New Danish Gender Balance Act introduces stricter requirements for certain listed companies

Companies Covered by the Gender Balance Act

The listed companies affected by the Gender Balance Act are those with (i) at least 250 employees, and (ii) either (a) an annual turnover exceeding EUR 50 million or (b) a total annual balance sheet exceeding EUR 43 million. The number of employees must be calculated based on the average number of employees in the most recent financial year. The calculation of the thresholds follows the regulation outlined in Section 7 of the Danish Financial Statements Act concerning reporting classes.

The scope of the Act is expected to cover approximately 50-60 listed companies.

The requirements in Section 139c of the Danish Companies Act regarding targets and policies for the underrepresented gender remain in effect for companies not covered by the Gender Balance Act. Consequently, companies near the above-mentioned threshold values may experience changes depending on whether they are covered by the Gender Balance Act and Section 139c of the Companies Act. For example, a company could be subject to the Gender Balance Act one financial year, then the following financial year be subject to Section 139c of the Companies Act, only to again be subject to the Gender Balance Act the following financial year.

Stricter Requirements for Gender Balance

The Gender Balance Act introduces a requirement to aim for equal gender balance on the board of directors and to set specific targets for other management levels.

Board of Directors

Pursuant to the Gender Balance Act a company covered by the Act must aim for an equal gender balance among both shareholder-elected and staff-elected board members. This represents a significant change from the existing framework under Section 139c of the Companies Act, which only requires that a target is set for a company's shareholder-elected board members.

The Gender Balance Act also introduces a stricter requirement for companies to achieve "gender balance" on the board of directors by 30 June 2026. Pursuant to the Companies Act, only "ambitious" targets are required. In the Gender Balance Act, the term "gender balance" is defined as a distribution where the underrepresented gender constitutes at least 40% but not more than 49%. This definition differs from the current definition in the Companies Act, which allows a 40/60 distribution or the closest achievable percentage to 40% without exceeding it.

The Gender Balance Act only recognises two genders: male and female. Consequently, a company can only have an underrepresentation or an equal representation of (i) men or (ii) women.

If gender balance on the board of directors is not achieved by 30 June 2026, the management and the employee election committee will be required to establish or adjust the process for the selection of board candidates. The process must be based on clear, neutrally worded, and objective criteria. Candidates from the underrepresented gender must be given preferential consideration if equally qualified as candidates of the overrepresented gender.

Additionally, a notice convening a general meeting must include details of the selection process for board candidates, such as (i) the criteria used for selection, (ii) whether a comparative assessment of candidates was conducted, and (iii) confirmation that the nomination of candidates was based on this process.

The notice must also specify the sanctions, including fines, that may be imposed on the company for non-compliance with the Gender Balance Act. Similarly, the employee election committee must disclose the process for electing the staff-elected members of the board of directors.

Contrary, if gender balance is achieved by 30 June 2026, the company will only need to reassess gender distribution after the next board election, even if an imbalance arises between elections. The evaluation must be conducted separately for shareholder-elected and staff-elected board members. Therefore, assessments should take place after elections of employee representatives and general meetings for the respective groups.

Other Management Levels

The Gender Balance Act continues the existing requirements under the Companies Act, obliging companies to set a target for the underrepresented gender at other management levels, unless gender balance is already achieved.

Other management levels are defined as two levels of management under the board of directors: (i) the board of directors, and individuals who are organisationally at the same management level as the board of directors, and (ii) individuals with personnel responsibility who report directly to the first management level.

Further, the Gender Balance Act extends the existing requirements by requiring the board of directors to set a new and higher target for the underrepresented gender in other management levels once the previous target has been met, or when the time frame for achieving the target has expired. The time frame for achieving the first target must not expire after 30 June 2026.

The board of directors must also prepare a policy to increase the proportion of the underrepresented gender at other management levels, unless gender balance (see definition above) is already achieved. Pursuant to the preparatory work to the Gender Balance Act, a company has the discretion to adopt the policy it considers most effective for the company in question to increase the representation of the underrepresented gender, but it is a condition that it takes active measures to increase the share of the underrepresented gender in general at management level.

Duty to disclosure information

Upon the request of a candidate, who was considered during the selection process for the nominations to the board of directors, the company must disclose the qualification criteria, the objective comparable assessments of the candidates based on the criteria, and the specific considerations that led to the selection of a candidate from the overrepresented gender.

A rejected candidate has the right to bring forward a claim of compensation if the candidate should have been given priority . If a court finds that the rejected candidate was subject to an infringement, the size of the compensation will depend on the circumstances. The amount will most likely be fixed in accordance with the same principle on compensation, which moreover applies in relation to the equal treatment of board members.

Fines for non-compliance with the Gender Balance Act

Failure to comply with certain of the requirements in the Act may result in a fine. This applies in case of omission to (i) set a target for the underrepresented gender at other management levels, (ii) establish criteria for assessing the qualifications of board candidates, (iii) ensure that board candidates are selected based on a comparative assessment of the individual candidates' qualifications based on the fixed criteria, (iv) give priority to candidates from the underrepresented gender if they are equally qualified as candidates of the overrepresented gender, and (v) include specific information in the notice to the persons entitled to vote at a general meeting.

The legislative material to the Gender Balance Act includes a guideline for the level of fines. When determining the level of a fine, considerations should be given to the severity of the violation, the offender's ability to pay, and the profit or savings achieved or intended. In cases where the same provision or similar provisions are repeatedly violated, the level of fines should be increased according to a general escalation principle, whereby the fine is doubled for each subsequent violation of the same or similar provisions within the last five years. For a first time violation, the level of a fine amounts to up to DKK 30,000, for a second time up to DKK 60,000, third time up to DKK 90,000, for a fourth time up to DKK 120,000, and subsequently any repeated violation of the same ruling may entail a doubling of the level of the fine.

Amendments to other legislation

The Gender Balance Act also includes amendments to other legislation regarding the reporting on gender balance, including the Financial Statements Act. 

The purpose of most of the amendments is to determine that specific provisions in the said acts will not apply if the company is covered by the Gender Balance Act.

General Focus on Gender Balance in the EU

Currently, there is a general focus within the EU to ensure gender balance in the business sector and implementing rules on the adoption of legal instruments promoting equality. In addition to the Gender Balance Act, the EU adopted, on 10 May 2023, inter alia, the Pay Transparency Directive, which must be implemented by national law in Denmark by 7 June 2026.

Pursuant to the directive, Denmark must take the necessary measures to ensure that employers have pay structures ensuring equal pay for equal work or for work of equal value. Pursuant to the directive, employers within both the private and public sectors must ensure to establish and use gender-neutral job evaluation and classification systems that exclude any pay discrimination on grounds of sex. It requires categorisation of job positions into groups performing the same or equivalent work, and a description of objective, gender-neutral criteria and other job-related factors taken into consideration when determining pay structures. 

Certain reporting requirements on pay gaps between female and male workers must be ensured, and the deadline for providing such information relating to the previous calendar year will depend on the number of workers. For employers with 250 workers and more, the deadline for providing the information is 7 June 2027 and every year thereafter, relating to the previous calendar year. The same deadline applies to employers with 150 to 249 workers. For employers with 100-149 the deadline is 7 June 2031. Member states shall not prevent employers with fewer than 100 workers from providing the information on pay gaps. Denmark may also decide by national law to require that employers with fewer than 100 workers provide information on pay. 

Legal assistance from Plesner 

Pursuant to the Gender Balance Act, target companies will be subject to stricter requirements. It is recommended that these companies stay informed and possibly seek assistance on how they will be affected by the Act. We can assist with interpretative guidance in respect of the Act and the existing rules in the Companies Act, for example an interpretation of relevant terms and the transition from the Companies Act to the Gender Balance Act. 

We will ensure to provide you with further information on Denmark's implementation of the rules in the Pay Transparency Directive.