Published on 14 September 2011, the Law of 28 July 2011 (1) (hereafter “the Law”) guarantees women a minimum representation percentage in the board of directors.
1. Scope
The new Law applies to companies with shares listed on the regulated markets as described in article 4 (2) of the Belgian Companies Code (hereafter “listed companies”), to some public companies (3) and to the National Lottery.
In this newsflash, only the new regulation applicable to listed companies will be discussed. However, the provisions for the concerned public companies and the National Lottery are very similar.
2. Guaranteed representation of women in the board of directors
The Law introduces a new article 518bis in the Companies Code which stipulates that at least one third of the board of directors must be of the opposite gender. The required minimum number is rounded off to the nearest whole number. This implies that, if there are 10 board members, there must be at least 3 members (3.33) of the opposite gender but in case the board counts 11 members, at least 4 (3.66) must be of the opposite gender. Article 518bis also contains sanctions which apply to members of the board of directors and newly appointed members respectively. These sanctions are applicable when the new legally required quota is not met.
Non-compliance is sanctioned by the suspension of the directors’ benefits, financial or otherwise. When the number of directors from the opposite gender is less than the required minimum, the next general meeting must appoint a new board of directors which complies with the legal quota. If the new board of directors remains non-compliant, every benefit received by directors in their performance as such, be it financial or otherwise, is frozen (4). The profits are re-distributed from the moment the legal quota is respected. According to parliamentary documents, no benefit is awarded during the period in which the board of directors is in violation of the new legal requirement, nor will such benefits be awarded retroactively after this period.
This provision is an incentive for members of the board of directors to convene a general meeting when the quota is not or no longer met. It also encourages the proposal of a sufficient number of competent candidates from the opposite gender, so that at least one of them is appointed by the general meeting.
Non-compliance is also sanctioned by the nullity of the next director’s appointment. When the minimum opposite gender quota is not met, the newly appointed director must be of that gender. The appointment is null when it violates this legal obligation (5). The same rule applies when, as a consequence of the appointment, the number of directors of the opposite gender drops below the required minimum.
The aforementioned sanction could prevent the re-appointment of a competent director due to the strict gender requirement set by the new law. The reappointment of the director will in any case be nullified if the legal quota is not respected. An additional director of the opposite gender can be appointed to meet the minimum legal requirement.
The new article (6) further prescribes that newly admitted listed companies only need to comply with the above-mentioned obligation as of the first day of the sixth financial year since admission.
3. Statement in the annual report
The Law also amends article 96, §2 of the Companies Code describing the information to be included in the corporate governance statement (a specific part of the annual report of listed companies). Companies must provide an overview of efforts made to ensure that at least one third of the members of the board are of the opposite gender.
4. Entry into force
The new requirement regarding the minimum quota will enter into force respectively on 1 January 2017 for listed companies with a financial year ending on 31 December and on 1 July 2017 for those with a financial year ending on 30 June.
The sanction regarding the nullity of the additional director’s appointment enters into force on the same day.
The sanction regarding the suspension of all financial and other benefits obtained by members of the board of directors will only enter into force respectively on 1 January 2018 or 1 July 2018.
Small (7) listed companies, or those for which the free negotiable shares value is less than 50%, have an additional two year period to comply with the new legal requirement.
The provision regarding newly admitted listed companies enters into force the first day of the financial year following the publication of the new Law. Companies listed during financial year 2011 must therefore comply with the required quota as of 1 January 2017 or as of 1 July 2017.
The legal requirement to include the board’s efforts in meeting the minimum quota in the annual report enters into force as of the first day of the financial year following the Law’s publication. 2012 annual reports concerning financial year 2011 must therefore already mention the legally required information.
5. Conclusion
Aside from the discussion on whether the application of a minimum quota is the best solution from an economic perspective, further reservations may be raised. For instance, the re-appointment of competent directors could, in certain circumstances, be compromised. Moreover, legal consequences, for both company and third parties, resulting from the nullity of a new director’s appointment need to be taken into consideration (8).
