The women on boards (WOB) debate has been gaining momentum in recent months as we reach half time for implementation of the recommendations in Lord Davies’ 2011 report, Women on Boards. In that report, Lord Davies set a target that FTSE 100 boards should be 25% female by 2015. As at March 2013 the UK is on course to meet Lord Davies recommendation. Within the FTSE 100 the figures show:
- Women now account for 17.3% of directorships (up from 12.5% in 2010)
- There are currently 94 boards with female representation
- There are 192 female directors out of a total 1,110
Why does it matter?
Research suggests that strong stock market growth among European companies is most likely to occur where there is a higher proportion of women in senior management teams. Companies with more WOB have been found to outperform their rivals with a 42% higher return in sales, 66% higher return on invested capital and 53% higher return on equity.
There is a disparity across the EU in the number of WOB due to differing policies. Overall there was a general improvement of 0.6% last year across the EU.
France, Belgium, Italy and Norway all have quotas with sanctions. In Norway, where there is currently over 40% female board representation, quota laws introduced in 2003 (which apply to publicly listed companies) have received mixed reviews and are subject to allegations of “Golden Skirts” (a small prominent group of Norwegian women hold multiple board appointments). France is the only country on course to achieve the European Commissions minimum objective of 40% of WOB, based on merit, by 2020. Currently 25.1% of board members are female.
In Sweden, Spain and the Netherlands a “comply or explain” approach has been implemented whereby there is a voluntary goal to achieve a gender balance (30% for each sex) and where this is not met the company must justify its board composition.
Is a quota the answer?
Although some progress has been made the momentum appears to be slowing. The government believes that a voluntary led approach is the best way forward but has threatened that a quota will be on the cards should the UK fail to meet Lord Davies’ target.
Frances O’Grady, the new head of Trade Union Congress, has urged the government to introduce mandatory quotas. She argues that without a quota, female board appointments will remain a rarity.
Despite the period of stagnation, the Confederation of British Industry has warned against introducing quotas as it could lead to “tokenistic” appointments, rather than an appointment based on merit alone. There is a concern that, as a result, those appointed could receive less respect. The CBI argues that culture change, rather than quotas, will diversify boards. It is arguable that introducing a quota will do nothing to address the root causes of the imbalance and would reduce flexibility to respond to circumstantial changes.
In her Telegraph article titled “Why we must never, ever introduce quotas for women on boards”, Louise Peacock suggests a better way to deal with the underrepresentation of WOB is to tackle the low number of eligible women just beneath board level by improving tax breaks, flexible working for mothers who return to work and recruitment, mentoring and succession planning.
As we are heading in the right direction, a quota with sanctions seems unduly burdensome. Perhaps, if Lord Davies’ target is not met, a “comply or explain” approach could be implemented, whereby large companies would be obliged to publicise their board statistics.