Hungary is gearing up for a groundbreaking shift in corporate governance, with the proposed law aimed at improving gender representation in leadership positions at publicly traded companies. By implementing the relevant EU directive, the proposed law does not only seek to address long-standing gender imbalances but still promotes greater access of women to the labor market participation.
The legislation targets supervisory boards in public limited companies where women occupy less than 49% of the positions. To ensure compliance, companies must achieve a minimum 40% representation of the under-represented gender in supervisory boards by mid-2026. While smaller businesses, including micro and medium-sized enterprises, are exempt, larger corporations face significant accountability measures. Key provisions of the law require companies to overhaul their recruitment and selection processes. Candidates must be evaluated based on objective and transparent criteria such as qualifications, skills, and experience. In cases where candidates are equally qualified, preference must be given to the underrepresented gender.
To maintain accountability, affected companies must file annual reports each year by 30 June, detailing the gender breakdown of their boards and the actions taken to achieve the mandated targets. These reports will be submitted to the Registry Court of the company, and to the Budapest Stock Exchange, which information shall also be publicly available on the websites of the companies. The Budapest Stock Exchange will also publish by 31 July each year an annual list of companies that meet the requirements, encouraging transparency and public oversight. The above should also be duly indicated in the corporate governance statement of the company. Those failing to comply must explain their shortcomings and provide corrective actions.
As the implementation deadline approaches, all eyes will be on the companies tasked with turning this vision into reality and on the ripple effects this progressive change may unleash across the economy. This legislation is a huge milestone for women in the labor market, as it underscores the importance of gender diversity in decision-making by improving the gender balance on boards of public limited companies. The proposed law, if accepted, is expected to come into effect on 28 December 2024.
By Levente Csengery, Partner, KCG Partners Law Firm
