DANISH UPDATE – New Rules On Gender Quotas In Boards Of Directors
- Due to a just adopted amendment of the Danish Companies Act, the Danish Financial Statements Act and the Danish Act on Gender Equality, the approximately 1,100 largest Danish companies will be obligated to set up targets for the quota of the underrepresented gender in the supreme governing body.
- The Companies affected are ordered to report on both targets and policies annually, and companies may be fined if they fail to act or report in accordance with the rules.
This article presents the main consequences of the amendments to the Danish Companies Act, the Danish Financial Statements Act and the Danish Act on Gender Equality adopted by the Danish Parliament on 14 December 2012 with effect from 1 April 2013. The main purpose of the amendments is to effectively create a more equal distribution of women and men in the supreme governing bodies of the approximately 1,100 largest Danish companies.
Companies covered by this new regulation are under an obligation to implement targets and policies for the quota of the underrepresented gender in the supreme governing body in 2013.
Companies that do not have a gender distribution of 40/60 per cent between the genders must prepare concrete, realistic and ambitious targets, taking the business of the company into account. Further, the companies must prepare a policy on how to achieve the targets. At all annual meetings after 1 April 2013, the companies must take the targets into consideration when electing members of the supreme governing bodies.
As of the financial year 2013, the companies must also report on whether the target has been reached. However, if the company has not set up targets due to the gender distribution already being equal, it is sufficient for the company to report that no gender is underrepresented.
Failure to set a target and/or to prepare a policy for achieving such a target may result in a fine, and against that background we expect these new rules to create real improvements in the quota of women in the supreme governing bodies.
The new obligations apply to the following types of companies etc.:
- Listed companies
- Companies, businesses, foundations etc., who have debt instruments or other types of securities listed for trade on a regulated market in an EU/EEA country
- Large public and private limited companies and limited partnership companies
- Large partnerships and limited partnerships, in which all partners and general partners, respectively, are public or private limited companies, limited partnership companies or a similar type of company
- Large foundations
- State-owned public limited companies
A company, business or foundation is regarded as large if two of the following criteria are exceeded in two consecutive financial years:
- A balance sheet total of DKK 143 million (approximately USD 25 million)
- A net turnover of DKK 286 million (approximately USD 50 million)
- An average number of full-time employees of 250
Additionally, the obligations apply to the Danish Ship Finance, financial companies, financial holding companies, payment institutes, investment associations, SIKAVs, special purpose associations, hedge associations, operators of regulated markets, clearing centres and securities centres if certain criteria are met.
Obligations of the Companies covered
Companies covered by this new regulation are under an obligation to set up a target for the quota of the underrepresented gender in the supreme governing body and must prepare a policy to increase the quota of the underrepresented gender at the other levels of management. Further, the companies must in the annual report, as part of the management’s review, state a status of the fulfilment of the set target, including, if the set target has not been reached, why the company has failed to reach the target. The rules for reporting follow the principles for reporting on civic responsibility.
The company itself must set what, taking the company’s situation into account, is a realistic target. When setting the target, the business of the company may, among other things, be taken into account, as it is recognised that some branches of trade are more attractive to women than others. The target must indicate the quota set as target as well as the time frame within which the company intends to achieve the indicated quotas. It appears from the explanatory notes to the bill that the time frame should generally not be longer than four years.
The company’s policy for increasing the quota of the underrepresented gender may for instance contain a description of the company’s efforts and concrete initiatives in the area. Such initiatives may include cooperating with other companies, creating a framework for career development as well as initiatives to make the company attractive to both genders. The company will determine the relevant initiatives itself, taking the situation of the individual company into account. However, the company must under all circumstances take positive steps to reach the target.
Failure to set targets or to prepare the mentioned policy may result in a fine. In contrast, there is no penalty if a company should fail to reach a set target.
A gender distribution of 40/60 per cent between the genders is regarded as equal, regardless of which gender is in the majority. If this requirement is already met, there is no obligation for the company to set targets and to prepare the mentioned policy. In such cases, it is adequate to indicate the equal gender distribution in the annual report in the management’s review. However, if the distribution subsequently changes, the company will be obligated both to set targets and to prepare a policy to re-establish the gender distribution.
In groups of companies it is possible to set targets and to prepare a policy as a part of the consolidated accounts for the entire group. Therefore, subsidiaries in a group may omit setting a target and to prepare a policy, if the parent company sets a target and prepares a policy for the entire group.
Furthermore, there is a special trifle threshold, entailing that companies etc., who have employed less than 50 employees in the latest financial year may omit preparing a policy for increasing the quota of the underrepresented gender at their other levels of management.
The amendments imply a number of new obligations for the companies covered. The obligations are flexible, but it is necessary for each individual company to perform an actual assessment of what is a realistic and ambitious target for the company and thereafter take positive steps to reach this target.
Failure to set a target and/or to prepare a policy for achieving such a target may result in a fine, and against that background, there is reason to believe that the amendment in the course of a few years will contribute to creating real improvements in the quota of women in supreme company management bodies.