What are the commercial implications of the Spanish draft Organic Law on equal representation and balanced presence of women and men?

On 15 December 2023, the Draft Organic Law on equal representation and balanced presence of women and men was published. This law advances the objective of achieving effective equality between men and women in the public and private spheres, transposing in this last section the Directive (EU) 2022/2381 of the European Parliament and of the Council of 23 November 2022 on a better gender balance among directors of listed companies and related measures.

If finally approved, this law will amend, among others, the Spanish Companies Act (SCA) and the Spanish Securities Markets and Investment Services Act (SSM).

Commercial scope of application

In the commercial sphere, this law shall apply to listed companies, as well as to public interest entities – in accordance with the auditing law – as from the financial year after the following requirements are met: a) that the average number of employees exceeds 250; and b) that annual net turnover exceeds €50 million or total assets exceed €43 million.

Main obligations

Concerning the board of directors

• Ensure that the board of directors has at least 40% of the under-represented sex.
• Adjust the selection processes according to certain rules to ensure a non-discriminatory procedure when the 40% threshold is not met, in order to ensure that this goal is achieved.
• Provide the General Shareholders´ Meeting with information on the measures required regarding the balance between women and men on the board of directors, as well as the possible sanctions for non-compliance that could affect the company.
• Prepare and publish annually, as part of the sustainability report, information on the representation of the under-represented sex on the board of directors.
• In legal proceedings that may be brought by an unsuccessful candidate of the under-represented sex, the listed company shall bear the burden of providing a reasonable objective justification for the selection made. 

In relation to senior Management

• Ensure that at least 40% of the senior managers are of the under-represented sex.
• Detail in the annual report the compliance with this threshold and, in case it is not met, provide a detailed explanation of the reasons and measures taken.

The compliance monitoring of these obligations is entrusted to the Spanish Securities Commission in relation to listed companies and to the Spanish Ministry of Equality in relation to public interest entities that are not listed companies.

In the case of listed companies, failure to comply with the new obligations provided for in the SCA in this area will be considered a serious offence under article 292 of SSM.

Entry into force

A staged entry into force is planned: 

• It will begin on 30 June 2024 for the 35 listed companies with the highest market capitalisation (not necessarily coinciding with those making up the IBEX 35 index, in accordance with the current drafting of the draft law).
• For listed companies with a market capitalisation above €500 million on the date of entry into force of the law, the date will be 30 June 2025.
• For listed companies with a market capitalisation of less than €500 million on the date of entry into force of the law, it will be 30 June 2026.
• For public interest entities, the obligations regarding the board of directors and senior management shall be implemented gradually: 33% of the under-represented sex shall be reached by 30 June 2026 and 40% by 30 June 2028.

Osborne Clarke comment

It is noteworthy that the Draft Law is more demanding than the Directive (EU) 2022/2381 with regard to the deadline for the entry into force of the new obligations for listed companies with the largest market capitalisation. Under the directive, this could have been extended to 30 June 2026.

In addition, the establishment of the threshold of 40% of members of the under-represented sex on the board of directors goes above the 33% required by the directive. However, such a threshold seemed inevitable in Spain, because since 2020 the Spanish Good Corporate Governance Code of Listed Companies recommended that women should represent at least 40% of the board members by the end of 2022.

On the other hand, the entry into force of the law on 30 June 2024 for the 35 listed companies with the largest market capitalisation could pose certain issues. By that date, these companies will already have held their Ordinary General Shareholders´ Meetings. This means that some of them could be non-compliant, unless they decided to comply with the obligation before its official entry into force.