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October, 2011 - Neil Maclean
Six months on from the Davies report, Women on Board’, how much progress has been made towards the diversity at the top of UK plcs? Women are under-represented on the boards of UK companies. In 2010, only 12.5% of members of FTSE 100 companies' corporate boards were female. The Equality and Human Rights Commission has estimated that at the current slow rate of progress it will take over 70 years to achieve anything approaching gender-balance on the boards of the UK's 100 largest companies. This, despite the fact that women make up almost half of UK employees; have a greater academic record; and that, increasingly, women are overtaking their male counterparts in terms of numbers entering the professions.
The Davies report
The Government is committed to promoting gender equality on the boards of UK listed companies and commissioned Lord Davies to consider why women continue to be under-represented on corporate boards and to identify steps to address the inequality.
Lord Davies, in his February 2011 report, resisted recommending the implementation of quotas for female representation on corporate boards, preferring instead to make ten "business-led" recommendations:
•Chairmen of FTSE 350 companies should, by September 2011, set out the percentage of women they aim to have on their boards in 2013 and 2015.
•FTSE 100 boards to aim for a minimum of 25% female representation by 2015.
•Quoted companies to annually disclose the proportion of women at board level; women holding senior executive positions; and the total number of female employees.
•The Financial Reporting Council (FRC) should amend the UK Corporate Governance Code to require listed companies to put in place boardroom diversity policies.
•Companies should report on the above recommendations in their 2012 Corporate Governance Statement, whether or not the underlying regulatory changes are in place by that point, and Chairmen should sign a charter supporting the recommendations.
•Companies to be encouraged to disclose information about their board level appointment process and the mechanisms in place to enhance diversity.
•Non-executive board positions should be advertised to encourage applications from a diverse pool.
•In addition to women already in the corporate sphere, companies should consider female candidates from professional services, the academic world, the civil service, and entrepreneurial backgrounds.
•"Head-hunting" and recruitment agencies should adopt a voluntary code of conduct to address gender diversity in the boardroom.
Why does female representation on corporate boards matter?
It is important for reasons of equal opportunity and corporate performance. It is implausible to suggest that, had there been gender equality on the boards of all financial institutions, the credit crunch would never have happened. However, more diverse boards would be more likely to monitor business strategy, follow conflict of interest guidelines and adhere to a code of conduct, as well as improving communication and focus on non-financial performance measures, such as employee satisfaction and social responsibility. Women make the majority of household buying decisions and can therefore provide an improved understanding of consumer demands. Recent reports show that companies with more women on their boards were found to out-perform their rivals with a 42% higher return in sales, 66% higher return on invested capital and 53% higher return on equity.
The response to the Davies report
The number of new female directors has doubled since February 2011 but still only accounts for 14% of Board positions in FTSE 100 Companies. Almost all of the new Directorships are non-executive appointments. Many Companies have failed to set out their plans to put more women on their boards ahead of Lord Davies' September deadline. A Voluntary Code has been adopted by the recruitment sector as recommended by Lord Davies. Responses to an FRC consultation strongly support the inclusion of a clause in the FRC Code to promote greater gender diversity.
Progress has been made, but female representation at Board level is still way short of the recommended 25% and plans for further increases in female representation are patchy. The Government has made it clear that if Lord Davies' business-led recommendations are not successful in effecting change, more prescriptive measures may be introduced. For that, read "quotas".
The Davies report
The Government is committed to promoting gender equality on the boards of UK listed companies and commissioned Lord Davies to consider why women continue to be under-represented on corporate boards and to identify steps to address the inequality.
Lord Davies, in his February 2011 report, resisted recommending the implementation of quotas for female representation on corporate boards, preferring instead to make ten "business-led" recommendations:
•Chairmen of FTSE 350 companies should, by September 2011, set out the percentage of women they aim to have on their boards in 2013 and 2015.
•FTSE 100 boards to aim for a minimum of 25% female representation by 2015.
•Quoted companies to annually disclose the proportion of women at board level; women holding senior executive positions; and the total number of female employees.
•The Financial Reporting Council (FRC) should amend the UK Corporate Governance Code to require listed companies to put in place boardroom diversity policies.
•Companies should report on the above recommendations in their 2012 Corporate Governance Statement, whether or not the underlying regulatory changes are in place by that point, and Chairmen should sign a charter supporting the recommendations.
•Companies to be encouraged to disclose information about their board level appointment process and the mechanisms in place to enhance diversity.
•Non-executive board positions should be advertised to encourage applications from a diverse pool.
•In addition to women already in the corporate sphere, companies should consider female candidates from professional services, the academic world, the civil service, and entrepreneurial backgrounds.
•"Head-hunting" and recruitment agencies should adopt a voluntary code of conduct to address gender diversity in the boardroom.
Why does female representation on corporate boards matter?
It is important for reasons of equal opportunity and corporate performance. It is implausible to suggest that, had there been gender equality on the boards of all financial institutions, the credit crunch would never have happened. However, more diverse boards would be more likely to monitor business strategy, follow conflict of interest guidelines and adhere to a code of conduct, as well as improving communication and focus on non-financial performance measures, such as employee satisfaction and social responsibility. Women make the majority of household buying decisions and can therefore provide an improved understanding of consumer demands. Recent reports show that companies with more women on their boards were found to out-perform their rivals with a 42% higher return in sales, 66% higher return on invested capital and 53% higher return on equity.
The response to the Davies report
The number of new female directors has doubled since February 2011 but still only accounts for 14% of Board positions in FTSE 100 Companies. Almost all of the new Directorships are non-executive appointments. Many Companies have failed to set out their plans to put more women on their boards ahead of Lord Davies' September deadline. A Voluntary Code has been adopted by the recruitment sector as recommended by Lord Davies. Responses to an FRC consultation strongly support the inclusion of a clause in the FRC Code to promote greater gender diversity.
Progress has been made, but female representation at Board level is still way short of the recommended 25% and plans for further increases in female representation are patchy. The Government has made it clear that if Lord Davies' business-led recommendations are not successful in effecting change, more prescriptive measures may be introduced. For that, read "quotas".
