Organic Law 2/2024: Are companies prepared for the new mandatory parity?
On 22 August, Organic Law 2/2024 on Equal Representation and Balanced Presence of Women and Men (the ‘Law’) came into force, which is a further step in the quest for gender equality in Spain. This law not only transposes the European Directive 2022/2381 on gender parity on boards of directors, but its scope is more ambitious.
What changes with Organic Law 2/2024?
This law comes at a time when there is growing social demand for greater representation of women in positions of power and decision-making; a good example of this is the appointment of the first woman as president of the General Council of the Judiciary and of the Supreme Court. Despite the progress made, there is still a long way to go, especially in large companies, where the presence of women on boards of directors is still insufficient.
The main objective of this law is to correct this imbalance. According to the new law, equal representation and balanced presence of women and men is considered to exist when the number of persons of each sex does not exceed 60% and is not less than 40% in a given field, with some justified exceptions.
How does this rule affect listed companies?
The Law amends article 529 bis of the Capital Companies Act, introducing the obligation for the boards of directors of listed companies to have at least 40% representation of the under-represented sex. If this percentage is affected by resignations, deaths or other circumstances, the company must restore it as soon as possible and in any case at the first General Shareholders’ Meeting following this circumstance.
According to the information note dated 16 May 2024 published by the CNMV, in the year 2023, the presence of women on the IBEX 35 boards reached 40% for the first time, highlighting that:
- For listed companies as a whole, the presence of women on boards rose to 34.5%, compared to 31.87% in 2022.
- 42 of the 117 listed companies achieved the 40% target, 27% more than in 2022.
- The percentage of women in senior management positions rose to 23.07% in 2023, up from 21.73% the previous year.
Novelties for the selection of councillors introduced by Organic Law 2/2024
The new law obliges companies to adjust their selection processes to comply with the parity percentages. If there are equally qualified candidates, preference must be given to the under-represented sex, unless there are justified exceptions.
In addition, if a candidate so requests, the company must explain the criteria and reasons why he/she was not selected and in the event that the unsuccessful candidate of the under-represented sex initiates legal proceedings, it will be up to the company to justify that the selection was made in compliance with the legal requirements.
Does Organic Law 2/2024 affect senior management positions?
Listed companies will have to ensure that at least 40% of senior management positions are held by persons of the under-represented sex. If they do not achieve this, they will have to explain why this has not been achieved and what actions they plan to take to reach this percentage in the following years.
This information should be disclosed in the notes to the annual accounts, explaining clearly the reasons for non-compliance and the measures that will be taken to correct it in the future.
Additional transparency requirements introduced by Organic Law 2/2024
The general meeting of shareholders should be informed of all measures required to ensure a balance between women and men on the board of directors, as well as of the sanctions that could be applied if these requirements are not met, and which may affect the company.
In addition, companies will have to prepare and publish annually, within their sustainability report and on their website, information on the representation of the under-represented gender on the board of directors, specifying who are the executive and non-executive board members and the measures that have been taken to achieve the parity targets.
This information will also be sent to the CNMV, which will publish an updated list of companies that have achieved the parity targets and must be kept on the company’s and the CNMV’s website for at least ten years.
Is non-compliance with the requirement of equal representation on boards of directors punishable by law?
Failure to comply with these new requirements on equal representation introduced by article 529bis is considered a serious infringement under the Securities Market Law and the CNMV will be competent to initiate and investigate sanctioning proceedings.
Penalties may include significant fines which, depending on the seriousness of the breach, may be up to the greater of the following amounts:
- Three times the gross profit made as a result of the acts or omissions which constitute the offence
- 2 % of the own resources of the offending institution
- 2% of the total funds, own or external, used in the infringement
- 300.000 euros
Deadlines for adapting to the requirements of equal representation on boards of directors of listed companies
To facilitate adaptation, the Law provides for a transitional period during which listed companies must make the necessary adjustments to comply with the new requirements.
Thus, the new requirements imposed by article 529 bis of the Capital Companies Act will come into force as of 30 June 2026 for the 35 companies with the highest market capitalisation (determined using the closing price on the day of entry into force of the Act) and for the remaining listed companies as of 30 June 2027.
Extension of the obligation of joint representation
The Law does not only affect listed companies, but also requires this balanced representation for other entities, including the following.
- Public interest entities with more than 250 employees and an annual net turnover of more than 50 million euros or total assets of more than 43 million euros.
- Professional Associations.
- Representative, governing and administrative bodies of trade unions, employers’ associations, foundations and NGOs.
Organic Law 2/2024 poses a major challenge for companies in Spain. It is not just a matter of complying with a percentage, but of promoting a real change in corporate culture. Parity is no longer just a long-term goal, but a legal requirement that, if not met, could lead to significant fines for companies, as well as for other entities and organisations.
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