EU Report: Women on Boards

Baroness O'Cathain Excerpts

Tuesday 13th November 2012 Lords Chamber

Tabled By

[Baroness O'Cathain]

Baroness O’Cathain to ask Her Majesty’s Government, in the light of the Report of the European Union Committee on Women on Boards (5th Report, HL Paper 58), what is their position on proposed EU action to increase gender diversity on boards.

[Baroness O'Cathain]

My Lords, this is a time when we are making history. The report of the European Union Committee on Women on Boards was published last Friday and we are debating it tonight, which is two working days. This is excellent, of course, but it gives no time whatever for a government response. We hope that they will give one in due course and we look forward to that.

Gender equality has long been one of the core objectives of the European Union. The treaty on the functioning of the European Union is clear that,

“in all its activities the Union shall seek to eliminate inequalities and to promote equality between men and women”.

There has been important legislation, including the 2004 gender directive, which insists that there should be equal treatment of women and men in the access to and supply of goods and services, and the 2006 directive on equal opportunities for men and women in the workplace.

Since 2010 this objective has been vigorously pursued by the vice-president of the Commission, Viviane Reding, and in this country by a number of business leaders, spurred on by the 2011 inquiry by the noble Lord, Lord Davies of Abersoch, at the request of the Department for Business, Innovation and Skills.

The Commission action so far has included in September 2010 the strategy for equality between women and men; and in March 2011 European companies were invited to sign the “Women on the Board Pledge for Europe”, which required that companies should commit to raising female representation on their boards to 30% by 2015 and 40% by 2020. UK action so far has been the Davies report, to which I have already referred, which underscored the benefits of having more gender-diverse boards. The Government have largely accepted the findings of the Davies report but have rejected the ideas of quotas at the EU level.

Sub-Committee B undertook this inquiry because of the topicality and the importance of the issue, its place within the committee’s scrutiny remit and the expected directive from the Commission imposing quotas for women on boards. This proposal was initially expected on 23 October but was postponed. We now expect the directive to be put forward by the Commission tomorrow. So if that is not topical, what is? A leak appearing in FT.com today confirms that the Commission is widely expected to propose some form of quota for 40% of women on boards in plcs within the EU by 2020.

In asking this Question, I thank everyone who has contributed both written and oral evidence to our inquiry; and the members of the sub-committee who worked so hard to produce this report, four of whom are taking part in this debate. I thank them particularly. I also thank our clerks, Mark Davis and Nicola Mason; the policy analysts, Paul Dowling and Sarah Watts; and our committee assistant, Elaine Morgan.

There is a strong case for action in this area. As already noted, gender equality is already a key EU objective. Viviane Reding has made this a priority. The committee found merit in this work to encourage greater female board membership and urges the Government to continue to support the Commission as well as pioneering their own initiatives.

We observed the significant benefits derived from a more diverse board. These include better reflecting the perspectives of customers; challenging established thinking—or “group think” as we are now supposed to refer it; female board members can serve as role models for women within and outside organisations; and the need for fairness and equality of opportunity—for example, in the UK, women make up 45% of the labour force and 60% of graduates, yet only 17% of board positions are held by women in the FTSE 100. In the Cranfield study it was stated that there are 2,500 “board ready women”—that sounds a bit like “chicken ready”. However, we are not convinced by the evidence which has been put forward for a direct link between gender diversity and increased business profitability and would discourage the promotion of such claims in the absence of further and more conclusive research.

On quotas, the Commission is well placed to encourage member states to act in this area. Article 157(3) TFEU allows the EU to adopt legislation aimed at ensuring equal opportunities. However, voluntary progress at the level of member states has been slow. This was the Commission’s key argument for the suggestion that quotas should be imposed. It takes as one example the adoption of quotas in France, where a 40% quota for female board directors is imposed at a national level. However, based on the wealth of evidence the committee received, we considered that similar legislative action from the EU at this level would be inappropriate for four key reasons.

First, to impose EU-wide legislation would jeopardise self-regulatory efforts and the current positive engagement from industry in countries like the UK where businesses are strongly opposed to quotas. Secondly, there is a possible argument that this would undermine the principle of subsidiarity. Subsidiarity being the case, the EU should act only if the proposed action cannot be achieved by the member states at national and regional level. Thirdly, positive non-legislative efforts are already being made in the UK. Fourthly, any legislation which induces quotas is best imposed at national level, and this is already being done in France and Italy.

Quotas would achieve statistical change but neglect the underlying causes and risk fostering the incorrect perception that women on boards were not there by merit—for example, 89% of the 2,600 women who responded to the consultation of the noble Lord, Lord Davies, opposed quotas. Quotas would not address the lack of a sustainable and consistent “pipeline” of women through businesses and onto boards, according to the National Association of Pension Funds.

While in the long-term progress has been disappointingly slow, female representation on boards has increased exponentially in recent years. In 2011-12, we saw female board membership increase by 3.1%, the largest reported increase at FTSE 100 level. Indeed, when I look back at my experience when I had my first FTSE 100 board appointment in 1984, I was one of six women in the whole of the FTSE 100 who had a board appointment. So we have made progress. In March to September 2012, 44% of new board appointments were female.

As to the experience of other countries, which is often quoted, Norway introduced a quota of 40% women board directors in 2003, with a deadline of 2008 for publicly traded companies. The 30% club pointed to the low number of women in executive positions in Norway as a lack of the effectiveness of quotas. Despite 44% of board members being female, only 8% of Norway’s CEOs are female.

Barnali Choudhury, a lecturer in corporate law at Queen Mary College, London, highlighted the disputes surrounding the practicality of quotas despite its strong culture of quotas. She therefore suggested that a one-size-fits-all solution around Europe would be deeply flawed given the variance of such cultural factors.

Too little time has elapsed to assess the impact of quotas on other EU countries such as France and Italy, where legislation is less than two years old. However, it is notable that, despite having quotas in France, the French Administration agree that EU action should begin with non-legislative measures.

Henry-Labordère, Counsellor for Labour Affairs at the French Embassy, was keen to see co-ordination at a European level but believed that a “graduated approach” of “reasonable voluntarism” was the most appropriate first step. We investigated and suggest other measures, including monitoring progress. A number of witnesses suggested that more effective monitoring in the areas of gender diversity of board members could go some way to solving the problems that this report seeks to address. However, witnesses were divided on the best means of performance monitoring. Witnesses also highlighted the merits of voluntary initiative, such as the “comply or explain” element in the voluntary code of conduct which was launched in July 2011. This is significant as it was drawn up by the search firms sector, which has a prominent role in the appointment of board members.

In conclusion, we acknowledge that progress in this area is needed, but that it should be business-led, enabling a sustainable supply of women to move up the “pipeline” and into board positions. Therefore, the imposition of quotas at EU level should be resisted, since they would negate the engagement and goodwill shown by businesses in recent years. The Commission has a role to play in fostering this voluntary approach and should focus on highlighting best practice in the area. While it is beyond our remit, we note also that developing a sustainable supply of female talent may also require broader cultural reform of working practices. As such, we welcome the broad focus at both national and EU level on these wider issues. This is the most important recommendation.