Understanding the New Legislation on Gender-Balanced Boards: Implications for Finnish Listed Companies

Authors: Anniina Järvinen, Aki Salmela, and Sofi Lehtinen

Background

Key elements

• Gender balance targets: Underrepresented gender to represent at least 40% of the board members in a Finnish listed company by 30 June 2026.

• New disclosures: Finnish listed companies to describe the implementation of the board’s diversity principles and present data on the gender balance among the board members in percentages, as well as the gender of members of governing bodies and executive management in their Corporate Governance Statement.

In November 2022, the EU adopted a new directive that aims to foster gender equality in economic decision-making by setting targets for a gender-balanced representation among director positions in listed companies. The amendments to Finnish legislation implementing the requirements of the directive have now also been passed by the Finnish Parliament and will enter into force on 28 December 2024. The Finnish Corporate Governance Code (CG Code) has consequently been revised to incorporate the respective amendments.

The new provision added to the Finnish Companies Act only applies to certain largest Finnish listed companies. [1] In practice, however, the corresponding revisions to the CG Code will make these objectives applicable to all companies listed on Nasdaq Helsinki Ltd or Nasdaq First North Premier Growth Market.

Amendments to Finnish Law

The objective is for the underrepresented gender to represent at least 40% of the board members of a company. The objective should be fulfilled by 30 June 2026. Therefore, the amendments will not necessarily affect nomination board proposals to the annual general meetings to be held in spring 2025 but will be followed at the latest in the nomination board work during 2025 for proposals to be made to annual general meetings in spring 2026. The table at the end of this article presents the minimum number of board members representing underrepresented gender required to comply with the objective set out in the Finnish Companies Act and the revised CG Code.

Further, the Ministry of Finance Decree on the regular disclosure duties of an issuer of a security is amended to require Finnish listed companies to report the gender balance among board members in their Corporate Governance Statements. If the gender balance objectives set forth in the Finnish Companies Act are not achieved, companies must explain why the objectives have not been achieved and provide a detailed description of the measures already taken or planned to be taken in order to achieve these objectives.

New Corporate Governance Code 2025

The CG Code has mainly been revised for its Recommendations 8 and 9. The current Recommendation 8, according to which both genders shall be represented in the board, has been updated in accordance with the amended legislation so that there will be balanced representation of women and men in the board by 30 June 2026. Under the transition provision of the CG Code, Recommendation 8 of the CG Code 2020 applies until 30 June 2026. Further, the CG Code has been revised so that the Corporate Governance Statement will present data on the gender balance among the board members in percentages as well as the gender of members of the board, supervisory board (if applicable), shareholders’ nomination board, and the CEO, the deputy CEO, and members of the executive management team.

The “Comply or Explain” principle applies to Recommendation 8, and a company departing from the new Recommendation 8 must provide an explanation already when publishing the proposal for board composition and in the notice to general meeting. The rationale for Recommendation 8 describes the information to be provided to justify a departure from the Recommendation. Companies and their respective nomination boards are recommended to closely adhere to the amended Recommendation 8 to meet the disclosure requirements. Unlike the CG Code 2020 and its Recommendation 8, which does not set such disclosure requirements, this revision introduces new responsibilities for companies.

Further, the amended Recommendation 9 requires companies to explain not only the principles concerning the board diversity (as previously) but also how these principles have been implemented. Nomination boards must be prepared to explain any departures from these principles or the relevant recommendations of the CG Code when preparing board composition proposals.

The new CG Code 2025 has been published and is available here (in Finnish and English). The CG Code will enter into force on 1 January 2025 (taking into account the above-mentioned transitional provision regarding Recommendation 8). The changes will apply to Corporate Governance Statements published after 1 January 2025. The CG Code will be subject to further review regarding sustainability-related matters, and such work has started in October 2024.

Target Numbers of Board Members of the Underrepresented Gender

[1] The new provision applies to a Finnish listed company whose shares are traded on a regulated market, if the company, during the last financial year and the immediately preceding financial year, had an average of over 250 employees, and either 1) the reported balance sheet total of over EUR 43 million, or 2) the reported turnover of over EUR 50 million.