Business, Innovation and Skills CommitteeWritten evidence submitted by the Discrimination Law Association

Introduction

1. The Discrimination Law Association (“DLA”), a registered charity, is a membership organisation established to promote good community relations by the advancement of education in the field of anti-discrimination law and practice. It achieves this by, among other things, the promotion and dissemination of advice and information; the development and co-ordination of contacts with discrimination law practitioners and similar people and organisations in the UK and internationally. The DLA is concerned with achieving an understanding of the needs of victims of discrimination amongst lawyers, law-makers and others and of the necessity for a complainant-centred approach to anti-discrimination law and practice. With this in mind the DLA seeks to secure improvements in discrimination law and practice in the United Kingdom, Europe and at an international level.

2. The DLA is a national association with a wide and diverse membership. The membership currently consists of some 300 members. Membership is open to any lawyer, legal or advice worker or other person substantially engaged or interested in discrimination law and any organisation, firm, company or other body engaged or interested in discrimination law. The membership comprises, in the main, persons concerned with discrimination law from a complainant perspective.

Question 1: Do the Public Sector Equality Duty and the Equality Act go far enough in tackling inequalities, such as gender pay gap and job segregation, between men and women in the workplace?

3. In theory, the provisions of both the PSED and EA address these issues. The DLA acknowledges and welcomes the provisions of s77 of the Equality Act 2010, which prevent pay secrecy clauses from being enforced in the workplace. By ensuring that contractual terms seeking to restrict the discussion of pay scales at work are ineffective, the Act has provided greater opportunity for employees to identify wage inequality and/or discrimination in the workplace.

4. Despite this, the DLA is concerned that the Government has yet to implement mandatory pay audits for employers of more than 250 employees (as contained within s78 of the 2010 Act). Instead, a self-regulatory approach has been adopted for equal pay reporting; the “Think, Act, Report”1 initiative, which “encourages companies to share their progress in promoting gender equality, and the framework suggests data that could be made public”.2 Given that many of the signatories for the initiative (BT, Eversheds, Tescos) are those with established HR and equality; there is a concern that the up-take figures emphasised by the government mask the fact that organisations who are more prone to discriminate against women will “slip through the net”. The DLA is however encouraged by Government proposals contained within the “Modern Workplaces Consultation”,3 giving Employment Tribunals the power to impose pay audits on employers who are found to have discriminated because of gender in pay matters (and also to impose a civil financial penalty for non-compliance).

5. The DLA is concerned by the fact that the new “Public Authority Equality Duty,” which came in to force in April 2011 elevated the need to reduce bureaucracy over that of ensuring “effective compliance with the important aims in s.149 of the Equality Act.” By introducing the new Public Authority Equality Duty without initially implementing “specific duties” to replace those made under the race, disability and gender equality duties, the Government appeared to act contrary to its own “Equality Strategy”.4

6. The Government’s failure to impose stringent requirements on public authorities under s153 may give the impression of a “light touch” approach to s149(1). For example, under regulation 3(2) the removal of the requirement that information provided by public authorities in fulfilment of their duty under s149(1) be “sufficient”, the Government have removed a standard against which members of the public could measure an authority’s performance. Such an approach creates a “real risk that some public authorities may be misled to thinking that their duty under s.149(1) of the Equality Act has been reduced”.5 Furthermore, the Government’s decision to revise the specific duties under s153 is contrary to the 2009 research report by Schneider-Ross6 (which looked at the old individual equality duties), which emphasized that by changing the requirements placed upon public authorities, the Government would undermine the learning that had gone on to date. Despite the majority of responses to the Schneider-Ross consultation noting that the guidance within the specific duties was helpful and assisted them with the implementation of the general equality duty, the Government chose to instead leave local authorities without the more detailed guidance they sought when the final version of the specific duties was introduced in September 2011.

7. The clear majority of responses to the Schneider-Ross report identified that monitoring and training in relation to diversity, producing equality schemes and setting equality targets, were all effective measures in tackling diversity issues within their organisations. The logic of keeping such measures in place would seem to follow on from this and other research carried out in the area. Instead, the Home Office, on 12 May 2012 is now consulting on further alteration—and possible repeal—of the PSED.7 Such a step—without significant and substantial alternative provisions being put in place—can not be anything other than a retrograde step in the move towards tackling inequalities.

8. The DLA applauds the sentiment of trying to alter attitudes without cumbersome regulatory and legislative burdens. However the attitudes they seek to change are deeply and fundamentally held by—probably—the majority of the population, albeit subconsciously. So if the Government was willing to fund a publicity campaign in relation to the need for equal pay, and retention of women in the workplace to the same order as the last Conservative Government’s AIDs campaign in the 1980s,8 this might possibly be effective. However, given that the resources for such a campaign are unlikely to be found by Government, repealing the existing regulatory and legislative framework without replacing it would be a retrograde step.

Question 2: What has been the impact of the current economic crisis on female employment and wage levels?

Austerity measures compound rising female unemployment

9. Women’s unemployment is currently at its highest level for 25 years, sitting at approximately 1.2 million, having risen by 18% since October 2009. In contrast, male unemployment has risen by just 1% during the same period.9

10. The general tendency for fiscal austerity measures to impact disproportionately on females has been well documented over recent years. In November 2010 The Women’s Budget Group, a voluntary organization composed of academics and activists, published “The Impact on Women of the Coalition Spending Review 2010” which concluded that the 2010 budget package would “impact disproportionately on women’s incomes, jobs and the public services they use”.10 The Budget Gender Audit (July, 2010) commissioned by the Labour equalities spokeswomen Yvette Cooper MP estimated women would pay for 72% of the cuts introduced by the emergency budget; in areas such as housing, child benefits and the CPI uprating of the additional state pension and public sector pension.11

11. Despite the potentially wide-ranging impact of budget cuts for women the Treasury’s “Equalities Impact Assessment of the Comprehensive Spending Review” provided little quantative analysis as to the disproportionate effect of the reduction in public spending.12 The Women’s Budget Group with disappointment noted in it’s report that the Equality Impact Assessment contained “inadequate analysis” with “no high level oversight being applied to secure consistency, showing how little value the government places on gender impact assessment and by implication, on the need to promote equality.”13

12. The gender specific consequences of recession have been exacerbated by the fact that women’s employment is concentrated in the public sector, which is currently facing actual and projected job losses for 700,000.14 Women make up approximately two thirds of all public sector workers in the UK; 98% of workers within primary education (98%); approximately 70% of the educational workforce overall; four fifths of healthcare workers and two thirds of local authority workforces.15 For example, research conducted by the GMB highlights that women accounted for 68.2% of the fall in numbers employed by the 375 Councils across England and Wales since the General Election of 2010. In 2011, there were 19 councils where the drop in the number of women employed accounted for 100% of the decline in staff numbers.16 Roles in the public sector are often attractive to women because such employers are likely to provide flexibility necessary for the many women who have caring responsibilities. Private employers are unlikely to be as flexible, and are less attractive to women for the further reason that the gender pay gap is greater than in the public sector (20.8% private sector, 11.6% in the public sector).17

13. Many of these themes have been explored further in the Women’s Budget Group response to the report responds to the Coalition Government’s Budget 2011: “The Impact on Women of Budget 2011”.18 It is disheartening to note that, for example, the Office of Budget Responsibility’s statistics does not include an equality impact assessment. Although a certain amount of information is available on the gender disparity in the impact of tax measures,19 the Women’s Budget Group report on the 2011 Budget details a number of examples where such information is incomplete or inadequate to genuinely assess the disparate impact.20

14. What is abundantly clear from all of the evidence cited above is that women have suffered disproportionately in the current economic climate and that the Government’s fiscal measures are compounding this effect rather than alleviating it. The Government has produced no statistical or empirically verifiable information to the contrary. The obvious conclusion to be drawn is that Government has decided to downgrade the equality agenda and ignore the obvious benefits to individuals and the wider economy of encouraging the retention and recruitment of more women into the workforce.

Interrelationship Age and Gender

15. The gender specific impact of the fiscal crisis is best understood in the light of broader equality issues. Recessional trends for female employment have most severely affected women with protected characteristics such as age, maternity and disability.

16. Recent analysis of data obtained from the House of Commons library shows that unemployment amongst women aged 50–64 has risen by 39% during the period 2010–2012, and was 15% higher than males of the same age during 2011.21 Females aged 50–59 experience a gender pay gap of 10% and make up just 8% of managerial positions (compared to their male counterparts at 16%).22 The combination of fiscal crisis and the austerity measures imposed by the government have thus sought to enhance the traditional discrepancies amongst males and females in the workforce. According to the Home Office, the pay gap between full time median earnings between the sexes is currently 10% (with the overall gap when comparing the pay of all those in work standing at 20.2%).23

17. The reduction in funds allocated to further and higher education institutions will also impact heavily on women from backgrounds without a family history of university attendance; primarily those from ethnic minorities women and disadvantaged backgrounds. Without the opportunity to attain degree or vocational qualifications, such groups may find their earning potential and job prospects greatly reduced. Cuts to language courses provided to those on benefits; “English for Speakers of Other Languages” (ESOL) have also made entering the labour market more difficult for BAME females in particular.24

Legal-Aid Cuts

18. Recent reforms to the Employment Tribunal system and legal aid cuts have compounded the impact of the Government’s austerity measures upon the female workforce. The closure of the UK Women’s National Commission, the Wales Women’s National Coalition, and funding cuts to the Equality and Human Rights Commission (EHRC), risk creating a situation where women who face discrimination or unequal pay scales are unable to access legal assistance or redress. Many providers of Legal Help receive funding from local government, charitable donations and the EHRC. Budget cuts have meant that the survival of many providers is therefore in doubt, even before considering the impact of LASPO.25

19. Proposed changes to the Employment Tribunal System, such as the introduction of fees, may also are also reducing women’s access to legal redress.26 The DLA has emphasized that the Government’s suggestion of imposing a blanket policy of higher fees for discrimination claims, could itself be discriminatory, as “not every discrimination case is complex or massively time consuming, factors which may justify a higher fee”.27 Some discrimination cases are of low value and not as complex as some unfair dismissal cases (for example, those involving TUPE).

Question 3: How should the gender stereotyping prevalent in particular occupations, for example in engineering, banking, construction and the beauty industry, be tackled?

20. The Government has already noted the existence of the “gender talent gap”28 and is aware that several aspects of gender stereotyping need to be tackled in order to encourage gender equality in many different types of workplace. The question posed above is interesting as it seeks to address areas of traditional bias against men as well as women. There are a host of different factors that might deter men from taking up traditionally “female” roles, but one of the key issues is likely to be pay. The history of equal pay claims over the past 10 years or so has taught us that many jobs carried out predominantly by women are rated as equivalent to roles traditionally carried out by men, but carry a lower wage. It is hardly surprising that men do not take on the challenge of tackling gender and social stereotyping by applying for a lower paid role, when they could more easily take another higher paid role that fits the male stereotype. Millions of women, on the other hand, have to take on that challenge every working day.

21. Taking steps to address gender stereotyping in particular occupations would need to involve a wrap-around change to policies relating to education, the economy and business/employment regulation.

(a)Lead by Example
From the higher levels of government in particular the message should be conveyed that gender stereotyping of roles is unacceptable. This should be followed through in government appointments.

(b)Embed in Education and Media
Peremptory initiatives need to be introduced to address role stereotyping from an early age, and particularly in careers advice.

(c)Regulation and Guidance for Business
A balanced combination of regulation and guidance is needed to encourage individuals to question, and businesses to address, gender imbalance where it arises, by looking at the positive business case for encouraging recruitment and retention of employees who do not fit the stereotypical mould.

(a) Leading by Example

22. The Government has, sadly, not led by example in this area to date. Although the right noises are made and headline grabbing announcements are made about wanting to promote the position of women and equality, this is not always followed through by its actions which sometimes contradict the rhetoric. For example, the Red Tape Challenge invited individuals and businesses to voice their criticism of the concept of equality by putting the Equality Act—a piece of legislation crafted carefully over a 10 year period involving input from all sectors—on the agenda of legislation that could potentially be repealed. The clear message conveyed by this measure was, quite simply, that equality is not important. A second example is the move of the Government Equalities Office in the recent reshuffle from the Home Office under Theresa May MP to where it now falls, under the remit of the Minister for “Culture, Media and Sports”, Maria Miller MP, the Government has given the unfortunate implied message that working towards equality is now an optional leisure activity rather than a governmental imperative. The reshuffle also led to a decrease in numbers of women holding Government posts from 17.1% to 16.2%.29 Not a huge decrease but still below the average number of women MPs in total (22.3%).

23. The Equal Opportunities Review (EOR) regularly features articles on organisations that have embedded good practice on equalities and which have a good gender mix of employees. These articles show that a common thread running through most of the organisations featured is the espousal by senior employees of the concept of equality and the promotion by them of initiatives that encourage the recruitment and retention of women, eg flexible working at American Express.30 It is not unreasonable to assume that were the Government itself to genuinely and visibly espouse the principle of equality more thoroughly by its conduct and policies, business leaders and employers would themselves value more highly the concept of equality and the presence of women in the workplace.

(b) Embed in Education and the Media

24. Women are currently under-represented in sectors such as science, engineering and technology; with a survey by the Science Council reporting that in 2011 men comprised 96% of those working in the manufacturing industry. Various studies have emphasized that encouraging diversity in such sectors would benefit the UK’s current “skill set deficiency”.31 The DLA is of the view that gender inequality will not be eradicated merely by monitoring/regulating the pay mechanisms by which stereotypes manifest themselves in the workplace. It is of vital importance that Government led initiatives seek to actively alter gender stereotypes to reflect changing social norms. The approach identified as Step 3 above seeks to achieve this by encouraging young women to develop career aspirations outside the confines of traditionally “feminine” roles.

25. The DLA welcomes the funding announced from the Department of Business, Innovation and Skills in June 2012 to the Royal Society to fund programmes aimed at increasing diversity in the scientific workforce,32 similarly the parallel scheme being funded by BIS with the Royal Academy of Engineering. The plan to provide an integrated diversity programme for the Science Technology, Engineering and Maths workforce is laudable, although the funding of £700,000 over the four years for each project is exceptionally small when compared to the potential benefits to be derived were the aim of the programmes to be achieved.

26. In 2011, Ofsted inspectors visited 16 primary schools, 25 secondary schools and 10 further education colleges to conduct a survey on the choices of courses and careers made by girls and young women at various stages in their education and training.33 Key findings identified by their report included:

(1)From an early age, the girls surveyed had held conventionally stereotypical views about jobs for men and women. They retained those views throughout their schooling despite being taught about equality of opportunity and knowing their rights to access any kind of future career.

(2)Programmes for careers education and work-related learning, and the provision of information, advice and guidance in the schools visited, were not focused sufficiently on the knowledge, understanding and skills that girls and young women needed in order to deal with factors such as career breaks and the roles they might wish to play as future parents.

(3)A narrow range of gender-stereotypical work placements dominated choices in almost all the settings seen.

Ofsted found that almost all of those interviewed that the careers advice offered at school had little impact on their choice of career and failed to identify jobs that were “unusual” or traditionally undertaken by men. Girls predominantly elected subjects such as dance, art, textiles, sociology, health and social care, biology, English and psychology and of the 1,725 examples of work placements for young women, collected from records, only 164 represented “non stereotypical” experiences.

27. The DLA believes that the examples of “good practice” in schools identified by Ofsted’s report would help to encourage the aspirational shift necessary to prevent younger generations re-enacting the gender stereotypes found in the work place today. The 2009 report “Closing the gender skills gap”34 takes a broader perspective to the issue looking at potential measures outside education. Some of these ideas, that DLA would endorse, include the following:

(1)Using the Science, Technology, Engineering and Mathematics (STEM) programme to devise activities involving teachers, students, outside agencies and local companies.35

(2)Evaluate the programmes being run by the Royal Society, and the Royal Academy of Engineering to ascertain their effectiveness, and set out now—at an early stage—to see whether other relevant professional bodies or industry sectors could learn from the methodologies employed.

(3)Develop further the Young Enterprise initiative with employers,36 using it to introduce volunteers from the local business community who occupy non-stereotypically gendered roles, such as female engineers and male nurses, to inspire young people to consider non-stereotypical careers.

(4)Provide incentives to industries to take on non-stereotypical apprentices.

(5)Increase the prominence of the role of careers adviser in Ofsted inspections; set standards and diversity goals specifically in relation to what is being told to children making career choices.

(6)Work with the media. Many children’s views of the range of careers open to them are already entrenched before they reach the point where they need to make career-specific choices and decisions. Encouraging a wider representation of individuals in non-stereotypical roles—extending beyond tokenism—in programming and advertising would assist in “normalising”, for example, female consultants, construction workers and engineers. The importance of gender stereotyping in the media can not be overestimated.

(c) Regulation and Guidance for Business

28. The DLA’s view overall is that the effect of the Government’s present policies represent a move away from encouraging businesses to recruit or retain women (the differential impact upon women of two successive austerity budgets have demonstrated this) in the face of a clear need on the part of both individual women and the wider economy to remain economically active. Time and time again reports on success stories in relation to diverse workforces and flexible working policies are publicised and organisations, such as the CBI recognise the business case for the involvement of more women at senior levels.37 Adopting some of the measures suggested above would assist in helping deliver this message through to the wider business community and various sectors where female employees are underrepresented.

29. As a proposed first step, the DLA supports the retention of the PSED in full, similarly the role of the EHRC in promoting the position of women in the workplace. Although individual organisations conduct research and consultations and produce reports, without the EHRC there is the lack of an authoritative and consistent voice to give advice to employers and support to women. Even employers who wish to take positive steps would find difficulty in finding advice as to how to overcome the prejudices of their own stakeholders. Without a strong legislative and regulatory framework backed by a well funded, non-partisan advisory body, any initiative to address low numbers of women in the workplace is likely to fail.

Question 4: What more should be done to promote part-time work at all levels of the workplace and to ensure that both men and women have opportunities to gain senior positions within an organisation whilst working part time?

30. The right to make a request to work flexibly has been in place for those caring for younger children since 2002, and for those caring for older children or disabled children or adults since 2007.38 Women are far more likely to fall into the category of carer than men, and to take on more responsibility for running the home.39 The right to ask to work flexibly is just that: there is no right to work flexibly, just a right to ask. Time and time again queries come up on website “mumsnet” about a failure to allow flexible working and what the mother can do about it. At the moment, the short answer is “nothing”. The employer is given a wide range of possible reasons as to why the request can be refused (s.50G), that could—if the employer so chose—be used easily to mask a discriminatory reason for refusal.

31. Women are more likely than men to work flexibly or part time, and earnings for part time work are, per hour, lower than for full time work.40 Essentially, part-time work is pigeon-holed as being women’s work, and less valuable. This is an issue of perception, not fact. A number of organisations, for example American Express,41 have successfully introduced flexible working policy that is available to all and which a significant number of men and senior employees have chosen to take up. Similar initiatives reported in EOR usually report an increase in productivity of employees as a result of the introduction of the flexible working policies. The availability of part-time work for women returning to the workplace is now common-place, but part-time working is still stigmatised and some employers will only allow women back to work with the trade off that they have to transfer to a less prominent role.

32. The DLA is of the view that this problem should be tackled firstly by placing pay differentials between part time and full time workers on the same footing as the gender pay gap in relation to s.77. Secondly, commissioning a study calling for evidence on the specific issue of flexible working; asking for examples of successful schemes and widely publicising the report would assist. Similarly, there is little research into the responses that employers actually give under s.80F of the Employment Rights Act when refusing applications to work flexibly. Undertaking such research would give information about what concerns employers have about allowing employees to work flexibly. Anecdotally, much of the concern of employers is a fear of loss of business. The argument runs that where there is a client facing role, the part-time employee’s relationship with clients will suffer as a result of their part-time status, and this in turn will cause the business to suffer. However this ignores the fact that a large—and increasing—number of their clients will be working part-time as well, and will not necessarily be put off by knowing that the employee they are speaking to is a part-timer. Once more is known about the reasons employers give for refusing requests, a comprehensive approach can be planned to tackle employers’ prejudices.

Question 5: To what extent have the recommendations in Lord Mervyn Davies’ Report “Women on Board” (published in February 2011) been acted upon?

(a) To what extent should investors take into account the percentage of women on boards, when considering company reporting and appointments to the board?

33. Lord Mervyn Davies’ 2011 report recommended that the Financial Reporting Council should amend the UK Corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity, including measurable objectives for implementing the policy, and disclose annually a summary of the policy and the progress made in achieving the objectives.The FRC duly consulted and announced amendments to the Code in October 2011. Companies now have to explain in their annual reports what their diversity policy is, and how it is implemented. As a result, investors will have at least some information to hand in relation to diversity at board level of the companies they chose to invest in.

34. It is, of course, a matter for individual and corporate investors to decide how much attention they wish to pay to diversity targets and progress on the boards of the companies they invest in. It may be that like CSR, organisations will learn to appreciate that diversity on a board is good news, not just from an outward facing, PR perspective but also because of the beneficial effect it is likely to have on business performance as a whole.

Executive Nomination Process

35. A recent study by the International Centre for Women Leaders at Cranfield University identified a distinctly “Anglo Saxon” board structure, dominating companies in the UK and USA; “a unitary corporate Board and a mix of executive directors (inside) and NEDs (outside directors)”.42 Empirical studies of the nomination process have highlighted the extent to which the system of appointments of Non-Executive Directors on FTSE 350 companies was a “traditional process dominated by the Chairman and/or the CEO with token consultation of the full Board” (Gay, 2001).

36. If diversity within the boardroom is to be achieved, the nominations process must seek to escape the “old boys network” identified by Cranfield University.43 The literature surveyed by the report suggests that although Nomination Committees are in place in many FTSE-listed organisations, they are the least developed of the Board’s committees, meeting irregularly without a clear understanding of their role in the appointment process. Further, the Chairman, as recommended by the Combined Code (2003), is the Chair of the Nomination Committee and remains a dominant influence on who actually gets appointed to the Board (Pye, 2000). Some have argued that the increased use of Nomination Committees has had little effect in seeking to broaden the talent pool targeted for new appointments.

37. The Cranfield Report arises that The Board appointment process is often driven by a homogeneous elite group of individuals at the top of the FTSE 100 companies. As the corporate elite, they restrict access to those individuals who do not fit with the values, norms, and behaviours of the existing members. The social psychological process of fit seems central in the appointment process, yet it remains an elusive concept likely to trigger exclusionary practices.

38. The six month’s monitoring report following the Davies Review found that 73% of FTSE 100 and 60% of FTSE 250 firms reported in their Annual Reports that they used executive search firms in their Board appointment process (Sealy et al, 2011). Despite the fact that ESFs have become institutionalised risk-management agents in the Board appointment process (Faulconbridge et al., 2008), there is limited academic evidence on how ESFs impact the process of corporate Board appointment and the resulting consequences for women.

Education

39. In this respect, the DLA notes the recommendations of Professor Didier Cossin, who argues that “the role of the board and individuals and board dynamics are matters of education in a wide sense”. In order to fully appreciate the benefits offered by to a company by diversity in the board room, members of the nomination committee must be educated in a manner that is “tailored to the specific remit of the board, rather than taking its lead from executive education.”44

Quotas

40. Supplementing the education of senior executives on the commercial benefits of diversity within the board-room should be a system of quotas. Although there has been debate about the efficacy and validity of quotas, the DLA would support the inclusion of a requirement for quotas in the UK Corporate Governance Code. One recent example of the introduction of a quota system is the Norwegian Companies Act 2003, which requires a 40% female quota for the boards of public listed companies and was amended in 2010 to apply to all publicly owned enterprises (state-owned limited liability and public limited companies, state-owned enterprises, companies incorporated by special legislation and inter-municipal companies), and public limited companies in the private sector.

41. Since the legislative scheme became mandatory in 2006 sanctions for non-compliance with the statute have been applied severely with forced dissolution being the ultimate penalty. Despite facing vehement criticism from political and media circles as to the theoretical validity of the scheme it has proved extremely successful. Since the introduction of the quota the number of women on Norwegian public limited company boards has risen from 2% in 2002 to 40% by 2009.45 The statutory scheme has also encouraged the development of national databases by state directorates and employee associations, which aim to publicise women’s skills by registering their CVs for companies to browse.

42. In their study of Norwegian gender diversity initiatives, Storvik and Teigen state: “no quotas, no success.”46 The fact that females on Norwegian company boards increased by just 4% during the years 2003–2006 (when the scheme was voluntary) demonstrates that quotas are a key method of encouraging organisations to prioritise the equality agenda, where otherwise it might be neglected as a costly, time consuming process.

(b) Why are there still so few women in senior positions on boards, and what are the benefits of having a greater number?

43. The Institute of Leadership and Management has undertaken research (“Ambition and Gender at Work”, Feb 11)47 into the dearth of women in management. This demonstrated that three quarters (73%) of women believe there are barriers preventing them from progressing to top management. Women tend to have less idea of career direction than men at the outset of their career, and fewer women than men expected to rise to take managerial positions (50% vs 62%). This is in part explained by women’s lower confidence levels and their reluctance to put themselves forward for a promotion where they only partially meet a job description (men 20%; women 14%). The decision of whether to continue at work—and climb the career ladder in the vital 30–40 age bracket—is a crucial one, and there is little by way of incentive for women who know that even if they do return, they are unlikely to achieve the same level of seniority within the workplace as their male counterparts.

44. The benefit of having more women in board positions has been analysed in a number of studies. Erhardt, Werbel and Shrader (2003) in their study of 112 American Fortune listed companies considered the effect or diversity (25% non-whites and females) on boards, and found a clear positive impact on ROA and ROI suggesting that board diversity has positive impact on company performance.

45. This result was repeated in another U.S. study by Carter, Smith et al (2006) of 797 Fortune 1,000 firms. They found that even after controlling for other characteristics, having women in senior and board positions is likely to be an indicator of improved company performance overall.

46. The above studies have echoed others over recent years that have evidenced a positive relationship between gender diversity in the boardroom and increased company profitability.48 One of the biggest surveys in this field, conducted in 2007 by the US think tank Catalyst,49 concluded that firms with the greatest proportion of women board members showed significantly higher return on investment, return on equity, and return on invested capital than those with the smallest proportion of women.

47. There is some evidence that the benefits offered by diversity are not confined to company profits. In a study of English firms, Ryan and Haslam (2005) found that when a female director is appointed to a board during a recessionary period the company’s share price tends to increase, even if economic performance does not change. However, the literature on this topic has produced varying results. A recent study using British data suggested that an increased number of women in the board room bore a negative relationship with subjective measures of company performance, such as stock price, but not on objectively established measures, such as profitability.50

48. Scholars have developed theories to explain this causal relationship based on theories of social psychology and group decision-making processes. In essence, diverse boardrooms (both in terms of gender and race) tend to make decisions both better and faster, by fostering enhanced network connections, resources, creativity, and innovation.51 These arguments—“the business case for diversity”—suggest the idea that women’s presence on corporate boards increases market understanding and subsequently “enriches the talent pipeline”,52 producing financial benefits for shareholders. It is acknowledged that there has been some academic criticism of such theories; positing that in many of the studies undertaken the relationship between diversity and profitability can be explained away by “tokenism.” It is argued that companies recruiting more women are generally high profile, multi-national organisations that are under greater pressure to promote a diversity agenda.53 However in opposition to this argument it could be said that this criticism is self defeating as presumably, low profile, smaller companies would wish to emulate larger, more successful companies. If recruiting and promoting women forms part of the formula that has made such companies successful, it follows that it would be good “business sense” to adopt that formula. The DLA is of therefore of the opinion that such criticism does not undermine the argument that boardroom diversity will ultimately benefit companies, not least because those companies that choose to adopt strong diversity policies are able to impress an aura of “innovation” upon shareholders, market rivals and other stakeholders.

(c) Success of Voluntary Code recommended by the Davies Report

49. That the call for a voluntary code of conduct for ESF’s has been successful has been documented in Review of Lord Davies’ review issued in March 2012 (page 12) and reported upon at length in the EHRC study “Gender Diversity on Boards: the Appointment Process and the Role of Executive Search Firms” (Spring 2012).54 The DLA endorses the findings of those reports and the recommendations made within them.

Sophie Garner, Barrister, St Philips Chambers

Nicola Atkins, Research Assistant

19 October 2012