Women in the City - Treasury Contents

2  Women on boards

4. Just over 50% of staff in the financial services sector are female;[11] however most of the women are in the lowest paid jobs and moving up the job hierarchies there is a very sharp reduction in women employees. The proportion of women in senior positions is far lower. Dr Ferreira, a Reader in the Department of Finance at the London School of Economics, told us that in 2008 the proportion of women on boards in banks in the UK was 9%—roughly the same as the US. However, the proportion of women executive directors was notably lower in the UK than in the United States.

    In the UK I think the numbers are very, very low. It is probably just 1% or 2% of all its executive directors that are women and in the United States it is slightly more at 5%.[12]

The Female FTSE Board Report 2009 also found that, on the boards of the banks included in the FTSE 100, only 9% are female; however most of the women are in the lowest paid jobs and moving up the job hierarchies there is a sharp reduction in women employees.[13] At the time this Report was prepared, only four of the FTSE 100 companies had female chief executives, with a fifth starting in May 2010.[14] The poor representation of women at senior level extends to accountancy. According to the Institute of Chartered Accountants in England and Wales (ICAEW) 10% of senior positions in accountancy were held by women.[15]

5. The UK performs badly in international comparisons. In the 2009 Grant Thornton International Business Report, the UK was ranked 26th in the world in terms of females in senior management. The Philippines was first—there women hold more than twice the proportion of senior posts than the UK.[16]

6. It is clear that the current situation is bad but is it improving? The Female FTSE Board Report 2009 found that in FTSE 100 companies there had been declines in:

  • the number of companies with female executive directors;
  • the number of boards with multiple women directors; and
  • the overall number of companies with women on boards.

The report showed that the percentage of women on boards has increased slightly, but this was due to boards themselves becoming smaller.[17] Indeed, in spite of the general increase in the percentage of female board members overall, the percentage of female board members in FTSE 100 banks had fallen from 12.8% in 2004 to 9.3% in 2009.[18] We note that the trend may not be true of all organisations. Barclays told us that in 2008, 25% of their senior managers were women compared to 20% in 2007.[19]

7. While companies operate in different ways, in general women are in the minority at senior levels in financial institutions—especially at the top. The boards of FTSE 100 banks are only 9% female compared to the FTSE 100 average of 12%. The proportion of women executive directors is even lower at 1-2%.


8. Does it matter if women are underrepresented on boards? There is evidence to suggest that companies with diverse boards are likely to be better run, and that such boards are more likely to challenge executives. Sir David Walker's report on corporate governance highlighted the failure of individuals in the past to "challenge the executive".[20] Sir David noted that the banks in which boardroom challenge was part of the culture performed better than those where it was not.[21] Lord Myners, the Financial Services Minister, described one of the largest risks in a decision making forum as "the mutual reinforcement of prejudice and a desire to achieve early consensus in a comfortable way".[22] Sir David and Lord Myners believed that diversity was important, and emphasised that diversity extended beyond gender.[23]

9. Dr Ferreira outlined the findings of research on the effect of women on financial institutions' corporate governance, which he had conducted with his colleague Professor Adams:

    […]there is some evidence that CEOs are held more accountable to poor stock price performance in companies that have more women on boards. Of course it is an indirect link, but it does suggest that these boards are likely to behave more independently from the CEOs and likely to punish the CEOs more often after there is poor performance.[24]

Dr Ferreira and Professor Adams also found that companies with more women on boards had more included more equity-based incentives in directors' compensation.[25] While designing the ideal remuneration system is more complex than using more shares in bonus payments, equity based incentives help align directors' interests to the performance of the company, and the FSA has encouraged greater use of shares in their review of remuneration policy.[26]

10. The financial crisis has, in part, been ascribed to excessive risk taking. Professor Goodhart considered "There would have been less likelihood of the kind of financial crisis that we have just had, had there been a very much larger number of women CEOs […] The longer term, more cautious tendency with less of the alpha male would be highly beneficial."[27] Research conducted by the Aziz Corporation concluded that the emphasis of masculine culture "encouraged and rewarded the taking of excessive risk".[28] Dr Altmann considered that the financial crisis "would have been much alleviated by having a moderating influence at the top" and that "Finance needs more of the female perspective."[29]

11. However, Kat Banyard of the Fawcett Society warned against reliance on gender stereotypes, and told us that "research which looked at women and men in leadership positions does not find those differences in performance."[30] She felt that:

    [...] the crucial issue is that, when you have greater diversity and more women on boards you have less group think. Women and men lead very different lives at the moment. They bring different experiences with them. There are more opportunities for diversity of thinking. I think it is that we need to concentrate on instead of the traits that we assume women and men have differently.[31]

Similarly, Ms Harman argued that a board with a mix of both genders is superior to a male only board because women can bring a different perspective which increases the diversity of the board's views.

    I think that women's lives are different from men's lives, women's experiences are different, and therefore they bring a different perspective, and therefore a board of men and women is better than a men-only board.[32]

12. It was also put to us that organisations which do not seriously consider women are missing a large number of possible candidates.[33] Mr Last from RBS concurred, stating that "Promoting gender equality is not only the right thing to do, it makes business sense". [34]

13. Concern about the under representation of women on boards can be about business performance as much as fairness. There is a consensus that an effective challenge function within a board is required in financial institutions, and that diversity on boards can promote such challenge. While it is impossible to know whether more female board members would have lessened the impact of the financial crisis, the arguments for fairness, improved corporate governance, a stronger challenge function and not wasting a large proportion of talent seem more than sufficient to conclude that increased gender diversity is desirable.

A demand or supply problem?

14. We heard from Ms Nichola Pease that her opinion was City firms would like to get more women on boards, and she offered her personal experience that often women decided not to pursue the most senior jobs.[35] As an experienced City worker, Ms Pease believed there were a number of valid reasons why women might choose not to advance their careers beyond a certain point:

    a lot of women that could be on the board have made choices not to go further up the organisation. They have made those choices for a variety of very understandable, acceptable reasons. It might be that they decide that they want to focus totally on their family. It might be that they decide they want flexible working practices and therefore the very senior jobs might not be suitable for that. It might be that they decide they do not want the responsibility and the extra hours that often go with very, very senior jobs. I think the pyramid structure means that as you go up an organisation, because of women's choices, there are fewer senior women to choose from. [36]

15. Ms Turner of Barclays agreed that the problem was not so much that firms did not want to hire women on boards, but that there were not enough females who had the skills and experience needed.[37] Sir David Cooksey of UKFI described a supply problem in UKFI:

    [...]we went absolutely out of our way to search for women for that [the Chief Executive of UKFI] role but unfortunately—and I do not know why—there was extremely little interest amongst women about becoming chief executive of UKFI.[38]

16. In contrast, Clare Dobie, President of the City Women's Network, believed the demand problem—that firms do not want to hire women on their boards—was far greater than the supply problem—a lack of qualified, available women.

    […]there are no fewer than 1,800 women on the boards of FTSE 250 companies and on the management committees of quoted companies. They are all eligible to be considered for the top jobs for the FTSE 100 companies and yet we still suffer from only having 11.7% of directors of FTSE 100 companies as women.[39]

The executive recruitment firm Sapphire Partners also considered there was no problem with the number of eligible women:

    Sapphire's staff have personally met with and coached hundreds of senior women from the City[...]From our experience, the supply of experienced successful committed female professionals has never been stronger.[40]

17. Much evidence highlighted a reason for the demand problem was that of managers and recruiters hiring "in their own image"[41] and choosing people "exactly like the existing board members in their outlook and experience".[42] Dr Ferreira described previous research which showed that CEOs preferred directors that were "demographically similar to themselves."[43] However, as we explored earlier, a homogenous board may not be to the company's advantage.

18. The Walker Review noted that "while a majority of NEDs [Non Executive Directors] should be expected to bring materially relevant financial experience [ … ] there will still be scope and need for diversity in skillsets and different types of skillset and experience.[44] The Female FTSE Board Report 2009 showed there were 2,281 women on corporate boards and executive committees or senior teams of all FTSE listings. The report described this as a "huge and growing pipeline of female talent available to feed into the top 100 boards."[45] The City might wish to look more widely in making its executive searches. There are already 2,281 women on boards and executive committees of all FTSE listed companies. We believe financial institutions seeking new board members should broaden their horizons, and consider a wider range of sources for their personnel.

Tipping point

19. We received evidence that in order to change behaviour and culture in an organisation it is not just enough to have one woman on a board. There was evidence that a number of women on a board were needed to produce changes in behaviour and culture which, among other things, would result in it becoming more common practice to hire women into senior positions. We note Ms Harman's remark that " [...] you have to have a critical mass. It is really when the numbers change that we will see the climate change [...].[46]

20. In a letter to the Financial Times, Professor Kogut from Columbia University claimed:

    When you don't have women on boards in enough numbers, a female director must rely upon other male directors. Somehow, the percentage of female directors has to move past a tipping point so that the selection of more women directors becomes normal and non-controversial.[47]

Ms Harman appeared to agree, referring to a critical mass of women needed to mad it acceptable to raise issues of gender inequality.[48]

21. One way of achieving a high proportion of women on boards in a short space of time is by imposing quotas, such as that Norway imposed for boards of publicly listed companies. The percentage of women on boards in Norway was 6% in 2002 and 44.2% in 2008.[49] However Dr Ferreira noted that while quotas can achieve gains in the long run, they are associated with costs in the short run:

    [ … ] firms [in Norway] have observed some drop in performance when trying to make that adjustment in a short period of time. I am not here to say that this [a quota] is necessarily a bad thing in the longer run but what I am saying is that of course there will be costs associated with that. We must be aware that going in the direction of imposing quotas will not be painless.[50]

Our witnesses had mixed views about quotas for the United Kingdom, though Government ministers and Professor Goodhart were against legislation.[51]

22. Instead of quotas, we heard that Ms Harman was working with the CBI to develop a pledge, to increase the number of women at senior level and work to improve equality of opportunity for women.[52] The Financial Times has suggested a voluntary quota of 30% amongst firms would show "serious intent" in redressing the problem of such a gender imbalance at board level. The paper proposed a comply or explain principle for firms with a lower proportion of female board members if they choose to fill a vacancy with a male candidate. It also recommended that chairmen of FTSE 100 firms with no female board members "should explain in their annual report why they think this is acceptable."[53] Since we took evidence, the Government Equalities Office (GEO) has told us that work to develop a pledge has been discontinued.[54] However, on 26 February, Lord Davies of Abersoch, the Minister for Trade, Investment and Small Business, wrote to the Financial Reporting Council proposing that listed companies should be required to explain

      what the current position is with regard to director posts occupied by women and other underrepresented groups;

      how this meets the needs of the company, its governance and business; and

      what their policies are for achieving greater diversity in the boardroom.[55]

In addition, the GEO called for the provisions relating to the appointments of new directors to the board to be strengthened to ensure there was no implicit bias against underrepresented candidates. We recommend the FRC should respond rapidly to these suggestions.

23. We do not consider that a legal requirement for boards to contain a particular proportion of women is appropriate. However, action by firms would be a clear signal to the public that the sector is serious about gender equality and this is especially true of financial institutions where the taxpayer has a significant shareholding. It is disappointing that the CBI no longer appears to be working on a voluntary pledge to encourage its members to increase the number of women employed at senior levels. We note that the changes proposed to the Corporate Governance Code would, of course involve compulsory reporting rather than the voluntary action a pledge would entail.

Progression to Board level

24. Women will only get to the top of City organisations if they can progress from junior levels. The Walker Review said:

    [...] despite the importance of improving diversity, not least on bank boards, it would be unrealistic to expect to reduce the present unfortunate gender imbalance by "parachuting" into boardrooms as NEDs women without executive board or senior executive experience elsewhere. The first focus of initiative should just be in promoting the development of women to take senior executive and executive board positions within the companies in which they are employed. This will be an essential element in boosting the scale and diversity of the pool of talent available to fill NED positions in BOFIs [Boards of Financial Intuitions] and elsewhere.[56]

25. However, our evidence suggests that the financial sector may not always recognise the interplay between developing their female employees and ensuring a diverse senior workforce. In their submission, RBS claimed they have played "an instrumental role in advancing the gender agenda within the financial sector" and told us that diversity values were part of their Code of Conduct.[57] Women make up 57% of RBS employees within the UK workforce as a whole. 71% of the clerical population are female as are 41% of the appointed and managerial grade.[58] Given this information, we were surprised that Mr Last told us:

    [...] we announced last week that for senior appointments, which would be the executive population, we would have a female on the shortlist. We are doing that for various reasons because it makes us look externally, to the outside market, whereas we focused internally for a long time. It really makes us look at the talent which is available on the market. [59]

The implication was that sufficiently talented females did not exist within the organisation. RBS asserts its internal job market offers "equality of access and opportunity for everyone", but it appears to have failed to ensure its female workers get enough experience to get to the top. More worryingly still, the organisation does not appear to have recognized this is a problem.

26. Board membership is, of course, the culmination of a long career. If increased female representation on boards is desirable, then one must look more widely at industry structures, to ensure that able women who wish to progress are not held back. We recognise that differences in male and female working patterns may stem from preference rather than prejudice and that there are circumstances in which employers need to make great demands on their employees' time and flexibility. But the City needs to ensure that it has access to the best talent—female as well as male.

27. Board members of all City firms should consider the extent to which female employees can progress within their organisation. As Sir David Walker said, promoting the development of women to senior positions within the companies which employ them will be an essential element in boosting the scale and diversity of the pool of talent available for future board positions.

11   National Institute of Economic and Social Research, Employment and earnings in the finance sector: A gender analysis, Equality and Human Rights Commission Research Report 17,Spring 2009, p13 Back

12   Q 15 Back

13   Cranfield University School of Management, The Female FTSE Board Report 2009, November 2009, p 19 Back

14   Four CEOS are listed in the Female FTSE Board Report, since then, Alison Cooper was appointed as CEO of Imperial Tobacco, http://www.dailymail.co.uk/money/article-1226771/Cigar-loving-mum-Alison-Cooper-named-new-Imperial-chief.html Back

15   Ev 81 Back

16   Ev 35 Back

17   Cranfield University School of Management, The Female FTSE Board Report 2009, November 2009, p 15  Back

18   Ibid., p19  Back

19   Ev 71 Back

20   Sir David Walker, A Review of Corporate Governance in UK Banks and Other Financial Industry Entities, November 2009, p 45 (hereafter Walker ReviewBack

21   Ibid., p 37 Back

22   Oral evidence taken before the Treasury Committee on 4 November 2009, HC (2009-10) 1088-ii, Q 174 Back

23   Oral evidence taken before the Treasury Committee on 3 November 2009, HC (2009-10) 1089-i, Q 22 and Oral evidence taken before the Treasury Committee on 4 November 2009, HC (2009-10) 1088-ii, Q 174 Back

24   Q 11 Back

25   Q 17 Back

26   See Treasury Committee, Ninth Report of Session 2008-09, Banking Crisis: reforming corporate governance and pay in the City, paras 38-39, para 55 Back

27   Q 36 Back

28   Ev 49, 51 Back

29   Q 85 Back

30   Q 39 Back

31   Q 39 Back

32   Q 214 Back

33   Q 206 Back

34   Ev 78 Back

35   Q 62  Back

36   Q 61 Back

37   Q 115  Back

38   Oral evidence taken before Treasury Committee on 4 November 2009, HC (2009-10) 1090-i, Qq 89, 92-93 Back

39   Q 61 Back

40   Ev 62 Back

41   Ev 35 Back

42   Ev 43 Back

43   Q 25 Back

44   Walker Review, p 35 Back

45   Cranfield University School of Management, The Female FTSE Board Report 2009, November 2009, p 35  Back

46   Q 244 Back

47   Letter to the Editor, "Pressure must be brought to bear on boardroom quotas", Financial Times, 26 May 2009  Back

48   Q 244 Back

49   Q 41 Back

50   Q 43 Back

51   Qq 5, 60, 62 [Ms Pease],232 Back

52   Q 228 Back

53   "How to build diversity on boards; A voluntary 30% quota for women would signal intent", The Financial Times, 19 May 2009, p 12 Back

54   Ev 91 Back

55   Ev 94 Back

56   Walker Review, para 3.6, page 43 Back

57   Ev 77 Back

58   Ev 78 Back

59   Q 96 Back

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