On January 1, 2022, the Dutch Law on Entry Quota and Targets (EQT, in Dutch “Wet ingroeiquotum en streefcijfers“) was implemented in the Netherlands. This law aims to achieve greater gender balance in the top and sub-top levels of corporate organizations, including boards of directors and supervisory boards. The law applies to Dutch listed companies and large Dutch companies. A company qualifies as “large” based on Dutch financial reporting requirements, which means it must meet at least two of the following criteria for two consecutive fiscal years, i) The asset value exceeds EUR 20 million, ii) the net turnover exceeds EUR 40 million and iii) the average number of employees is 250 or more.
Obligations
The Inclusion Quota and Target Figures Act consists of an inclusion quota, a target figure scheme, and reporting obligations. Under this law, companies are required to formulate “appropriate and ambitious” goals for the composition of their top and sub-top positions. These goals are not fixed but should be tailored to the size of the executive level and the company’s structure. “Appropriate” means that the target figure should be proportional to the level of management and the company’s structure, while “ambitious” implies that it should aim for a more balanced gender ratio than the current one. Therefore, the target figure cannot be zero.
Additionally, large Dutch corporations must develop an action plan to achieve these objectives. The action plan outlines the activities and policies the company will implement to achieve a balanced gender ratio. This may include recruitment and selection policies, measures related to work, learning and caregiving, communication policies and compensation policies, among others.
The role of the works council
Works councils can play a significant role in determining target figures and action plans and in achieving these goals. The legal reporting requirement provides works councils with a new opportunity to prioritize diversity and inclusion. In addition to collectively discussing compliance with this legal obligation, the works council also has influence over matters such as changes in recruitment and selection policies (right to consent), the appointment of new directors (advisory right), and the nomination of supervisory board members (nomination right).
The reporting obligations apply to fiscal years starting on or after January 1, 2022. Assuming a company’s fiscal year ends on December 31, 2022, the first report must be submitted by October 31, 2023, at the latest. It is also possible to submit this report earlier (the portal has been open since January 1, 2023). The reporting must be done digitally, using a format developed by the Social and Economic Council (SER), which is accessible through the aforementioned diversity portal. Based on these reports, the SER annually publishes information on progress in diversity at the top of Dutch businesses.
Enforcement
Regarding enforcement, the SER plays a monitoring and supporting role; it can monitor a company’s progress and compliance with transparency requirements based on their reports. However, the legal provisions and reporting obligations are enforced under civil law. If a large Dutch corporation fails to set target figures, develop an action plan, or is not transparent about results, shareholders can hold the board of directors and the supervisory board accountable. If the general meeting is dissatisfied with the responses, it can, as a last resort, refuse to approve the annual financial statements.