The new EU Women on Boards Directive could pose a D&O risk for corporates and their insurers

On 22 November 2022, the European Parliament gave its final approval on a new law, known as the ‘Women on Boards Directive’, requiring listed companies implement quotas to increase gender diversity on corporate boards throughout the European Union by 2026. The new rules will require publicly listed companies to disclose the status of their board’s gender balance figures.

It’s no secret that progress of gender equality on corporate boards in Europe has been slow; according to the European Institute for Gender Equality (EIGE) in 2022, only 31.6% of board members and a mere 8% of chairpersons are women.

It probably will not come as a surprise, then, that the EU is seeking to achieve a more balanced representation on the boards of listed companies. The ‘Women on Boards Directive’ which was first proposed by the European Commission in 2012 and tabled until early 2022, focuses on placing quotas on the proportion of board seats of publicly traded companies that are filled by women.

Affected companies will be measured against the following two criterion:

(i) Targets for corporate boards

According to the new legislation, listed companies are required by 30 June 2026 to have the underrepresented gender fill at least 40% of non-executive director positions, and 33% of all director positions.

(ii) Implementation of objective criteria for selection and appointment of board members

Corporates will also need to put in place more transparent recruitment processes that introduce pre-established, clear, neutrally formulated and unambiguous criteria in selection procedures for those positions. While there will be inbuilt safeguards to ensure that there are no unconditional/automatic promotions, preference will be given to equally qualified candidates of the underrepresented gender.

Companies with their registered office in a member state and whose shares are admitted to trading on a regulated market in one or more member states will need to comply. The Directive also only applies to listed companies with more than 250 employees.

Member states that already have an effective system which satisfy the 40% requirement are able to keep their current system in place. Member states can also introduce stricter requirements than those proposed by the Directive.

Similar to other global jurisdictions, most notably, in England and Wales, and the United States (US), the Women on Boards Directive adopts a ‘comply or explain’ model which requires qualifying companies to report annually about: (i) the gender representation of their boards and (ii) the measures they are taking to achieve the targets.

Companies who have not met the targets must disclose the reasons for failure to achieve the objectives, and the measures they are taking to address it. Member states will publish a list of companies meeting the objectives, also on an annual basis.

Impacts of the Women on Boards Directive on the D&O insurance market

The logical question will be how this Directive, and Diversity and Inclusion (D&I) initiatives and regulations more broadly, will affect the D&O insurance market generally and in Europe.

General trends in the D&O insurance market

ESG-related claims have the potential for significant exposure in the D&O insurance market, for both insureds and insurers alike. While the emphasis of D&O liability to date has largely been driven by environmental and governance themes, social issues are now also becoming increasingly relevant.

It is a fact that companies with diverse boards are more likely to have better-balanced corporate cultures and improved financial performance. According to a report by McKinsey & Company, companies in the top quartile for gender diversity on executive teams were 25% more profitable than their counterparts, and companies with more than 30% women executives were more likely to outperform companies with those with fewer female executives.

Against this backdrop, D&O underwriters are increasingly placing emphasis on insureds’ ESG credentials, and this is becoming a determinative factor when evaluating an insured’s risk profile. Insureds (and their brokers) can expect that D&O underwriters will be interested in the emphasis management place on D&I initiatives, in particular, corporates’ compliance with the Directive and how this is reflected in key performance indicators. Going forward, insurers are also likely to consider a public company’s gender diversity statistics as part of the insurance renewal process.

Trends in European D&O insurance market

It is inevitable that the implementation of D&I legislation across Europe (such as the Women on Boards Directive) will create additional pressure for corporates to not only accurately report about their diversity and inclusion efforts, but also, to address the composition of their board and management teams.

The most popular claims are likely to arise out of non-compliance and/or failing to provide accurate information to regulators. However, and perhaps even more importantly, are those claims likely to arise from statements made by D&Os in public regarding an organisation’s D&I efforts, in particular, about the degree of accuracy of its reporting and a demonstrable implementation of initiatives aimed at achieving the targets set out by the Directive.

Indeed, failing to provide accurate information could result in corporates facing fines, nullification of appointment, and/or shareholder actions resulting from knowingly making false and/or misleading statements regarding changes to diversity policies.

In this regard, an area of particular interest to European corporates and their D&O insurers are circumstances where European-headquartered companies with branches or subsidiaries in the US could face shareholder class actions for failure to achieve legislative targets and/or representations made in public.

While litigation against D&Os over D&I issues was once a fairly uncommon occurrence, the landscape has shifted substantially since 2020 where, in the US, there has been numerous diversity-related shareholder class action lawsuits. Although recent derivative lawsuits in the US regarding board diversity have failed to progress to trial, shareholders are filing a record number of securities class action lawsuits against non-domiciled US-listed companies. To put a figure to this, the rate of class actions against foreign filers in 2021 was nearly 26% of total core filings, yet foreign filers only make up a fraction of all publicly listed companies in the US. In fact, Europe is the top foreign location for filings outside of the US.

It remains to be seen whether shareholder class action claims against non-US domiciled publicly listed companies will eventually progress to trial in future. However, they continue to pose a risk to European-headquartered listed companies and their insurers as these are expensive and time-consuming claims, requiring knowledge of the US legal system.

The impact on D&O insurers – will D&I claims be covered under D&O policies?

The main question on everyone’s mind will be whether D&I claims arising out of non-compliance with the Directive will be covered under D&O policies. Unfortunately, there is no straight forward answer; it is difficult to predict whether diversity-related claims will be covered under D&O policies, as coverage will be contingent on each respective policy’s terms and conditions. However, certain policy exclusions may be triggered. A D&O policy’s conduct exclusion is likely to be triggered in circumstances where claimants allege that a company’s D&Os knowingly disclosed false and/or misleading information about a company’s commitment to diversity.

Other sources of risk to D&O insurers in a D&I context arise where cover is provided for standard D&O risks, such as fines, defence costs, damages, and settlements. Furthermore, shareholder derivative claims present unique potential exposure to D&O insurers on the basis of Side A claims in circumstances where a company is not permitted by law to indemnify D&Os for such claims.

Non-compliance with the Directive could inevitably lead to an uptick in employment-related claims, claims for reputational damage, regulatory investigations and fines being imposed on insureds, with the ultimate knock-on effect being on D&O insurers.


Whether or not the EU Directive’s policy wording will lead to fewer or more insurance claims is yet to be seen. However, what is certain is that the market is shifting toward creating boardrooms that are reflective of the 21st century. It is clear, then, that the pressures placed by lawmakers, regulators, activist investors, employees, and other key stakeholders will require insureds to not only be attuned to ESG-related issues – but more importantly – to rapidly adapt, or suffer the consequences.

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