The Gender Balance Direc­tive proposed to be fully implemen­ted in Denmark

The Gender Balance Directive is a minimum directive that sets out minimum requirements to be implemented by Member States by 28 December 2024. As it is a minimum directive, Member States may introduce provisions that go beyond the provisions of the directive to ensure a more equal distribution between men and women, see Article 9 of the directive.

The Danish government wants Denmark to be at the forefront of gender equality, and Denmark is therefore implementing the directive in full. Based on the directive, on 23 October 2024, the Minister for Industry, Business and Financial Affairs presented L61 "Proposal for an Act on gender distribution among management members in certain large listed companies (the Gender Balance Act)".

The next steps towards a more equal gender balance in the management of Danish companies

The bill will have its first reading in the Danish Parliament on 12 November 2024 and is expected to enter into force on 28 December 2024 with effect for the financial year beginning on 1 January 2025. Whether a company is covered by the gender balance bill is determined annually in connection with the presentation of the annual report, and the bill assumes that companies only need to exceed the threshold values in a single year to be covered. In practice, this means that companies that are close to the threshold values may be covered by the rules of the Gender Balance Act one year and by the rules of the Companies Act the next.

Both the Gender Balance Directive and the proposed Gender Balance Act contain a so-called sunset clause for the regulation on 31 December 2038. The regulation is thus a temporary regulation to ensure quick and effective measures with an impact on gender balance in corporate management with the expectation that such a regulation will not be necessary in the longer term after an initial push.

Content and scope of the gender balance bill

Section 1 of the bill states that the purpose of the act is "to promote a more equal representation of women and men among management members in certain large listed public limited companies".

The starting point is to achieve a distribution of at least 40 % of the underrepresented genders in the top management of listed companies and two management levels below.

According to section 3(1)(4) of the bill, the number of management positions necessary to achieve the gender balance target is calculated as the number "closest to 40 %, but not exceeding 49 %".

This means that a four-member board must by law have at least one person of the underrepresented gender. This is equivalent to 25/75, as two persons of the underrepresented gender would exceed 49 %. Furthermore, according to the bill's requirements, it is sufficient to have three members of the underrepresented gender on a board of eight members.

Annex 1 of the directive, which corresponds to Annex 1 of the bill, contains the following table showing the target figures for the supreme governing body and other management levels:

The act therefore applies to limited liability companies:

• having shares admitted to trading on a regulated market within the European Union;
• except for companies with fewer than 250 employees and which in a
  financial year have an annual turnover of less than EUR 50 million or an annual balance sheet total of less than EUR 43.

According to the calculations of the Ministry of Industry, Business and Financial Affairs, this concerns approximately 50-60 Danish companies. Since you only have to meet the legal requirements in the relevant financial year, there is a risk that certain companies may fall within and outside the scope of the act from year to year.

Therefore, the Ministry of Business, Industry and Financial Affairs has also updated the current rules from 2013 on a number of companies' requirements for target figures and policies for improving gender equality in corporate management to avoid double reporting and reduce companies' costs in complying with the regulation.

Both the Gender Balance Directive and the Gender Balance Act have a time target that gender balance - i.e. 40/60 - must be achieved by 30 June 2026.

How to achieve the targets?

To meet the requirements of the Gender Balance Act, Danish companies must set a target for achieving gender balance among the members of the supreme governing body, i.e. the board of directors.

The requirement of at least 40 per cent of persons of the underrepresented gender applies separately to both employee-elected and other members of the company's board of directors. In addition, the company must set targets for the other management levels where equal distribution (40/60) has not already been achieved.

In addition to the target figures, the board must draw up a policy to increase the proportion of the underrepresented gender at the company's other management levels. If the target of a more equal gender distribution on the board of directors has not been achieved by 30 June 2026, the company must establish a process or revise the existing process for selecting candidates for the supreme governing body. When establishing or revising the process for selecting candidates for nomination for election to the board, clear, neutrally worded and unambiguous criteria must be established, which must be determined prior to the selection process and applied during the selection.

The company is thus required to ensure that selection and election to the board of directors is based on the forementioned established criteria and that these criteria are applied in a non-discriminatory manner. If the assessment results in two candidates being equally qualified, the candidate of the underrepresented gender must generally be elected to the management position, unless there are particularly weighty or legal reasons for this being an exceptional case.

For companies, it therefore becomes central to the recruitment process to be able to document the following information that candidates can request:

1. the qualification criteria on which the selection was based;
2. the objective comparative assessment of the candidate based on these criteria;
3. relevant considerations that favoured exceptionally choosing a candidate who is not of the underrepresented gender

A request for the above documentation from a candidate must be received by the company no later than three months after election to the board of directors.

Disclosure and reporting in the management report and on the website

The bill imposes on the companies' management a duty of disclosure, which follows from section 9 of the Gender Balance Act, and a reporting obligation, which follows from the new section 107f of the Financial Statements Act.

Targets, shares and measures to achieve gender equality, as described above, and which appear in sections 7 and 8 of the bill in particular, must be reported according to the bill. Any sanctions under the Gender Balance Act must also be included in the reporting.

Information about targets, shares and measures must be easily accessible and published in the management report and on the company's website. In connection with the publication of the information, it is relevant to emphasise that the Ministry of Industry, Business and Financial Affairs is obligated under the bill to publish a list of companies that have achieved the target of a more equal gender distribution under the Gender Balance Act, a so-called 'name and fame' list.

If a company has not achieved the target by 30 June 2026, the company must provide justification as to why the target has not been achieved and what measures the company has taken or intends to take to meet the target. The bill thus applies a traditional 'comply-or-explain' principle, which, however, is accompanied by stricter sanctioning options than what has been seen so far.

What fines can you risk?

The Gender Balance Directive allows Member States to lay down rules on sanctions, which according to the Directive must be "effective, proportionate and dissuasive". The directive proposed fines and cancellation of the election of directors as possible sanctions, which Denmark has chosen to implement in the proposed Gender Balance Act.

For this purpose, the Ministry of Business, Industry and Financial Affairs has prepared the following overview of indicative fine levels:
Recommended fine levels – section 15(1):

According to the bill, fines can be imposed for the following violations of the Gender Balance Act:

1. Non-compliance with requirements to customise the selection process.
2. Failure to set targets for the share of the underrepresented gender at other management levels.
3. Failure to report under the Gender Balance Act.

The companies covered by the act may therefore be fined if they do not set targets for achieving a better gender balance at the company's management levels. However, fines will not be imposed until after 30 June 2024 at the earliest.

The bill also mentions the competence of the courts in cases concerning compliance with the Gender Balance Act. The competence of the courts includes the possibility of cancelling the appointment of an employee-elected candidate and the possibility of awarding compensation to deselected candidates in cases where the candidates' rights under the Gender Balance Act have been violated.

Denmark has appointed the Danish Institute for Human Rights to promote, analyse, monitor and support work on gender equality in listed companies.

Find more information in our webinar on the Gender Balance Bill by signing up for our ESG webinar series. You can then watch Horten's webinar on the Gender Balance Bill. To watch the webinar, please contact event@horten.dk.

Link to the page of the official Report of Danish Parliamentary Proceedings on the bill's consideration: L 61 - 2024-25 (overview): Proposal for an act on gender distribution among management members in certain large listed companies (the Gender Balance Act). / The Danish Parliament (in Danish)