Bernadette Daley: Quotas for women on boards

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Figures from Boardwatch UK show that the rate of women being appointed to the boards of UK companies has slowed dramatically.

Six FTSE 100 companies have all-male boards and 68 more board seats would need to be filled by women if Lord Davies’ target of 25% female representation is to be met.  This has reignited the debate about whether the UK Government should take a more forceful approach and introduce mandatory quotas.

Opinion remains divided on the issue.  France, Italy, Spain and Norway already have some form of quota system in place, with a notable increase in the number of female board members in France and Norway in particular.  EU Justice Commissioner, Viviane Reding, believes quotas are the only way to drive change, although last year she was forced to drop her controversial proposal for a 40% quota for women on the boards of publicly-traded companies in the EU.  Instead, she proposed a 40% ‘objective’ for female non-executive directors by 2020.  However, the slow progress across Europe (with notable exceptions for those countries with quotas) suggests that there is still a long way to go to redress the balance in the boardroom.

The Executive Board of the European Central Bank announced new gender targets last month, with the aim of doubling the numbers of women in senior and middle management position by 2019.  This comes after criticism over the lack of senior women at the ECB.  An ECB spokesman was keen to clarify that this is a target, not a quota, but this is a significant and public declaration of intent.

The UK Government has so far favoured a voluntary approach, encouraging businesses to increase the number of senior women through a ‘comply and explain’ approach.  In his influential report on Women on Boards in 2011, Lord Davies recommended that women should make up 25% of the boards of FTSE 100 companies by 2015.  Since March 2012, 44 % of newly appointed FTSE 100 board directors and 40% of new directors in FTSE 250 were women.

Further impetus came from changes made to the Corporate Governance Code, which took effect on 1 October 2012.  This requires all companies to explain their policy on boardroom diversity, report on how it is implemented, and consider diversity as a factor when evaluating the effectiveness of the board.

The Government hasn’t ruled out introducing mandatory quotas if satisfactory progress isn’t made.  Lord Davies has stated that, if the 25% target isn’t achieved, he may push for mandatory quotas.  Vince Cable has also said that, whilst the Government believes the voluntary approach is the “best way forward”, if the 25% target isn’t met, a mandatory quota is “a real possibility”.

Mark Carney, Governor of the Bank of England, recently commented that the lack of women on the Bank’s monetary policy committee was “anomalous and striking” and financial institutions in the UK may well follow the ECB’s example, if they haven’t done so already.  Indeed, they may be forced to as a result of regulations introduced as part of the Capital Requirements Directive IV.  These include a requirement that the larger regulated institutions set a target for greater gender diversity in management and that they introduce a policy to combat under-representation.  Member States need to apply the relevant provisions by January 2014.

It seems to be widely accepted that boards should be more diverse, including by having more female directors.  The debate is whether this should be done through voluntary means, with targets and objectives but no real sanction for failing to meet those, or whether the only way to bring about the rate and scale of change needed is through the use of mandatory quotas.

Mandatory quotas for the UK would mark a significant shift in approach.  Traditionally, under-representation has been tackled through negative reinforcement across the EU and in the UK.  Equal opportunities legislation focuses on preventing less favourable treatment by imposing sanctions for unwanted behaviour, rather than encouraging more favourable treatment.  There is some scope for positive action under English law (and the relevant EU Directive), which would allow an employer to take steps to promote more women in the workplace, including onto boards and into executive positions.  However, the provisions are not straightforward, are voluntary and, in practice, have had limited use so far.  If employers get it wrong, they could face discrimination claims from unsuccessful male applicants, which may help explain why most have chosen not to make use of the provisions.

Although the UK Government continues to be a strong advocate of the voluntary approach, if the progress of women on UK boards slows or stagnates, quotas may well be introduced.  The UK Government may well be hoping that the threat of quotas will be enough to spur UK companies to follow the ECB’s example and focus their recruitment efforts on appointing more women to their boards, in order to hit the 25% target by 2015.

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About Bernadette Daley

Bernadette Daley is an Employment partner at international law firm Mayer Brown LLP. She advises employers on all aspects of employment law, including complex employment litigation and large-scale redundancy and restructuring programmes. She has significant experience advising on cross-border employment law issues, particularly multi-jurisdictional outsourcing and business transfers as well as advising on day-to-day employment issues including dismissals, grievances, sickness absence, performance management , bullying and harassment.

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