In February 2002, the government in Norway gave private and listed companies a deadline of July 2005 to raise the proportion of women on boards to 40%. By 2005, it was only at 24%. As a consequence, the government in Norway introduced quotas with heavy sanctions giving businesses a deadline of January 2008. Full compliance was achieved.
What about the UK?
The UK coalition government's brief to Lord Davies was simple; what are the barriers preventing women reaching board level and what recommendations can be made to increase the proportion of women on boards.
Lord Davies' report[1], published in February 2011, concluded that quotas would not be recommended for UK companies but that the UK government should be prepared to intervene if voluntary measures fail. In fact, only 11% of responses in the report were in favour of quotas.
The report took into account consultations with, for example, stakeholders, senior business figures, women’s networks, women business leaders and online responses. Interestingly, of 2,654 online responses 88% were women.
Davies identified three main barriers to women reaching board status:
- informal networks influential in board appointments;
- lack of transparency around selection criteria; and
- the way in which executive headhunters operate.
He made 10 recommendations as an alternative to quotas which included, among others:
- FTSE 100 companies should aim for a minimum of 25% of female board representations;
- FTSE 350 companies should set their own targets for female board representation by 2013 and 2015 (to be announced by September 2011);
- quoted companies should disclose the proportion of women on board; and
- headhunting firms should draw up a voluntary code of conduct addressing gender diversity in relation to the board.
One may think these recommendations don't go far enough but, left to their own devices, can UK companies achieve the recommendations set out in this report or, are quotas the only way to achieve greater numbers of women on corporate boards?
The Higgs Review of Corporate Governance in 2003[2], which advocated greater diversity on corporate boards by, paradoxically, calling for boards to become more professional by appointing experienced board members (the majority of which would be male), did not remedy the diversity problem. The Davies report points out that there was an increase of only 4% of women on FTSE 100 companies - from 8.6% of directors to 12.5%.
So, does the report's recommendations move the position forward? According to Minister for Women and Equality, Theresa May, it does.
Equally, the report has been well received by businesses, in particular, Davies' principle of getting businesses to make effective commercial decisions for their board's composition. As he observes, 'all companies are different. It is in their own interest to set and develop their own targets and strategies, so that they can effect the necessary change through means best suited to their own circumstances.'
Good for business
The report sends a clear message; women on boards are good for business. For example, quoting from The Bottom Line, Corporate Performance and Women's Representation on Boards, companies with more women on their boards outperformed their rivals with 42% higher return on sales, 66% higher return on invested capital and 53% higher return on equity.[3]
However, the report has already faced criticism with some claiming the recommendations are unworkable. For example, 65% of headhunters confirmed this, according to a survey by InterExec. Moreover, despite the report's recognition that, in order to achieve the recommendations, companies must provide training, has the report missed an opportunity by failing to recommend adequate training for board members?
There is a school of thought that suggests that quotas are the only way to increase the number of women on boards because our culture does not lend itself to equality of opportunity for women. If this is correct, is the UK government merely putting off the inevitable?
Flexibility
The government has, in recent years, put measures in place to allow greater flexibility for women returning to the workplace. For example, in 2009, the right to request under the flexible working arrangements was extended for parents with children under 17 years old (previously it was 6, unless the child was disabled).
Further, the Equality and Human Rights Commission (EHRC) has proposed that paid parental leave be shared between parents and should be introduced by 2012 and increased by 2020.[4]
Whilst these measures are going to be important to support women and provide for growth for women on boards, is there a risk that they are being introduced in a rather piecemeal leisurely fashion?
Quotas
There is current clear opposition for the UK to set quotas, as Alison Cooper, chief executive of Imperial Tobacco, one of a small number of women in a chief executive role states, "boards should make selections on the basis of merit... I'm appalled by the idea of false distributions on boards I find that rude to women".[5]
Certainly, there is a danger that the optimal candidate could be overlooked in favour of a woman, in order to comply with the quota and avoid sanction.
It is all very well having recommendations for companies to follow but they need to be taken seriously to be effective. Women need to be valued and respected for their skills and for there to be an ethos that allows women to flourish without feeling the pressure to adopt a masculine persona at board level. As Barbara Castle famously said about Margaret Thatcher, "she is so clearly the best man among them."
Other initiatives
More recently, a European pledge to increase the number of women to 40% by 2020 is to be signed and sent to the European Commission to be assessed on 8 March 2012.[6]
Furthermore, as a result of the report, the Financial Reporting Council will be reviewing the UK Corporate Governance Code.[7]
An ongoing issue
Whatever people make of the recommendations in the report, it is clear that this topic will have longevity for, at least, the next few decades under the current measures until there is quality and equality on corporate boards.
[1] www.bis.gov.uk/news/topstories/2011/Feb/women-on-boards
[2] www.berr.gov.uk/files/file23012.pdf
[3] www.catalyst.org/publication/200/the-bottom-line-corporate-performance-and-womens-representation-on-boards
[4] Working Better, EHRC.
[5] 22 March 2010, The Daily Telegraph
[6] Women on the Board Pledge for Europe
[7] Applies to companies with a premium listing of equity shares in relation to accounting periods beginning on or after 29 June 2010. See also: www.frc.org.uk/corporate/ukcgcode.cfm