Chapter 7: Summary of Conclusions and
Recommendations
147. The case for pursuing a greater representation
of women on boards is an overwhelming one. There is a strong public
interest in ensuring that opportunities are available to all,
regardless of gender, that women entering the labour market are
able to fulfil their potential, and that we make full use of the
wealth of talented women in the United Kingdom. Importantly, there
is also a clear benefit to businesses from a more diverse boardroom.
A diverse board is more reflective of its customers, offers greater
challenge to established thinking, and demonstrates to staff that
an organisation is committed to developing all of its talent regardless
of gender. We support the Government's engagement with this agenda
and urge that it continues. (paragraph 21)
148. It is important that the case for action
is made to businesses in a strong and positive manner. However,
this case must also be intellectually defensible. Thus far, though
we are convinced of the beneficial behavioural and social impacts
of a more diverse board, we are not convinced by the evidence
put forward for a direct link between gender diversity and financial
indicators of business performance. Unless further research bears
out the assertion as to financial benefit, such a claim should
be discarded and the case for action made on the other compelling
grounds identified. (paragraph 22)
149. Gender equality in the labour market is
a core objective of the European Union and is embedded within
its Treaties. It is therefore proper for the EU to play its part
in improving the representation of women on boards. The Commission
should be bold in showing leadership on the issue and in maintaining
the high profile of the issue across Member States. (paragraph 33)
150. The Commission should be prepared to act
where it can drive the agenda forward more effectively than Member
States acting alone. Although we acknowledge that there are arguments
that can be made concerning subsidiarity and the proportionality
of EU action, the EU does have competence to take some form of
action in this sphere. The better course for those with concerns
is to engage pragmatically with any proposals from the Commission
rather than simply asserting that the EU has no power to act.
(paragraph 34)
151. The ultimate aim is for women to be represented
at senior levels in terms broadly proportionate to their levels
of participation in the labour market. This would be a clear signal
that opportunities are available fairly to both sexes. The best
way to assess the achievement of this goal, in terms of board
appointments, is to assess the rate of increase in the number
of women on boards over time and its sustainability. However,
we accept that broader targets for female board memberships can
help to ensure engagement with the issue by companies and policymakers
and thus we support their use. (paragraph 42)
152. The best target to use is that 30 per cent
of board memberships should be held by women, the "critical
mass" level identified as a catalyst for cultural change
in the boardroom. This would stretch governments and companies
to deliver sustainable change, whilst remaining achievable in
the present climate. At a national level, the Government should
institute a 30 per cent target to be reached by 2017, whilst striving
to achieve a 30 per cent level of representation as early as possible.
In Europe, the Commission should adjust its 40 per cent target
for 2020 downwards to 30 per cent, whether in binding or voluntary
proposals in this area. In both cases, judgment against the target
set should be informed as much by the rate of change and the context
of action as by the raw data of representation levels, with proper
account taken of meaningful progress in Member States and companies
starting from lower bases. (paragraph 43)
153. We oppose the use of quotas to increase
the representation of women on boards, except as an option of
last resort. Though able to achieve statistical change, quotas
do not address the underlying cause of gender inequality: the
lack of progression of a consistent stream of women into senior
positions. A quota would also be unpopular with many of the women
it would seek to help, and would risk fostering the perception—though
entirely incorrect—that women on boards were not there by
merit. A voluntary, business-led approach is the better vehicle
for long-lasting change. However, if the business community is
not able to put its own house in order and deliver sustainable
change, quotas are a legitimate final option to redress the present
gender imbalance on boards, including at European level as far
as EU law allows. (paragraph 70)
154. In the past there has been an endemic failure
to address gender inequality on boards. Since 2010, though, following
the work of Vice-President Reding in Europe and Lord Davies of
Abersoch in the United Kingdom, the issue of gender diversity
has been placed high on the political agenda, and businesses have
taken significant steps to improve the situation. We commend these
developments. We acknowledge that progress has been variable across
Europe, with some Member States moving backwards. However, there
has been a clear and encouraging improvement in the number of
female board members in the EU as a whole and particularly in
the United Kingdom. We are therefore not convinced that self-regulatory
efforts have been shown to be beyond repair. This is particularly
so when too little time has elapsed to assess fully the impact
of quotas in Member States, such as France and Italy, which have
been instituted in the intervening period. (paragraph 71)
155. So, whilst Member States are free to pursue
quotas nationally, the case has not been made for an EU-wide measure
and we urge the Commission to refrain from introducing any proposal
that would seek to institute quotas. To take legislation forward
would jeopardise self-regulatory efforts in countries, like the
United Kingdom, where business communities are strongly opposed
to quotas, and would undermine the goodwill accrued as a result
of EU leadership on the issue so far. We would also have to consider
carefully the adherence of any legislation to the principle of
subsidiarity, in the light of the extensive efforts made domestically,
and would urge the Government to oppose any such measure strongly.
(paragraph 72)
156. Instead of a quota Directive, the Commission
should issue a non-binding Recommendation to Member States that
urges strong action to address gender diversity on boards. The
Recommendation should outline a range of recommended policy developments
and a voluntary target of 30 per cent of EU board posts being
held by women five years after it is issued. The Commission should
review progress against this Recommendation after three and then
five years. Goodwill towards self-regulation is not, and should
not be, unlimited. Should there be a clear failure to address
gender inequalities on corporate boards, the Commission should
reserve the right to legislate on the issue at either stage. This
would put the Commission in a stronger position in future negotiations
and would allow Member States to demonstrate the effectiveness
of other options. (paragraph 73)
157. Robust EU-wide information is essential
to assessing progress made by companies in addressing issues of
gender inequality in the labour market; it must be collected more
comprehensively and rigorously than it is today. The Commission
should, in any legislation it introduces, require companies to
report on the proportion of women at every level of their workforce.
Data should be collected at a national level by each Member State.
(paragraph 81)
158. At a minimum, companies should be required
to report on the number of women on the board, in executive positions
and in the organisation as a whole. In the United Kingdom, we
support the Government's proposals to introduce such reporting
standards in October 2013 for large and medium-sized companies,
to ensure that as much of this data is available as soon as possible.
(paragraph 82)
159. These figures should be monitored on an
annual basis by the Commission, to determine whether sustained
progress is being made and to inform possible policy responses.
The information should be used by policymakers and the media to
identify and promote examples of best practice, as well as to
draw attention to poor performers. (paragraph 83)
160. Governments should be scrutinised for their
actions to improve gender diversity in the labour market, to keep
up the pressure for change. Comparing the actions taken in different
Member States enhances this scrutiny and offers the possibility
of exchanging best practice. The Commission should therefore expand
its reporting work on women's involvement in economic decision-making
in a style similar to the reporting process in the European Semester
economic programme. In short, Member States should provide more
detailed policy information and statistics on progress made in
improving gender diversity, and the Commission in turn should
provide individual national and comparative European analysis
on the work being done. Such assessments should then be brought
within formal national parliament scrutiny processes and form
part of the evidence base when considering the future case for
any legislative action in this sphere. This would establish a
rigorous and accountable assessment framework at all levels. (paragraph 87)
161. The Commission should also be bold in taking
action to promote gender diversity through changes to corporate
governance rules. Action would demonstrate leadership, foster
EU-wide engagement, and ensure that accountability on improving
gender diversity is at the heart of corporate scrutiny across
the EU. It would also enable companies to understand better what
was expected of them, minimising variation in reporting standards
and compliance costs. (paragraph 99)
162. We recommend that the "comply or explain"
approach to gender diversity policy, as used in a number of Member
States and bolstered in the United Kingdom Corporate Governance
Code in October 2012, be seen as a good practice example for reference.
The Commission should consider including an analogous system by
amendment into the draft consolidated Directive on accounting
standards currently making its way through the ordinary legislative
procedure. If this is not possible, separate legislation should
be introduced. (paragraph 100)
163. This reporting system should require that
each listed company disclose, in its annual report, the measures
that it has taken on diversity, as well as to report on the balance
of its board, taking into account gender diversity in both instances.
Furthermore, companies should be encouraged to set non-binding
targets for female representation and to report on progress against
these objectives where they have been set. This would establish
a strong governance regime with the means to allow effective scrutiny
by shareholders, the media and policymakers alike, without interfering
unnecessarily in national governance structures. (paragraph 101)
164. A more accountable corporate governance
regime for companies must be allied to a more engaged approach
by shareholders than we see at present. In this respect, we welcome
the establishment of a Stewardship Code in the United Kingdom.
We also welcome the efforts made thus far in the institutional
investor community, such as the establishment of clear voting
policies based upon gender diversity. The Government should foster
these developments alongside their work with the companies themselves.
(paragraph 109)
165. Those institutional investors often have
portfolios that extend well beyond a single country, indicating
a possible role for the EU in encouraging best practice. We recommend
that the Commission explores, in its forthcoming Communication
on company law and corporate governance, how to improve the engagement
of shareholders across the EU. Such efforts should be on a voluntary
footing, based on the principles of transparency, engagement and
accountability that also underpin the Stewardship Code in the
United Kingdom. This should be taken forward in conjunction with
the Institutional Investor Committee and other European investor
associations. We urge the Government to support such efforts.
(paragraph 110)
166. Executive search firms play an important
role in the process of board appointments in the United Kingdom,
and markets for their services are emerging elsewhere in the EU.
We welcome the establishment of a voluntary code of conduct in
the United Kingdom. It strives for a greater degree of transparency
and rigour in a process that is too often narrow and opaque, and
sets out key principles of merit-based, open and fair recruitment.
It is right that this is being taken forward on a voluntary basis
at present. Search firms, and the boards who hire them, should
be given the opportunity to demonstrate their engagement with
gender diversity before any formal intervention is considered.
(paragraph 122)
167. We consider, though, that there should be
a more widespread code. To start, the principles of the United
Kingdom code could be implemented on a voluntary basis across
the EU. Any code should encompass firms in emerging markets as
well as United Kingdom firms placing candidates on boards in other
Member States. We support the work of the Association of Executive
Search Consultants in rolling out a code across its partners in
Europe; the Government and the Commission should support this
work as a priority. (paragraph 123)
168. The Government and the Commission should
also work with the executive search community to seek to strengthen
the provisions of the existing code to ensure that it is a robust
guide to best practice. We recommend that the code be amended
to include a more detailed statement of what constitutes an intrinsic
characteristic, encouraging companies to look beyond the subjective
"fit" of a candidate for a board position. It should
also include a requirement for firms to report on the numbers
and percentages of female candidates making the transition from
longlists to shortlists. If the results of such reporting are
not satisfactory over the course of the next three years, the
Government and the Commission should work with the search community
to amend the code to introduce a requirement for there to be a
specified percentage of female candidates on shortlists, on a
"comply or explain" basis, to ensure that change is
sustained. (paragraph 124)
169. It is imperative through all of this work
to develop a sustainable supply of talented women who are ready
and able to take on board positions. Training, mentoring, networking
and visible databases of female board candidates all help to boost
confidence and ensure that capable women are not ignored. These
efforts are central to improving the participation of women in
executive board roles and in the highest levels of management,
where there are such stark imbalances at present, and to improving
gender diversity in the boardroom on a sustainable basis. (paragraph 143)
170. The development of this supply should be
led by the business community. This ensures that businesses are
engaged and able to see the benefits of the work, furthering their
commitment to the agenda. The Government should use their influence
to support the expansion of the best initiatives that emerge,
such as the FTSE 100 Cross-Company Mentoring Programme,
filling gaps in funding where appropriate. They should also work
with the Cranfield School of Management to expand its database
of talented women to encompass a wider span of female managers
and sectors. We do not propose a particular form. (paragraph 144)
171. The Commission should respect this voluntary
approach and focus on highlighting best practice. The best vehicle
for these efforts is through its existing, excellent work on women
in economic decision-making. The Commission's role would be enhanced
if this work was expanded, as we recommend elsewhere (see paragraph
160). In particular, the Commission should use its
influence to develop initiatives that operate on a pan-European
basis, such as the European Roundtable of Industrialists' database
of female talent. (paragraph 145)
172. Developing a sustainable supply of female
talent may also require broader cultural reform of working practices.
A detailed consideration of such changes is beyond our remit.
Nevertheless, we welcome the broad focus at both national and
European level on these important issues, as part of a sustained
effort to deliver a more equal and effective world of business.
(paragraph 146)
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