UK report urges, not orders, more women on boards

The report is finished and it contains few surprises. UK listed companies won't have to face a government-mandated quota of women directors. Any chance that government might follow the Norwegian example of a legislated, 40 per cent target – or similar measures now in force or under consideration elsewhere in Europe – has ended, for now.

The report by Lord Davies, a former trade minister, uses as its first full sentence, centred on a page by itself, this observation: "At the current rate of change it will take over [sic] 70 years to achieve gender-balanced boardrooms in the UK." Cynics might say that the report itself will do nothing to change that rate. In the top 100 companies on the stock market, only 12.5 per cent of directors are women, the report notes. Only 5.5 per cent of executive directors are. It's something of a mistake, however, to focus on this particular measure in the context of UK policy. Nearly a quarter of the companies in that group aren't even headquartered in the UK, but rather from as far afield as Kazakhstan and Chile. Moreover, with the pipeline of potential London listings filling up with companies from Russia, China, India and more, the FTSE100 will likely look less and less like Britain and less and less responsive to the urgings of its Department for Business, Innovation and Skills. That doesn't mean will should neglect the report, just that report-writers made need to widen their field of view, as the body of the report does with its focus on the top 350 and for some matters on all listed companies. Lord Davies justifies his urgings for more women directors in this way:

Corporate boards perform better when they include the best people who come from a range of perspectives and backgrounds.

The boardroom is where strategic decisions are made, governance applied and risk overseen. It is therefore imperative that boards are made up of competent high calibre individuals who together offer a mix of skills, experiences and backgrounds. Board appointments must always be made on merit, with the best qualified person getting the job. But, given the long record of women achieving the highest qualifications and leadership positions in many walks of life, the poor representation of women on boards, relative to their male counterparts, has raised questions about whether board recruitment is in practice based on skills, experience and performance.

Davies argues that the business case for expanding the participation of women in the boardroom is clear. Women do well as university and in their early careers, but "attrition rates increase as they progress through an organisation". Chairmen and CEOs need to do something about it, so Lord Davies makes several recommendations, among them:

• Company-own target: Chairmen of all of the top 350 listed companies should set a target of at least 25 per cent for female representation on the board in 2013 and 2015, and announce those "aspirational goals" by this September.
  
• Disclosure: "Quoted companies" – so presumably all those with shares trading on public markets – should be "required" to disclose annual the proportion of women on the board, in senior executive positions and in the company as a whole. Having to say something means having to think about it.
  
• Code changes: The Financial Reporting Council should amend the UK Corporate Governance Code to require companies to establish a policy on gender diversity. The FRC only just published a new version of the code in May 2010, when it rejected suggestions for stance of gender issues.
  
• Investor monitoring: Investors should "pay close attention" to the recommendations of the report, too, when they review company accounts and consider appointments to boards.
  
• Headhunters' code: Executive search firms should create a voluntary code of conduct for appointments related to boards of the top 350 companies.

This may mean something. In the time-honoured way in UK corporate governance, heavy reports sometimes sit on desks long enough to being to creep into corporate practice without ever having been read and digested. But in case that doesn't happen, the steering board that worked with Lord Davies will meet every six months to consider progress. If it doesn't see movement, there's a threat of legislation later.

Source document: The report microsite has links to the documentation and a podcast.