be for a more balanced composition than the current ratio within the Management Board and Supervisory Board.

The Bill also provides that if the Management Board and Supervisory Board consist of one person, a combined target can be set for both bodies. Large companies must draw up a plan to achieve this appropriate and ambitious target.

The SER will develop and provide infrastructure enabling large companies to report on their progress and composition within ten months after the end of every financial year. The idea is for SER to use this system to monitor companies’ progress, but also to enable stakeholders and other (similar) businesses to monitor diversity.