Currently only 12.5% of FTSE 100 board positions are held by women. 'Women on Boards', a report by Lord Davies of Abersoch from February this year, highlighted that at the current rate of change, it will take 70 years to achieve gender equality on the boards of listed companies. The report was well received by the government, who commissioned Lord Davies and a steering panel of experts from academia and business to produce the report to respond to concerns about the under-representation of women in the boardroom. It makes practical recommendations to the government as to how UK businesses can address this gender imbalance.
This article explores some of the outcomes of Lord Davies' report, what companies can do to promote gender equality at the highest levels of their organisations, and why it matters.
Why does it matter?
The initiative is not about promoting equal opportunities but about improving business performance. The thrust behind the report is that recruitment should be talent driven and focused on the needs of the business. The business case, says Lord Davies, is composed of four elements. First, businesses lose some of their best talent if they fail to incentivise, support and promote senior women. Secondly, research indicates that companies with substantial female board representation outperform less diverse competitors. Thirdly, a diverse board is more responsive to the market, given that women make up 51% of the UK population. Finally, introducing more female executives helps businesses achieve better corporate governance by changing the dynamic and enhancing the independence of corporate boards.
In a decision supported by the vast majority of female respondents to the report, Lord Davies shied away from recommending quotas to force the changes. Women fear that imposing quotas would undermine their position on a board if it was felt they were there to 'make up the numbers' rather than on merit, running the risk of further marginalisation. However, Lord Davies does not rule out the introduction of quotas if listed businesses fail to address the problem themselves over the next few years.
Change is happening, says Lord Davies, but too slowly. Progress will therefore be monitored every six months and the message for businesses is that they should act now. Companies affected by the report are likely to be required to report back on progress as early as 2012 in their corporate governance statements. While the report specifically relates to listed companies, the recommendations are in line with a growing global drive towards better female representation in the management of businesses, and private companies will no doubt be expected to follow suit.
How to address the imbalance
The report looked at what other countries are doing on this issue and identified a wide range of government-led measures ranging from coercive methods involving: government intervention; liberal measures, hoping for voluntary compliance; and collaborative approaches relying on co-operative measures, as in the UK. Other European countries are considering quotas and Norway has already introduced them, considering that they are a necessary evil to ensure rapid change. On paper, the scheme has undeniably been a success in Norway, but there have been side effects such as a small elite number of women holding multiple board positions and companies de-listing to avoid compliance.
Lord Davies advocates that UK businesses should address the issues of both supply and demand when trying to achieve board parity.
Supply…
Organisations are attracting female talent, but failing to retain it. Attrition rates of more senior women are often blamed on the difficulties of balancing family and a career. Support for women with families to achieve a work-life balance is, of course, key to maintaining healthy numbers of women through the ranks. Career momentum can be maintained through various means, including flexible working, flexible childcare options, and working to redress the balance and help women pick up where they left off when they return to the corporate environment from a career break.
However, barriers to women's progression to senior management are complex and multifaceted. Along with addressing the obvious adverse impact career breaks for families can have on careers, companies need to dispel disillusionment about lack of career progression among female staff. Gender behavioural traits, whereby women tend to undervalue their achievements, mean that the under representation of women at board level becomes a self-fulfilling prophecy and is a circular challenge for businesses. Training, mentoring and support of female executives from within the corporate sector as they come up through the ranks is key to dispelling myths about the male cultural environment of the boardroom. This will also help redress the balance if there is a current lack of female role models and networks for senior women within the business. Any last vestiges of pay inequality (or the perception of it), particularly within more opaque performance-related pay systems, should also be stamped out.
To prepare senior women for positions on boards, Lord Davies urges organisations to consider board internships. Companies can also encourage the take up of non-executive directorships on non-competitive boards to develop experience.
To instil faith in female executives that they can reach the board, the report makes clear that it is important to demonstrate from day one that performance is measured consistently between the genders. An open dialogue with senior women about potential barriers and perceived barriers to advancement will help flush out issues that lead to dissatisfaction before they become a problem. Larger organisations might wish to consider initiating gender diversity programmes aimed at addressing such inequalities.
One of Lord Davies' recommendations is that quoted businesses must monitor the number of female staff working for them. All businesses would be wise to monitor the proportion of women at all levels of their organisation, to watch attrition rates and gain a better understanding of their workforce. High turnover among female staff does not allow for development and retention of women further up the organisation, and can highlight that the business is not doing enough to combat perceived inequalities.
But the pipeline of female candidates does not just come from within the organisation. Lord Davies highlights an equally important category of women who should be looked to in order to achieve diversity goals: those from different backgrounds outside the business, such as professionals, academics and entrepreneurs. Businesses will therefore need to look carefully at how they can attract such talent when making board appointments.
… and demand
The report is clear that organisations should actively seek out women for board roles. The so-called 'old boys' network' means that recruitment at board level tends to operate through personal friendships. People naturally recruit in their own image and men therefore tend to recruit men. As Lord Davies concedes, 'if that is sexism, there is sexism'. Developing an awareness of issues such as this type of unconscious bias, which is much more deep-seated than any kind of direct discrimination and is therefore much more difficult to identify and address, is vitally important.
Only 4% of listed board positions are currently interviewed for formally. Lord Davies suggests that the selection process should be formalised, and where possible, positions should also be advertised. While Lord Davies acknowledges that this may not be practical in all cases, it demonstrates transparency regarding the selection criteria and is far more likely to lead to female candidates from more diverse backgrounds applying for, and getting, positions on boards. By not putting in place a transparent selection process for such roles, businesses may well be leaving themselves open to costly and damaging sex discrimination claims at these highest levels.
Executive search firms also came under scrutiny in the report and have been called on to operate under a voluntary code of practice to address gender inequality. They will be asked to set out search criteria to ensure that they operate with a greater degree of transparency, allowing companies to choose search firms that are more likely to present a fair proportion of female candidates to boards.
Conclusion
The measures recommended by Lord Davies are likely to be taken on board by the government. Indeed, there are several interested movements such as the 30% Club (a group of businesses who are working together to increase female representation on UK boards), which will seek to ensure that the recommendations in this report are acted on. Although the report focuses on listed companies, in time it is likely to have a wider effect on the UK corporate environment.
The recommended measures are said to be driven by a clear business case in the UK. Along with company performance, diversity at senior levels may also enhance brand image, provide a new or different perspective on the direction of the business, and engender a more balanced approach to corporate decision-making. In addition, the drive for gender equality business-wide should also receive a boost with the development of senior female role models, enhancing employee satisfaction among women at all levels.
'Women on Boards': other recommendations- Chairmen of FTSE 350 companies should publish 'aspirational goals' within six months, identifying the percentage of women they aim to have on boards by 2013 and 2015. FTSE 100 companies should aim for 25% by 2015.
- Chief executives should set targets to ensure more women are present on executive committees.
- Quoted companies should publish the proportion of women employed by them (on boards, in executive positions and generally within the organisation) so that this becomes a part of normal corporate governance (rather than information that employees' legal representatives have to resort to discrimination questionnaires to elicit).
- The corporate governance code should be amended to establish a policy on boardroom diversity and businesses should report on their achievements against Lord Davies' goals in their 2012 corporate governance statement.
- The nomination process for board positions should be described in the annual report, and the chairperson should describe how diversity is addressed.
By Helen Croft, legal director, and Jennifer Millins, associate, Mishcon de Reya.
E-mail: helen.croft@mishcon.com; jennifer.millins@mishcon.com.
