On 12 December 2024, the Danish Parliament adopted legislation regarding gender distribution in management boards of large listed limited companies (the Gender Balance Act). The Act implements the Gender Balance Directive of November 2022, which aims to promote a more equal gender distribution among directors of listed companies. The Gender Balance Act will mean that the largest listed companies will now be subject to new and stricter requirements in relation to ensuring an equal gender distribution among management members. The Act enters into force on 28 December 2024 and takes effect for the financial year beginning on or after 1 January 2025.
Current rules
Since 1 April 2013, certain large companies in Denmark have been covered by rules on target figures and policies for women as the underrepresented gender. The rules aimed to increase the proportion of women in management positions, thus supporting a balanced gender composition of the management structure in both private companies and the public sector.
On 14 December 2012, the Danish Parliament adopted Act no. 1383 of 23 December 2012 amending the Danish Companies Act, the Danish Financial Statements Act and various other acts (introduction of rules on target figures and policies for the gender composition of the supreme governing body and for reporting on this), which applies to all state-owned limited companies and listed companies covered by accounting class D in addition to large Danish companies covered by accounting class C.
Unfortunately, the above rules did not have the desired effect of promoting gender quality and following any analysis of the Danish market it was concluded that Denmark was behind the other Nordic countries when it came to gender equality, particularly in relation to equal pay and managerial positions.
In response to this on 10 May 2022 the Danish Parliament adopted a law amending the Danish Companies Act, the Danish Financial Statements Act and various other acts (stricter requirements for target figures and policies for the underrepresented gender). The amendments included a tightening of the statutory definition of a company’s other management levels, a requirement for new gender target figures until an equal gender distribution has been achieved, and increased transparency regarding current figures and target figures for the underrepresented gender.
The Gender Balance Directive
The Commission proposed a Directive on improving the gender balance among directors of companies listed on stock exchanges and related measures (hereinafter the Gender Balance Directive) on 14 November 2012. Since its introduction, the proposal has been continuously amended.
On 23 November 2022, the European Parliament and the Council adopted the Gender Balance Directive, which aims to achieve a more balanced representation of women and men among directors of listed companies. The Directive sets targets for gender balance among directors of certain large, listed companies.
The Gender Balance Directive must be transposed into Danish law by 28 December 2024 at the latest, and the Directive will expire on 31 December 2038.
In addition, Member States must submit a report on the implementation of the Gender Balance Directive to the Commission by 29 December 2025 and every two years thereafter. The report shall include details of the measures taken to achieve the objectives set out in Article 5(1) of the Directive, information provided pursuant to Article 7 and, where appropriate, representative information on the individual quantitative targets set by listed companies pursuant to Article 5(2).
The Commission will review the application of the Directive by 31 December 2030 and every two years thereafter and report to the European Parliament and to the Council, including an assessment of whether the objectives of the Directive have been achieved.
In the light of the evolution of the representation of women and men in company bodies, the Commission will assess in its report whether the Gender Balance Directive is an effective instrument for increasing gender balance in company management bodies. Based on this assessment, the Commission will consider whether there is a need to extend the validity of the Gender Balance Directive beyond 31 December 2038 or whether there is a need to amend the Gender Balance Directive in general, for example by extending its scope to smaller listed companies or non-listed companies.
The Gender Balance Act
On 12 December 2024, the Danish Parliament adopted legislation on gender distribution among management members of certain large listed limited companies. The Act implements the EU Gender Balance Directive (Directive 2022/2381 of 23 November 2022).
The Act applies to public limited companies whose shares are admitted to trading on a regulated market within the EU with over 250 employees. There is an exemption for companies with less than 250 employees, and which in a financial year do not exceed an annual turnover of EUR 50 million or an annual total balance sheet of EUR 43 million.
Stricter requirements for gender balance
The law stipulates that public limited companies must have a goal of achieving a gender balance among the members of the “supreme governing body”. In public limited companies, the supreme governing body will be the board of directors or the supervisory board. In the following article, “the board of directors” is used as a collective term.
Pursuant to the bill to achieve “gender balance” the under-represented sex must hold at least 40% (but not exceeding 49%) of the management positions in a company. Appendix 1 of the Act provides an overview of the number of members of the under-represented gender management needed to achieve the target of at least 40%:
Target figures for the Board of Directors and other management levels
| Number of positions on the Board of Directors and at other management levels | Number of under-represented gender management members needed to reach the target of at least 40% |
| 1 | – |
| 2 | – |
| 3 | 1 (33,3%) |
| 4 | 1 (25%) |
| 5 | 2 (40%) |
| 6 | 2 (33,3%) |
| 7 | 3 (42,9%) |
| 8 | 3 (37,5%) |
| 9 | 4 (44,4%) |
| 10 | 4 (40%) |
The Act also stipulates that if the limited liability company has established an employee representation scheme, the target figure for the board of directors applies to both members elected by the general meeting and employee elected members. This contrasts with the current rules, where the target figure only includes the members elected by the general meeting. This now means that the calculation of whether there is an equal gender distribution on the board must be made separately for employee-elected members.
In addition, the central governing body (the board of directors of limited liability companies) must set targets for achieving gender balance in the composition of the board of directors, unless there is an equal gender distribution at the other management levels. This strengthens the current provisions, and the board of directors must now set a new and higher target figure for the proportion of the underrepresented gender when the company has reached its previously set target figure or when the time horizon for the expected fulfilment has expired.
Finally, the board of directors must prepare a policy to increase the proportion of the underrepresented gender at the other management levels, unless there is already gender equality.
Achieving the target figure in the board
According to the new Gender Balance Act, companies that do not achieve the gender balance goals by 30 June 2026 will be obligated to adjust the company’s existing process or establish a new one for selecting candidates for nomination for election to the board of directors to reach the 40% figure.
When establishing or adjusting the processes for selecting candidates for nomination for election neutrally formulated and unambiguous criteria must be used. The obligation to determine or adjust the company’s selection processes rests with the board of directors.
Election of candidates
The board of directors shall ensure that candidates for election are selected on a comparative assessment of the qualifications of the individua based on the established criteria which must be applied in a non-discriminatory manner.
If it turns out that the candidates are equally qualified in terms of aptitude, competences and academic performance, preference must generally be given to the candidate of the under-represented sex, unless there is an overriding legal reason (not based on gender equality) to appoint the candidate not from the underrepresented sex, this will only be in exceptional cases.
The above applies correspondingly to employee representation, in which case the duty rests with the election committee.
Stricter disclosure requirements
The Gender Balance Act also contains several new disclosure requirements. The notice of the general meeting must inform those entitled to vote of the criteria used in the selection of the candidates, whether a comparative assessment of the qualifications of the individual candidates has been made based on the established criteria, and that the candidates have been selected based on this.
The board of directors must also, at the request of a candidate who was considered when selecting candidates for nomination for election to board of directors provide information on (1) the qualification criteria on which the selection was based, (2) the objective comparative assessment of the candidate based on the established criteria, and (3) the specific exceptional considerations that speak in favour of selecting a candidate; who is not of the under-represented sex.
A request for the above documentation must be received by the company no later than 3 months after election to the board of directors and the company must respond as soon as possible.
Fines
A fine may be imposed for several violations of the Act, including:
- failure to set target figures for the proportion of the under-represented sex at the company’s other levels of management,
- failure to lay down criteria for assessing the qualifications of individual candidates;
- failure to ensure that candidates for election to the management board are selected on the basis of a comparative assessment of the qualifications of each candidate on the basis of the established criteria;
- failure to ensure that preference is given to candidates of the under-represented sex if the assessment shows that there are candidates who are equally qualified in terms of aptitude, competences and professional performance;
- failure to inform the persons entitled to vote of the above-mentioned information in the notice of election of members of the board of directors.
The limitation period for violation of the provisions of the Act is 5 years.
Possibility of judicial review and compensation
If a candidate of the under-represented sex who was considered for election to the board of directors but was not nominated for election can establish a prime facie case that she was equally qualified as the candidate elected who was not of the underrepresented sex, the burden rests with the company to show that this was not the case.
Pursuant to the new law the rejected candidate also has the option of appealing the company’s decision to the courts. If the courts assess that the rejected candidate was equally qualified, the court may award the rejected candidate compensation. It appears from the preparatory work for the legislation that compensation will be determined based on the individual’s length of service and other facts of the case. The award of compensation will be dependent upon the seriousness of the violation.
In recruitment situations, compensation will generally DKK 25,000 providing there are no particularly mitigating or aggravating circumstances. This is in line with the Supreme Court judgments U.2008.957H and U.2012.51H, where the violation of the principle of equal treatment occurred in connection with a refusal of employment.
Mette Klingsten Advokatpartnerselskab notes
Mette Klingsten Law Firm advises on all aspects of equal treatment and discrimination law, including the new Gender Balance Act. For further information, please contact Mette Klingsten on mk@mklaw.dk, Mads Bernstorn on mb@mklaw.dk or Carley Wilson on cwi@mklaw.dk.
