The Legislative Proposal in a nutshell
The adopted Legislative Proposal aims to improve the ratio men to women at the top of large companies. Notwithstanding the previous efforts of employers and shareholders to improve the men-women ratio in the (supervisory) board, the results are lagging behind. According to the Dutch government this justifies the need for more drastic measures. In particular, this concerns the introduction of an ingrowth quota and a target scheme. Below we provide a brief summary of both measures. For a more detailed explanation, please refer to our earlier contribution regarding the Legislative Proposal.
The composition of the supervisory board is considered balanced if it consists of at least one third men and at least one third women. In order to achieve this result, the newly added article 2:142b of the Dutch Civil Code (DCC) will include an ingrowth quota for the supervisory board of listed companies. The ingrowth quota means that individuals whose appointment would not lead to a more balanced composition of the supervisory board can no longer be appointed as a supervisory board member. Such an appointment would be void (nietig). The above also applies to the appointment of non-executive directors within a one-tier board model. Please do note that the fact that an appointment resolution regarding a certain supervisory board member is void does not affect the legal validity of resolutions taken by that supervisory board member.
The ingrowth quota does not apply:
- in case of reappointments, to the extent that the reappointment takes place within eight years after the year of the first appointment; and
- in case of appointment due to exceptional circumstances (for example: a situation in which a large part of the supervisory board unexpectedly resigns), for a maximum of two years.
For large companies, the new articles 2:166 DCC (for public limited liability companies, in Dutch abbreviated to NVs) and 2:276 DCC (for private limited companies, in Dutch abbreviated to BVs) introduce an obligation to set 'appropriate' and 'ambitious' objectives in the form of a target scheme, in order to create a more balanced ratio between the number of men and women in the management board, the supervisory board and the sub-top (i.e. the executive level). In addition, large companies will be required to set up a plan on how the company will achieve the aforementioned targets. Finally, large companies will be required to report on these targets to the Social and Economic Council (SER), in addition to their reporting obligation in the management report.
The Legislative Proposal in the context of (European) legislation on equal treatment
A recurring theme during the (plenary) discussion of the Legislative Proposal was the legitimacy of the proposed legislative amendments in the light of (European) legislation on equal treatment. A letter regarding the Legislative Proposal from the Netherlands Institute for Human Rights (NIHR), initially prompted various political groups (fracties) to question whether the proposed measures were permissible. For the purpose of this news item, we do not aim to provide an extensive overview of all points of criticism, nor the various arguments provided by the political groups and government. We will, however, briefly discuss the position taken by the government in this regard.
From the parliamentary documents it can be deduced that the government's substantiated position is that (international) law provides sufficient scope for the introduction of the proposed ingrowth quota. In addition, the government refers to the introduction of diversity quotas in several other European countries. According to the government, Germany, France, Belgium and Italy, have introduced comparable quota taking into account both men and women. The underlying argument appears to be that the Legislative Proposal does not deviate from the development that has already been initiated in other European countries.
Furthermore, it should be noted that some political groups have asked the government to clarify how the proposed measures relate to the relevant case law of the Court of Justice of the European Union (CJEU). It follows from this case law that the criteria for pursuing a preferential policy with regard to a certain underrepresented group are quite strict. For example, based on the case law of the CJEU, job application procedures structured in a way that an under-represented group is granted absolute and unconditional priority over a group that is not under-represented is not permitted if this negates an objective assessment of all relevant qualities of the candidates. Although the government seems to avoid providing a direct answer to the case law-related questions of the political groups, it does point out that the CJEU's case law on the subject largely dates back to the 1990s. According to the government, relevant social developments that have taken place since then should also be taken into account when interpreting the CJEU’s case law.
It would be interesting if the CJEU were given the opportunity to address this subject (once again) in the near future. It would be especially interesting to hear the CJEU’s current view on the legitimacy of diversity quotas as such measures have already been introduced by many European countries.
The government’s aim is to have the measures enter into force on 1 January 2022. We will continue to closely monitor the developments regarding the introduction of the ingrowth quota and the target scheme. The specialists of the Employment & Benefits Team will be happy to advise on this topic.