As of 1 January 2022, the law on Entry Quota and Targets (EQT, in Dutch “Wet ingroeiquotum en streefcijfers“) has entered into force in the Netherlands. The EQT is relevant for Dutch listed companies and large Dutch companies. The large Dutch companies have until 31 October 2023 to report to the Dutch Social and Economic Council (in Dutch: “Sociaal Economische Raad”, SER) on their targets for equality within the top and sub-top of the company and to submit the plan of action to achieve such targets. In this blog, we will focus on the obligations for large Dutch companies in pursuant to the EQT.
Goal and scope EQT
The EQT aims to make the ratio of men and women at the top and sub-top of the corporate sector, including the (executive or management) boards and the supervisory boards, more balanced. The EQT includes an entry quota, a target regulation and reporting obligations.
Considering that the entry quota only applies to Dutch listed companies and the target regulation applies to (all) large Dutch companies, we will focus on the target regulation and the associated reporting obligations.
A company qualifies as “large” if such is the case in accordance with the Dutch annual reporting requirements. This means that at least two of the following criteria are met during two subsequent financial years (see Article 2:276(1) Dutch Civil Code (DCC)):
- the value of the assets exceeds EUR 20 million;
- the net turnover exceeds EUR 40 million; and
- the average number of employees is 250 or more.
Pursuant to the EQT, companies must set “appropriate and ambitious” targets for the composition of their top and sub-top (see Article 2:276(2) DCC). The targets are not fixed; the appropriate and ambitious target referred to in the EQT is flexible. “Appropriate” means that the target is dependent on the size of the board, the supervisory board and the senior management. “Ambitious” means that the target must aim to make the composition more balanced than the existing situation (if it is currently not balanced). For example in the event the management or supervisory board consists of men only, the target should be to appoint at least one woman. Depending on the size of the board or supervisory board, this may at the same time be the maximum achievable target. If a target is achieved and there is still room for more a balanced men to women-ratio, the company will have to reconsider which target is appropriate and ambitious (for example setting a target of two women and three men).
Pursuant to Article 2:276(3) DCC, the large Dutch company is further required to draw up a plan of action to achieve the abovementioned goals. This may include, for example, drawing up or amending a profile sketch, setting up a transparent recruitment and selection process and explaining the preferential policy. The SER has developed the “diversity portal” (in Dutch: “diversiteitsportaal”) to help companies draw up their plan of action.
Deadline reporting obligations
Large Dutch companies must report annually to the SER on (i) the number of men and women on the board, supervisory board and the senior management at the end of the financial year, (ii) its goals in the form of a target number, (iii) its plan of action to achieve these goals and (iv) if one or more goals have not been achieved, the reasons why these goals were not achieved, within ten months after the end of the financial year (see Article 2:276(4) DCC)). The reporting obligations apply to the financial years which have started on or after 1 January 2022. Therefore, assuming that the financial year of a company has ended on 31 December 2022, the report has to be submitted for the first time on ultimately 31 October 2023. It is also possible to submit such report at an earlier date (the portal has been open as of 1 January 2023). The reporting must be done digitally, using a format developed by the SER, which is accessible via the aforementioned diversity portal. Based on the reports, the SER annually publishes information on the progress around diversity in the Dutch top corporate management.
As for enforcement, the SER only has a monitoring and supporting role; using company reports, it can monitor how companies are progressing and whether companies are complying with their transparency obligations. Thus, the EQT is not enforced administratively or criminally. However, the target regulation and reporting obligations are enforced through civil law: if a large Dutch company fails to set target numbers, prepare a plan of action or be transparent about its results, shareholders can question the board and supervisory board about such failure. If the general meeting is not satisfied with the answers, it can – as an ultimum remedium – refuse to adopt the yearly financial statements.
Pursuant to Article 2:276(5) DCC, an exception applies to companies belonging to a group and the ultimate parent company fulfils the obligations pursuant to the EQT (either for all companies belonging to the group together or for each individual company).
If you need advice on how to fulfil your obligations pursuant to the EQT, please contact Thomas van Hövell tot Westervlier.