Dutch Senate approves civil code change for balanced corporate male-female ratio

On September 2021, the Netherland's Senate approved an amendment to the Dutch Civil Code concerning a more balanced male-female ratio in corporate sector management. The legislative proposal contains important provisions of mandatory law. Pursuant to the amendment, inter alia, the appointment of a person that results in a less balanced supervisory board or one-tier board for listed companies will be considered null and void (nietig). Since the Senate has approved the proposal, the proposal is expected to enter into force shortly.

Proposal

The legislative proposal sets out three measures to ensure a more balanced corporate male-female ratio:

• A growth quota for supervisory boards of listed companies;
• appropriate and ambitious targets for the management boards of large companies; and
• reporting requirements for large companies.

Growth quota for supervisory boards of listed companies

The proposal contains a diversity quota of one-third male and one-third female for the supervisory boards of Dutch-listed companies. The remaining one-third can be freely filled with board members.

Pursuant to the proposal, an appointment of a supervisory board member not resulting in a more balanced male-female division will be null and void.

Listed companies having a one-tier board model must apply the same rule to the appointment of non-executive directors.

Management boards that cannot be equally divided into one-third must consider the first higher number that can be divided by three as the number to determine the amount of male-female board members. This rule leads to the following examples:

• A company's articles of association prescribing a supervisory board of at least four members should appoint at least (six divided by three) two male or female board members.
• A company's one tier-board consisting of ten members, of which nine are female, would need (twelve divided by three) four board members to be male for further appointments.

As indicated above, an appointment not taking into account the new quota will be null and void. However, the management board will still be able to lawfully represent the company. The wrongful appointment by the management board therefore does not affect the validity of the decision-making process in which the management board member participated.

Reappointment: The diversity quota only applies to a first appointment, not to a reappointment, as long as this reappointment takes place within eight years after the year of appointment. In some cases, an appointment (or reappointment) that does not lead to a more balanced composition possibly may not be null and void. This is in the event of exceptional circumstances in which a deviation is necessary to serve the long-term interests and sustainability of the company as a whole or to guarantee its viability.

No transition period. The proposal does not include a transitional arrangement for this component. This means that the next appointment of a supervisory director after the legislative proposal enters into force must be assessed immediately against the rules of the diversity quota.

Appropriate and ambitious targets for large companies

For non-listed companies, the proposal contains an obligation for these companies to set certain targets. Large Dutch companies (grote vennootschappen) must set appropriate and ambitious targets for gender diversity in their boards of directors, supervisory boards and top management.

The targets do not have to be set annually, but they must be "appropriate" and "ambitious". Targets will be determined, based on the size of the management board and the supervisory board, the number the top employees and the existing ratio of men to women within the company. In this context ambitious means that the target should aim to make the composition more balanced than the existing situation.

Reporting requirements for large companies

Within ten months after the end of the financial year, large companies must report to the SER on the number of men and women who sat on their executive boards, supervisory boards and in senior management positions at the end of the financial year.

For more information on this amendment and corporate law in the Netherlands, contact your CMS client partner or local CMS expert.