Board of directors is responsible for diversity

In the corporate governance guidelines of many countries, it is recommended that the board be responsible for setting and reaching ambitious diversity goals. Relevant diversity in the company helps lay the foundation for good business performance and creates a diverse pipeline of candidates for senior leadership.

From 2023, gender diversity is a law in Denmark, no longer a recommendation, and the EU is expected to follow suit soon. This means that the board is responsible for ensuring that clear goals for gender are set on all management levels and that action plans are implemented. The company is required to report the achievements by the year’s end.

Many companies may not realize that these targets must be set at the latest during the first meeting of the board after 1 January 2023. This article by Kromann Reumert contains a good summary of these new requirements (in Danish).

Note that diversity is not just about gender. There is also work to be done by boards to help companies improve on other relevant aspects including age, experience, ethnicity, and more.

Our experience is that nearly all larger companies have very nice policies – it is measuring progress and taking responsibility for achievements that are missing. When evaluating the company policy and its implementation, the board should consider these areas, among others.

Does the diversity policy show:

• how the company will strengthen managements’ qualifications and competences to support future development?
• concrete plans for how the company will work actively to increase diversity?
• clear gender and other relevant diversity targets, at each management level?

The new Danish law (details here in Danish: https://erhvervsstyrelsen.dk/vejledning-maltal-og-politikker-den-konsmaessige-sammensaetning-af-ledelsen-og-afrapportering-herom – focus on Chapter 3: Ligelig fordeling af kvinder og mænd) requires that the central management body of all large public companies must, for the accounting year starting 1 January 2023:

• set targets for the proportion of members of the under-represented gender in the supreme governing body elected by the general meeting
• develop a policy and set targets for the proportion of the underrepresented gender for the next two management levels; executive management and the leaders reporting to the executive management (It is thus no longer accepted for a parent company to set target figures and draw up a policy for the group as a whole)
• set a new and higher target number* for the proportion of the underrepresented gender when the company has reached its previously set target number, or a new target number when the time horizon for the expected fulfillment has expired
• ensure that the management report contains both statistics on the gender distribution in the company (regardless of whether the de minimis limit applies) and information on the company’s target figures and policies, including the status of the fulfillment of the target number.*

*The requirement to set target figures and draw up a policy does not apply if the company either in advance or at a later date meets the target of equal gender distribution at the mentioned management levels. An “even” gender distribution means a distribution that is at least 40/60.

Our own recent study regarding gender diversity targets and policies within the most traded listed companies in Denmark (https://leadershipadvisorgroup.com/gender-diversity-in-the-danish-c25-companies-3rd-update/) shows that many companies are well on their way toward complying with the new regulation recommendations to set, publish and achieve gender targets for the board and executive management, but the data is fuzzy for the next levels down. Companies have very different definitions of the “next two management levels“ and it is not clear to the public how the company is doing on gender diversity at each distinct management level. The new law makes it imperative to have clear targets at each defined level.

Boards have many responsibilities, but diversity is one area where many need to become more active, prioritizing time to thoroughly review the company’s policy, ensuring it is concrete and has measurable goals at each level, clear action plans, and ambitious timelines.

If you’d like inspiration regarding “what good looks like” or assistance with this topic, we are happy to help.

Please contact us at reception@leadershipadvisorgroup.com