Business, Innovation and Skills CommitteeWritten evidence submitted by National Association of Pension Funds
1. Executive Summary
1.1 The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes which collectively hold assets of £900 billion providing benefits to 16 million people. We represent over 400 providers of essential advice, products and services to the pensions industry.
1.2 We welcome the Committee’s undertaking of this inquiry into women in the workplace. While there will likely be measures governments, in the UK and throughout the EU, can take to both support women making career choices and to support them once in their careers in areas such as flexible working and child care; we have restricted our comments to the questions posed in relation to “Women on Boards”.
1.3 We believe there are several benefits associated with board diversity, particularly gender diversity, and understand and share concerns that low levels of women on boards can inhibit board effectiveness.
1.4 In the UK the 2011 Lord Davies “Independent Review into Women on Boards” has focused boards’ attention on gender diversity and the extensive media and market attention on the issue is encouraging boards to consider this issue and take action.
1.5 The only way to achieve better gender balance at all levels in the UK’s leading companies is to ensure the pipeline of female talent is developed. We believe that applying quotas to the boardroom would simply tackle the symptoms rather than the root causes of the issue. Sustainable change will only follow from concerted efforts to encourage and assist more women to continue with their corporate careers.
1.6 We are therefore concerned about the proposed misguided legislation, expected to be formally introduced later this month by Viviane Reding, the EU’s Justice Commissioner, which seeks to impose a quota of 40% of women on listed company’s boards by 2020.
1.7 We agree with the European Commission’s stance that there are still too few women on the boards of publically listed companies. However, the UK, along with other nations, have introduced voluntary national approaches to tackle this issue which are proving successful and which we believe are more likely to achieve sustainable success.
1.8 We also firmly believe that the debate about board diversity should not be specifically limited to gender, but also encompass professional, international and potentially other forms of diversity.
2. Board Diversity is a Relevant Consideration for Investors
2.1 There are several benefits associated with board diversity, particularly gender diversity. Evidence suggests that companies with a strong female representation at board and top management level perform better and gender-diverse boards have a positive impact on performance.
2.2 Boards undoubtedly make better decisions where group think is avoided and instead a range of voices, drawing on different life experiences and skills, can be heard and challenge entrenched views and conventional thinking.
2.3 It is therefore important that the diversity of a company’s board is considered when making new appointments to the board. However, we also firmly believe that the debate about board diversity should not be specifically limited to gender, instead boards should encompass a balance of skills, experience, independence and knowledge of the company, considerations should include professional, international and gender diversity.
2.4 The importance of gender diversity has been emphasised in the past couple of years and investors now expect boards to set out an explicit policy for achieving a greater degree of diversity than has been the practice in the past, as such stronger scrutiny of Board policy regarding director appointments and succession can be expected.
2.5 Board composition, including the diversity of its members, is a regular question in corporate governance meetings between investors and companies in the UK. The increased and improved reporting on the issues by companies will further enhance this dialogue.
2.6 Many of the UK’s largest institutional investors, including pension funds and asset managers managing over £1.8tr of assets are members of the 30% Club Investor Group which is helping to coordinate the investment community’s approach to this issue. In particular they are working on encouraging all investment firms to engage on the issue of board diversity with Chairmen and management teams, and to consider the issue when voting on the appointment and re-election of board members.
2.7 We are supportive of this approach. It is important that shareholders use the powers they have to reinforce good practice. Normally engagement over time is sufficient but the voting sanction is an important backstop. We are updating our own Corporate Governance Policy and Voting Guidelines to reflect the above.
3. Progress is being Made
3.1 Companies that make a concerted effort to attract and nurture talent from a wide pool of experience and backgrounds are more likely to succeed and to attract investment. Greater diversity on boards should therefore bolster commercial competitiveness.
3.2 Since the publication of the Davies report, the number of women appointed to the boards of the UK’s top companies has been on an impressive upwards path.
3.3 In the UK over the last six months, 35% of new board appointments to FTSE 250 companies have been women and women now make up 16.7% of all board posts in the FTSE 100—while still low this is an indication of significant progress being made.
3.4 FTSE companies are clearly moving in the right direction through voluntary means. Indeed, a study by Cranfield School of Management indicated that if this level of appointment continued, a target of 30% female directors was achievable within four years.
3.5 This shows that a business led approach is more likely to be sustainable in the longer term as companies see the commercial benefits of having a balanced board. It is hoped that this will then lead to greater gender diversity at senior levels below the board.
3.6 The challenge is to continue that momentum, and to increase the number of women appointed as executive board members. The business case is clear, and, as the old adage suggests, what gets measured gets done. As such the recent changes to the Corporate Governance Code will ensure that the focus is maintained and that accountability mechanisms are in place.
3.7 Success would be a notable and significant increase in the percentage of women on company boards, both as Executive Directors and Non-Executive Directors—this will require a parallel increase in the percentage of women in senior management positions with companies.
4. Quotas would be a Negative Development
4.1 We believe that the proposed legislation, expected to be formally introduced later this month by Viviane Reding, the EU’s Justice Commissioner, for EU mandatory quotas for women on company boards would be a negative development.
4.2 We are not supportive of legislative quotas, as we are concerned that it could lead to a simple “box-ticking” approach at the expense of board and company performance.
4.3 Mandatory quotas are blunt, unsophisticated instruments which address the symptoms of an issue as opposed to solving the root cause; they do not solve the broader issue of diversity nor the underlying problem of women coming through the senior management pipeline, instead leading to unintended consequences.
4.4 We favour a more sustainable solution whereby Chairmen engage in setting, reporting against and achieving voluntary measureable targets with investors taking a proactive role in effecting oversight, encouraging progress and utilising existing powers to hold laggards to account.
4.5 Therefore while we agree with the European Commission’s stance that there are still too few women on the boards of publically listed companies, we are sufficiently encouraged by the positive developments and progress being made in the UK, and other nations, which we believe are more likely to achieve sustainable success.
4.6 We encourage the EU therefore to hold off on the introduction of mandatory quotas to allow current progress to continue and instead seek to maintain the focus on the issue through measurable voluntary objectives with clear timeframes for disclosure.
David Paterson
Head of Corporate Governance
5 October 2012