Company Culture and DEI: A Need-To-Know for Directors of Belgian (Listed) Companies

Introduction

Over the past decade, the expectations placed on companies regarding their company culture, leadership style, and diversity, equity, and inclusion (DEI) strategy have notably increased. This trend is not only evident globally but can also be observed in Belgium.

This trend coincides with talent shortages in a tightening labour market in Belgium, pushing many organisations to distinguish themselves as preferred employers by prioritizing employee well-being and fostering a supportive workplace environment. It is reinforced by heightened public attention to, and media coverage of these issues as a result of broader social movements, such as the #MeToo and #BlackLivesMatter movements, and more in general an increased social sensitivity around all kinds of diversity and discrimination issues. Finally, this trend fully reflects a shift in mindset and regulation about corporate governance, with sustainability becoming a core aspect of corporate governance and with companies expected to integrate environmental, social, and governance (ESG) factors into their governance structures, risk management processes, and business strategy.

As a direct result, company culture as the set of (implicit) behavioural norms that positively unify the people working in the organization and DEI strategy have increasingly captured the attention of boards and executive committees over the last decade.

We see these trends in the corporate environment also reflected in our legal employment litigation and workplace investigations practice:

• Over the past decade, we have seen a notable increase in the number of internal workplace investigations and we have seen that companies are taking firmer action when issues or complaints in respect of wrongdoing or inappropriate behaviour arise. Complaints and potential victims are being taken seriously from the outset, and investigations are conducted with greater thoroughness and rigor, reflecting a heightened awareness of the importance of addressing issues such as harassment and toxic leadership. Finally, more often than in the past, these types of investigations result in the termination of the employment relationship, especially in cases involving senior management.
• Public labour prosecutors are also showing increased sensitivity to allegations of misconduct in the workplace. Cases involving harassment or toxic leadership are being given higher priority, signalling a growing intolerance for such behaviour within organizations.
• Belgian case law also reflects a shifting approach to discrimination and harassment cases, with courts increasingly applying rules favourably to presumed victims: there is a more vigorous application of rules related to the reversal of the burden of proof, providing greater protection to individuals who allege discrimination or harassment in the workplace.

Overall, these trends underscore the growing importance of fostering a positive and inclusive company culture, as well as the increasing accountability of leaders and organizations in addressing misconduct in the workplace. As legal standards evolve and enforcement mechanisms strengthen, companies are compelled to take proactive measures to prevent and address issues related to company culture, harassment, and discrimination.

In this article, we will further explore why and how boards and executive committees could take action in this respect.

In particular, we will examine the key factors and obstacles that boards and executive committees encounter in this area, such as the growing legal pressure that sets various rules for employers and employees regarding company culture and DEI, the role of whistleblowing in this context, the tougher stance of regulators on company culture and DEI performance, the rising reporting requirements that demand companies to disclose information on company culture and DEI, and the potential civil and criminal risks and repercussions of violating the relevant laws.

We will close this article by sharing some practical recommendations for boards and executive committees who wish to take a proactive and strategic approach to company culture and DEI. As a teaser, to successfully cultivate a positive company culture that embraces DEI values, boards and executive committees need to demonstrate a high level of dedication and direction from the top, and foster a genuine participation and empowerment from the bottom.

A stricter legal framework

A first reason for boards and executive committees to include company culture and DEI matters on their agenda is the increasingly stricter legal framework that regulates the rights and obligations of employers and employees in these areas. Boards and executive committees need to be aware of these obligations and ensure compliance, as well as anticipate potential legal risks and opportunities.

This movement towards increasing regulation of company culture and DEI can be showcased by various very recent or upcoming initiatives:

• The Belgian Act on Wellbeing at Work, traditionally one of the main drivers to foster an appropriate culture at work in Belgium, which requires employers to implement a policy to enhance the well-being of employees and prevent psychosocial risks, such as stress, violence and unwanted sexual behaviour. The act also provides for internal procedures, protection mechanisms and mediation options for employees who experience inappropriate behaviour at work. Last year, Belgium changed the rules on the appointment of a person of trust to increase the presence of the person of trust in Belgian companies. This will further reinforce the support of employees who have concerns in relation to psychosocial issues at work.

• The EU Women on Boards Directive, which aims to increase the representation of the underrepresented sex in the boards of listed companies. By 2026, the underrepresented sex should hold at least 40% of non-executive director seats or 33% of both executive and non-executive director seats. Companies that fail to meet the objective will have to adjust their selection process, to ensure that it is fair and transparent. The directive also provides for sanctions in case of non-compliance, such as fines or the cancellation of the directors' appointment. Annually, listed companies will be required to report to the relevant authorities on the gender balance of their boards and, if they fall short of the targets, their corrective measures. They will also be required to make this information easily available on their website.

• The EU Pay Transparency Directive which creates additional information duties, reporting duties and remedies and enforcement provisions to combat pay inequality between women and men. For instance, job applicants will need to be informed about the initial pay or its range, based on objective, gender-neutral criteria, and workers will be entitled to ask their employers for information about their individual pay level and the average pay levels in the organisation, broken down by sex, for categories of employees doing the same work or work of equal value.

• Developments in Belgian anti-discrimination legislation, which protects individuals from discrimination on various grounds, such as gender, ethnic origin, age, religion, philosophical belief, political conviction, health condition, disability, sexual orientation, … The legislation has been recently amended to broaden and strengthen the concept of discrimination and the legal protection of victims, by creating new protected criteria including family responsibilities, adding new forms of discrimination, such as cumulative discrimination and discrimination by association, and by tightening the rules on protection against retaliation and allowing the cumulation of damages in cases of multiple discrimination when more than one protected criterion are violated.

• The EU Whistleblowing Directive, which seeks to enhance the legal protection of whistleblowers, irrespective of their employment status, who have disclosed violations of EU law. Belgium has transposed this directive into its national law, and has expanded the range of breaches covered, such as tax and social fraud. This new legislation creates a more comprehensive legal framework on whistleblowing, which is likely to have a substantial impact. Therefore, whistleblowing is the subject of a later discussion in the next section.

These legal developments reflect the growing importance of DEI in a Belgian and European context. In response, we have seen boards and executive committees instruct their management to adopt clear “zero tolerance” policies against harassment as well as active diversity policies, backed by employee training to reinforce company culture in practice. Beyond policy, employers have become more responsive to harassment and culture-related concerns. In practice, we see that boards and executive committees more frequently appoint an outside counsel to conduct an internal investigation to address allegations of misconduct, especially when their higher management is involved.

Whistleblowing as a catalyst for revealing company culture weaknesses

One of the most important legal developments for boards and executive committees to be aware of, as indicated above, is the new Belgian Whistleblowing Act. This Act is now fully in force and protects whistleblowers who report wrongdoing in a work-related context. This includes reports on breaches concerning social fraud, which according to an interpretation of Belgian government authorities, covers all kinds of violations of discrimination, harassment and wellbeing laws. The new Act imposes a range of new obligations on companies, including the obligation to set up reporting channels and procedures to deal with whistleblowing reports. The Act also protects whistleblowers against retaliation, including dismissal. Companies who do not comply with their duties may be sanctioned with administrative fines or significant criminal penalties.

The entry into force in 2023 of the new Belgian Whistleblowing Act and the implementation of whistleblowing hotlines across all sectors has heightened the focus on workplace misconduct and psychosocial hazards. We expect the legal framework on whistleblowing to be very impactful, especially in the context of company culture and DEI related aspects.

In this regard, it is often reported that younger generations, such as Gen Z and Millennials have different values and aspirations than their predecessors. They are said to be more aware about issues such as harassment, discrimination, inclusion and diversity, and they demand a more people-oriented, collaborative and empowering leadership and organisational culture. Likely, they will utilise the speak up channels that the whistleblowing framework offers.

In this respect reference can be made to a recent study of consultancy firm Deloitte (The Deloitte Global 2023 Gen Z and Millennial Survey). This study reports that (i) harassment in the workplace is a significant concern for these younger generations, with 61% of Gen Zs and 49% of Millennials reporting that they experienced harassment of micro-aggressions in the workplace. The study also reveals that in 80% of the cases (Gen Zs (77%) and millennials (81%)) the harassment they experienced is also reported to their employer.

The importance of company culture and leadership styles to younger generations on the labour market was recently confirmed in a report issued by the Socio-Economic Council of Flanders (“Ik wil een gids – jonge werknemers aan de start van hun loopbaan”). The number one finding in this report is the crucial role of the direct manager to younger generations. They see their direct manager as the central figure for their development. They look for a people-oriented leader who guides, supports and empowers them. This leadership style should also reflect a broader organisational culture that fosters collaboration and trust. According to this report young people are turned off by a culture or leadership style of control and hierarchy, as well as by a toxic culture that is not addressed by their direct manager.

The legal framework on whistleblowing and the changing expectations and preferences of the younger generation imply that boards and executive committees that want to attract and retain talent in their companies, as well as to prevent and address workplace misconduct and psychosocial hazards, need to ensure that they have effective reporting channels, procedures and policies in place. Moreover, boards and executive committees should ensure that any reports of wrongdoing or misconduct are handled promptly and professionally, by conducting objective and thorough internal investigations that respect the rights and interests of all parties involved, and by taking appropriate remedial and disciplinary actions where necessary

Stricter view of regulators on DEI performance

Boards also face more pressure from regulators to address DEI challenges and opportunities, which is, from a regulatory perspective, another important reason for boards to value DEI highly on their agenda and foster a culture of inclusion and diversity.

One group of stakeholders that have been increasingly active in the DEI sphere in recent years are (corporate and financial) regulators, such as the Financial Services and Markets Authority (FSMA) and the National Bank of Belgium (NBB).

For instance, against the background of its participation in a benchmarking exercise conducted by the European Banking Authority (EBA) on diversity practices and the gender pay gap, the NBB issued a communication in April 2023 expressing its expectation that financial institutions under its supervision would increase their efforts in respect of diversity requirements. Specifically, the NBB reminded institutions under its supervision of their obligation to introduce and operate a diversity policy, whereby it expects that institutions not only pay attention to diversity in terms of gender, but also in terms of age, education, professional background and (in respect of internationally active organisations) geographic origin.

Another recent example is a note issued by the FSMA in late November 2023 in which it sets out selected recommendations to relevant in-scope companies to help them prepare for the new reporting requirements to which they will become subject under the EU Corporate Sustainability Reporting Directive (CSRD) framework, which will be phased in from FY2024 reporting onwards. Although the FSMA will only be competent to supervise compliance with CSRD reporting requirements by relevant in-scope companies that are listed on the Brussels stock exchange, these recommendations may also be helpful for other large but non-listed companies that will, at some point between 2024 and 2028, become subject to this reporting framework.

Increasing reporting duties

Aside from implementing a positive and inclusive company culture, this is increasingly a topic that companies are required to report on publicly. This is another reason for boards to monitor company culture and DEI performance.

A first big step in this respect was taken by the legal framework that was implemented in the context of the EU Non-Financial Reporting Directive (NFRD) framework as implemented by Belgian law. From reporting in respect of FY2017 onwards, Belgian listed companies and other “public-interest companies” have been required to include information in respect of their diversity policy in the annual corporate governance statement.

However, a point that has subsequently been identified as one of the NFRD’s main weaknesses is that it does not provide any rules in respect of how companies must report. This has in practice led to in-scope companies using very disparate reporting styles and addressing the topic with sometimes very different levels of detail, making comparisons between companies (eg, for benchmarking purposes) very difficult, if not practically impossible.

For example, following our review of annual reports in respect of FY2022, all BEL20 companies reported on gender diversity in their FY2022 corporate governance statements, with all reporting on the gender diversity in the composition of their governance bodies, but only about 20% of them reporting on gender diversity in the wider organisation. Reporting in respect of other types of diversity was more disparate, with a majority including information on diversity initiatives in some detail, but only a limited number reporting actual figures.

This is set to change under the new CSRD framework. Specifically, under that framework, in-scope companies will be required to report using a unified European Sustainability Reporting Standard (ESRS). The first set of standards was adopted by the European Commission on 31 July 2023 through a delegated act of almost 300 pages. Contrary to the NFRD framework, these standards are very detailed and highly technical, covering a very broad range of sustainability matters.

As an indicator of the massive impact this new reporting regime will have, these ESRS standards include 25 disclosure/application requirements mentioning “diversity” and/or “inclusion”, 25 disclosure/application requirements referring to “(non-)discrimination” and 10 disclosure/application requirements covering “equality”, “equal treatment” and/or “equal opportunities”.

Against that background, especially as CSRD requirements will phase in as from FY2024 reporting, it is important for companies and their directors to start preparations now. As a first step, after having confirmed when CSRD will first apply to them (ie, normally somewhere between 2024 and 2028; but a possible delay of two years is currently under discussion in respect of some companies), this will in practice involve conducting a gap analysis to identify where the company currently stands in terms of its reporting obligations and what it needs to do to comply with future reporting requirements under CSRD.

Civil and criminal liability and prosecution (companies and board members)

As a final consideration, it is important for boards and executive committees to be aware of the potential liabilities that may arise from non-compliance with the relevant laws, both under civil and criminal law, and to take appropriate measures to prevent and address them:

• Non-compliance with the relevant laws in relation to culture and DEI under Belgian law can mainly lead to civil law liabilities for the company under employment law. The Belgian anti-discrimination laws and Belgian anti-harassment laws provide for lump sum damages. Victims of harassment or discrimination in the workplace may obtain these damages, which typically range between 3 and 6months’ remuneration. The laws also protect victims against retaliation, in the event of complaints about discrimination or harassment. In addition, victims can initiate injunction proceedings before the civil courts; in such case, they would seek a court order to stop any practices of discrimination or harassment.
• Non-compliance with the applicable rules can technically also lead to criminal law liabilities in this area. This is especially the case for the Belgian Race and Gender discrimination laws which provide for sanctions under criminal law for breaches of discrimination provisions in the employment context. Breaches of harassment provisions can be prosecuted under the Belgian Social Criminal Code. Under the Social Criminal Code, breaches of harassment provisions may result in criminal law liabilities for the employer, his appointees or his delegates. Practically, this means that directors may (depending on the circumstances) be held personally liable under criminal law.

However, so far non-compliance with relevant laws in relation to company culture and DEI under Belgian law will in practice typically not result in criminal prosecution under these provisions, not against the company-employer nor against the company directors. In very exceptional circumstances the company-employer may be prosecuted and convicted under criminal law in harassment cases. Criminal prosecution against directors in person in harassment cases is even more exceptional and will typically only occur in relation to (executive) directors who were personally involved in the harassment case. Prosecution under criminal law against (non-executive) directors for lack of appropriate supervision or control will so far typically not occur in harassment cases.

Nevertheless, in some recent developments may increase the risk of criminal prosecution, such as (i) the extension of the scope of criminal law offences under the discrimination laws, (ii) the greater awareness and vigilance of public labour prosecutors, and (iii) the more frequent use of the criminal law route by some stakeholders, such as trade unions or equal opportunity bodies, including against directors personally, and (iv) the upcoming changes in tort law.

1. Demonstrate leadership and commitment to culture and DEI from the top, and set an example of good practice and behaviour, and of accountability and transparency. In this regard, it is advisable to allocate sufficient resources and responsibilities for culture and DEI, and to ensure that they are integrated into the strategic and operational objectives and processes of the organisation, and aligned with its corporate purpose and values.
2. Adopt and implement clear and comprehensive policies and procedures on culture and DEI, covering aspects such as recruitment, promotion, remuneration, training, evaluation, etc., and ensure that they are communicated and applied consistently and effectively throughout the organisation.
3. Seek and embrace opportunities for learning and improvement on culture and DEI from top to bottom, and keep abreast of the latest developments and trends in the legal and business environment (see above). In this regard, we recommend providing regular and adequate training and awareness-raising activities for all employees and managers on culture and DEI, and on their rights and obligations under the law and the company policies and procedures.
4. Establish and support effective and accessible mechanisms for reporting, investigating and resolving any complaints or incidents of discrimination, harassment or other forms of unlawful or unfair treatment, and ensuring that they are handled promptly, confidentially and objectively, and that they do not result in any retaliation or victimisation. In particular, when senior management is involved, ensure that internal investigations are effectively conducted in an independent and impartial way.
5. Monitor and evaluate the performance and impact of the culture and DEI policies and procedures, and take corrective or improvement actions if needed, based on feedback, data and best practices. In this regard, you may also consider promoting and celebrating the achievements and contributions of employees and other stakeholders in relation to culture and DEI, and providing recognition and incentives for their efforts and performance.

    6. Engage and consult with relevant stakeholders, such as employee representative bodies (in particular, the works council and the committee for prevention and protection at work), employees, equality bodies, regulators, etc., on culture and DEI topics, and take into account their views and expectations