The Dutch Senate’s act on gender diversity in Dutch company boards (the Act) took effect 1 January 2022. One of the Act’s provisions implements an appointment quota for supervisory boards, or non-executive directors in a one-tier model, of Dutch-listed companies to ensure that men and women each hold at least one-third of the seats on the supervisory board. Any appointment after 1 January 2022 that does not contribute to a more balanced gender ratio is null and void. Since the introduction of this legislation, some companies have struggled with this requirement and use a flexible interpretation of the rules.
The Dutch Parliament agreed with the Senate that diversity in the workforce, especially at the C-level, can lead to more balanced decision-making and help companies achieve their business goals. The Act is currently applicable only to the supervisory board in a two-tier governance model or the non-executive board in a one-tier governance model. The Dutch Female Board Index publishes an annual survey of female executive and supervisory board members in listed companies. This index is based on annual assessments of the Dutch trade register. In 2022, the percentage of female supervisory board members increased from 33% to 38% compared to the previous year. Of the 89 Dutch-listed companies, 72 now meet the quota.
Pursuant to the Act, a supervisory board is considered ‘balanced’ if at least one-third of the members are women and at least one-third are men. If the one-third calculation is a fraction, the number will always be rounded up. Therefore, as an example, in a board of 10 members, at least four need to be women and at least four need to be men. The Act provides that if the composition is not in line with the minimum requirements, the board is ‘unbalanced’. Any new appointment of a supervisory director in an already unbalanced board that does not contribute to a more balanced composition is null and void. In such instances, the position remains vacant. An exception to this rule is if existing supervisory board members are re-appointed within eight years of their original appointment or in case of appointments made under exceptional circumstances.
The Act, and particularly the risk of nullity in case of an appointment that does not meet the Act’s requirements, causes uncertainty for companies that currently have an unbalanced board and where the tenure of serving board members comes to an end. The following recent case studies provide insight into how companies are interpreting and dealing with the Act.
Just Eat Take Away N.V.(listed at Euronext): The supervisory board consisted of five members, four men and one woman. Therefore, the supervisory board qualified as unbalanced under the Act. Two new members were on the short list for nomination, one man and one woman, resulting in a supervisory board of seven members, five men and two women. Thus, the board remained unbalanced. Given the principle that in case of fractions when determining the one-third minimum requirement, the number should be rounded up, the board should comprise four men and three women, or vice versa, to qualify as balanced under the Act. In order to comply with the Act and avoid the risk of the male member’s appointment being nullified, the company tweaked the sequence of the appointments. The agenda for the general meeting of the company provided that the female board member was appointed first. Upon the appointment of the female board member, the requirement of one-third female was met, and the board qualified as balanced with four men and two women. The company then voted on the appointment of the male supervisory board member. Even though the company ended up with an unbalanced board, the risk of nullity was circumvented because under a strict interpretation of the Act, a balanced board can convert into an unbalanced board if any next nomination meets the Act’s quota requirement.
ING Groep N.V.(listed at Euronext): The ING supervisory board comprised nine members, three women and six men. The chairman of the board (male) was set to be replaced by an outside successor, also male, while one of the female board members had come to the end of her tenure and would be replaced by another woman. The company envisaged that the current chairman would stay on to make sure the incoming chairman could familiarize himself with the company. However, this would have resulted in a board of 10 members, seven men and only three women. However, in order to comply with the Act, ING appointed the female board member, and the existing chairman resigned from his position, allowing the board to remain balanced with six male and three female members. Because ING faces significant public scrutiny, they acted well within the confines of the Act, rather than testing its limits.
Companies should carefully consider the nature, extent, and limits of the Act when nominating and appointing new members in order to maintain a balanced gender ratio on supervisory boards and avoid the risk of new appointments being nullified.