Following the publication of Lord Davies’ review into women in the boardroom, the Equality and Human Rights Commission has said it intends to make boardroom diversity a priority for its investigations.

 

25th March 2011. In August last year the Government asked Lord Davies to investigate the reason why there were so few women at board level in the UK’s larger companies and to make recommendations to increase gender equality.

Lord Davies’ report, “Women on Boards”, was published on 24 February 2011.

Companies will no doubt be relieved to hear that Lord Davies rejected the idea of quotas for female directors in the UK’s boardrooms, for now. However, the report “recommends” a minimum of 25% of directors at FTSE 100 companies should be women by 2015. The scale of this requirement is illustrated by the fact that women constituted only 12.5% of FTSE 100 directors in 2010.

The report makes ten recommendations:

  1. FTSE 350 chairmen should set out the percentage of women they aim to have on their boards in 2013 and 2015. Companies should announce their aspirational goals by September 2011.
  2. Quoted companies should be required to disclose the proportion of women on the board, women in senior executive positions and female employees in the whole organisation every year.
  3. The UK Corporate Governance Code should be amended to require listed companies to establish a policy concerning boardroom diversity, and to disclose annually a summary of the policy and the progress made in achieving the objectives.
  4. Companies should report on the matters in recommendations 1, 2 and 3 in their 2012 Corporate Governance Statement.
  5. Chairmen should disclose meaningful information about the company’s appointment process and how it addresses diversity in the company’s annual report including a description of the search and nominations process.
  6. Investors should pay close attention to recommendations 1-5 when considering company reporting and appointments to the board.
  7. Companies are encouraged to advertise periodically non-executive board positions to encourage greater diversity in applications.
  8. Executive search firms should draw up a Voluntary Code of Conduct addressing gender diversity and best practice covering the relevant search criteria and processes for FTSE 350 appointments.
  9. Women from both within the corporate world and outside the corporate mainstream, such as entrepreneurs, academics, civil servants and senior women from professional service backgrounds, should be considered for board appointments.
  10. Lord Davies’ “steering board”, responsible for producing the report, intends to meet every six months to examine progress.

Lord Davies advocated a “business-led” approach in his report to increasing women in the boardroom, but he made it clear that more prescriptive alternatives must be considered if significant change is not achieved.

The Government welcomed the report and said it would work to encourage regulators, investors and executive search firms to implement the suggested measures.

Responding to the review the Equality and Human Rights Commission (EHRC) commented that it was not just in relation to women but in respect of diversity of all kinds that progress needed to be made in the UK’s boardrooms, and that it would therefore be making this a “priority” for its investigations over the next two years.

Comment

Gender inequality in the Boardroom is now firmly established on the Government’s radar and larger companies will be required to take more action to try and address this as a result of Lord Davies’ report: doing nothing is no longer an option. In addition, increased disclosure requirements will enable investors to monitor this area closely.

The report contains some interesting information about the arrangements for female directors in other countries: Norway, Spain and Iceland already have quotas and France and the Netherlands are considering legislation to introduce them. UK companies now have a chance to get their house in order before the Government decides to legislate here and self-imposed changes must be preferable to centrally imposed quotas.

The EHRC now appears to be broadening the issue to include diversity more generally. If the EHRC invest the resources to really focus on this, larger companies may find the scrutiny uncomfortable. Companies should address the issue of diversity proactively, and as a matter of urgency, rather than have to react to criticism from investors or action by the EHRC (and the fallout from negative publicity that any investigation would potentially cause). Anecdotal evidence would suggest that it is not just women who need greater encouragement to get “on-board”.

 Author: Kevin McCavish

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