Advancing Gender Balance in Leadership: Malta’s Implementation of the Women on Boards Directive

Overview

As part of the 2020-2025 EU Gender Equality Strategy, the so-called Women on Boards Directive (Directive (EU) 2022/2381 of the European Parliament and of the Council of 23 November 2022 on improving the gender balance among directors of listed companies and related measures) was published in the Official Journal of the EU on 7th December 2022. The aim of this legislation is to promote access to equal opportunities between the sexes and gender-balanced representation among top leadership roles. By establishing a framework of procedural requisites rooted in transparency, meritocracy, and equality, the Directive aims to promote diversity in the workplace, particularly in top management positions.

The principles underlying the Directive work hand in hand with the Maltese Code of Principles of Good Corporate Governance included in the Capital Markets Rules issued by the Malta Financial Services Authority (MFSA), which demand that boards of listed companies are comprised of members who collectively possess diversity of knowledge, judgment, and experience to properly execute their duties.

Transposition and Scope

Member States are required to transpose the Directive into national law by 28th December 2024. Malta has implemented this legislation by introducing a new chapter to the Capital Markets Rules – Chapter 13: ‘Gender Balance among Directors of Listed Companies’. This Chapter entered into effect on the transposition deadline. This novel law applies to large equity listed companies, with micro, small and medium-sized enterprises (SMEs) being excluded from its scope. SMEs are defined as businesses with fewer than 250 employees and an annual turnover of less than €50 million or an annual balance sheet total of less than €43 million. Chapter 13 also excludes debt issuers from its scope. Moreover, the company’s registered office location determines which Member State is responsible for the issues governed by this Directive in relation to such company.

Gender Balance Targets

To achieve its objectives, the Directive introduces gender balance targets to be met by companies by 30th June 2026:

1. a minimum of 40% of non-executive director positions occupied by the underrepresented sex or;

2. 33% of all director positions (executive and non-executive) occupied by the underrepresented sex.

Companies must prioritise candidates from the underrepresented sex when choosing between equally qualified candidates in terms of suitability, competence, and professional performance. This rule is subject to exceptions in the case of considerations which carry more legal weight, such as advancing other diversity policies, provided these are based on an objective evaluation of the candidate’s specific circumstances and are founded on non-discriminatory criteria.

Supporting Measures for Compliance

Companies failing to meet the target outlined in the aforementioned second point must devise and implement their own quantitative goals aimed at achieving greater representation in executive roles. The Directive also introduces measures to support companies who fail to reach the aforementioned targets by addressing the preliminary stage of appointing directors, i.e. pre-selection, vacancy notices, shortlisting and selecting candidates. These companies must amend and adapt their candidate selection process to ensure a comparative and qualification-based evaluation of each candidate which must be conducted in a non-discriminatory manner.

Duties of Disclosure, Reporting, and Accountability

To ensure transparency and fairness, candidates who were considered during the selection process are entitled to request information regarding the process and related decisions. Companies are then obliged to disclose this information. In addition to this duty of disclosure, listed companies are also required to provide annual information to the MFSA on their board composition and representation, differentiating between executive and non-executive directors. Companies who fail to reach the gender balance quotas must justify their shortcomings and outline measures to address the gap. To enhance accountability, promote public awareness, and encourage compliance, the MFSA will publish and update a list of companies that meet the targets.

Conclusion

The Women on Boards Directive signifies a bold step towards a more diverse corporate world in Europe. By intertwining diversity and merit in a way that ensures their co-existence, the Directive paves the way for more inclusive leadership. Since companies have a year and a half to reach their targets, Maltese companies must begin introducing and implementing internal measures to ensure compliance with the Directive, especially since failure to do so may result in penalties. Proactive preparation, including reviewing current recruitment policies, drafting new policies characterised by clear, neutral, and transparent terms, and implementing inclusive practices at all levels, is essential to align with the novel framework.

If you are seeking to ensure that your business is in compliance with the requirements introduced by this new legislation, please feel free to reach out.