The legislation is based on an EU directive aimed at promoting gender equality. It says at least 40 percent of the members of the supervisory board are of an underrepresented gender, or at least 33 percent of the members of the board and the council are of an underrepresented gender.

The rules will apply to companies with more than 250 employees that have an annual turnover of more than €50 million. Twelve businesses meet the criteria in Estonia. 

"To meet the first objective, for example, a five-member board should have two under-represented members, and to meet the second objective, a board with, say, nine members should have three under-represented members. The chosen target must be met by June 30, 2026," the Ministry of Finance said.

Punishments will not be handed out to companies that do not meet the target, it said. Changes will come into effect when the terms of office expire, not right away.

However, companies that fail to meet the target will have to implement transparent recruitment policies and give preference to the under-represented gender. "This is the first positive action measure to achieve gender balance in Estonia," the ministry said.

Ulla Saar, deputy secretary-general of Labor at the Ministry of Economic Affairs, said businesses can "only gain" from diverse management.

"Companies with both women and men in management take a broader and more diversified approach to problem-solving, which research shows makes them more innovative, adaptable and competitive. The planned changes will have a wider impact on society as a whole, in addition to the organizations concerned. Greater participation of women in top management can also contribute to breaking down existing cultural and societal gender biases," said Saar. 

In Estonia, the percentage of women on the boards of companies listed on the stock exchange is one of the lowest in the EU.   

The EU Directive (2022/2381) applies to listed companies as it says they have a big economic and societal impact and act as a role model for others. The regulation is time-limited to 2038.

The draft is also linked to the government's action program, which sets a goal of achieving equal representation of men and women on the boards of state-owned companies, with no more than 60 percent of one gender on the board.

"The Nominations Committee always selects new Board members on the basis of each candidate's skills, competence and professional capacity. If, however, there are ultimately several candidates of equal merit, one of whom is an under-represented gender, preference must be given to him or her – a principle now enshrined in law," explained Kaur Kayak, deputy secretary-general for public governance policy at the Ministry of Finance.

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