Gender Balance among Non-Executive Directors (EUC Report)

Debate between Baroness O'Cathain and Baroness Bottomley of Nettlestone

Thursday 10th January 2013 Lords Chamber

[Baroness O'Cathain]

My Lords, I support the Motion. Before giving my reasons for doing so, I want to reassure the noble Lord, Lord Pearson, whom I greatly admire, particularly for his assiduousness in pursuing all the nooks and crannies of European legislation. As far as we know, eight member governments and parliaments are against this draft directive, which is just under a third. As there are 27 members and about a third of them are yet to be clear about their position, it looks quite likely that the proposal will be withdrawn. I will not say very likely and I will not bet on it because I am not a betting woman. However, the response we had wholeheartedly in support of this has been remarkable. It has made me very proud to chair Sub-Committee B, which did this exercise. We received so much goodwill and the whole point is to say that the Commission is right to highlight this. This Government have benefited from the actions undertaken by the previous Government in asking the noble Lord, Lord Davies, to look at this whole area. That was the spark that ignited a great flame of interest, for which all credit is due both to the previous Government and of course to the noble Lord, Lord Davies.

Anybody who reads the newspapers now realises that there is huge support for this. I am not saying that our committee started it—not at all—but the reality is that the time is right. When it is said that the European Union will not do this or that, we think the European Commission has a strong role to play in highlighting the issue. However, it also has to get itself attuned to what is likely to be best practice. Unfortunately, there is quite a lot of confusion at the moment about non-executive directors, executive directors, listed companies and private companies. I read the debate that took place in the other place on Monday. So many Members there just do not understand what is going on. What we really need to do is encourage the Commission to look at the whole thing before it even thinks about going down the regulation route. Instead of legislating, we need to encourage. I am convinced that there is an open door which needs very little pushing at the moment.

As anyone who attended the debate on our report in November will realise, the Commission came up with this draft directive—at least, it was going to issue one, but changed its mind, obviously because of some problem within the Commission. We issued our report, the Commission then issued its draft directive, which was a lot less regulatory that we thought it was likely to be. However, it still has the idea of mandatory quotas. By persuasion and by discussing it quite widely, we are now trying to clear people’s minds about what we are talking about: encouraging boards to look at the real problem of gender inequality at the top level. That is not because we just want women on boards but because we absolutely believe that they would make a very positive contribution. There is no question about that.

I want to take issue with some of the things that have been said, including in the debate. It has been said that there is evidence that business would be better and that there would be more profits. We have been rigorous in examining this and we cannot find evidence that there is a direct link between putting more women on boards as non-executive directors and better financial performance by the company itself. That is why we stated it. We do not want to make any statement at all which has not been proven by the evidence. I assure noble Lords that if they go back to the original report, they will find that it is all evidence based and we can all stand up and support it.

We need to get away from the confusion. At the moment this is only a start. People are now saying, “What about executive directors? Why are there no executive directors on the way up?” Having women as non-executive directors on boards acts as a stimulus for women within organisations to say, “If she can get there, why can’t I?” I know of two specific cases where that happened to me as a non-executive director of two different FTSE 100 companies. I used to go and talk to the senior women and they all thought it was a great example. Both those boards now have several women directors on them.

We are starting from a very low base and people say that it is not going to be achieved. However, there were no other women on the first board that I was on in 1984, and in the FTSE 100 companies at that stage there were six women directors. Now around 17% or more of the people on boards are women. That is a huge increase. People say that it is not happening fast enough—of course it is not happening fast enough—but at least we are getting there. We have highlighted these issues and formulated this reasoned opinion so that the European Union can think again, moderate its demands and not be so entrenched about legislative quotas. Those will turn women off. Women will say that it is tokenism and patronising.

I hope that we can achieve all that we want and that the noble Lord, Lord Pearson, will come round to our way of thinking. I support absolutely what my noble friend has said.

[Baroness Bottomley of Nettlestone]

My Lords, I strongly support my noble friend Lord Boswell for his sanity and good judgment. I want to speak about the gap between the last two speakers because this proposed directive is an example of the most irritating and frustrating way in which the European Commission sometimes behaves. It is alienating and irritating and it maddens individuals who are more open-minded than some might think about the whole European endeavour.

A quota is alien to the British way of thinking. We believe in voluntary principles, in persuasion, in best practice and a bit of naming and shaming. Our approach is a voluntary one wherever possible and quotas offend. A target, a goal, an objective, but not a quota.

In any event, why a quota for non-executives? I want a quota for the number of male teachers in primary schools because a great number of primary schools do not have a male teacher. That is a much more serious problem for disadvantaged children growing up with no male role model at all. To introduce a quota for non-executive directors is ludicrous when we all know that the serious issue is what happens to female executive talent as women go up through an organisation.

Seeing the noble Baroness, Lady Howe, in her place reminds me that my experience goes back 20 or 30 years to the issues in the health service. It was overwhelmingly a female workforce, overwhelmingly used by women, taxpayer funded, and yet somehow it was led by stale, pale males. In that case, introducing targets and goals, particularly in a taxpayer-funded service, seemed extremely sensible. I think that we managed to get non-executive appointments up to where something like a third were women.

The reason that business invests and flourishes in this country is precisely that our corporate governance structures are principles-based, not rules-based. How many realise that in the top 15 companies in this country 23 different nationalities are represented? I challenge anyone to find any other member of the European Union which has 23 different nationalities represented on its top 15 companies. In other words, diversity in its true sense is a goal which is celebrated in Britain and we have a great deal to be proud of.

I turn now to the report of my splendid colleague, the noble Baroness, Lady O’Cathain, who was a pioneer for women on some of the most senior boards. I celebrate this report and believe that it is excellent reading for a great number of people interested in the cause. The only minor area of dispute is that I am sympathetic to her point that there are not demonstrable results from having a gender-diverse board, but I want her to lock horns with McKinsey, because it is verboten to disagree with McKinsey in this day and age. However, it asserts that gender-diverse boards achieve superior financial returns, both in their net profit margins as well as the higher returns on equity each year.

[Baroness O'Cathain]

The fact is that we were determined that it had to be absolutely evidence-based. Do not worry—we went to McKinsey. We do not have firm evidence for that; in fact, figures were floating around which were withdrawn when we started to pursue that assertion.

[Baroness Bottomley of Nettlestone]

I am more sympathetic to the noble Baroness’s argument than I am to people who go excessively far in arguing for the financial returns. Frankly, enlightened businesses have gender-diverse boards, so it is very hard to tell what the variable is. However, there is evidence that where governance is weak, female directors exercise strong oversight. They are very good at managing and controlling risk. When you talk about women and cost control, there is not a household in the country where family members will not immediately nod their heads and say “Yes, it’s the women who are in charge of cost control”.

I am absolutely certain that the evidence about female directors enhancing board independence is valid. Females are more resilient and resistant to groupthink, and that has so often been the case in discussions and debate, whether in politics, in business or in many other enterprises. If part of the causes of our corporate disasters has been groupthink, then I have no doubt that women, with the competence and necessary skill, make a great addition. Their management style tends to be much more appropriate to the modern forms of management than the more didactic, autocratic patterns of the past.

The real issue, of course, is that he who pays the piper calls the tune—and by 2025 there will be more female than male millionaires in this country, and 60% of the private wealth will be managed by women. It is enlightened self-interest to take this topic seriously. Nobody doubts the Government’s commitment in this area. Since the report of the noble Lord, Lord Davies, 49% of non-executive appointments have been women. As I have said, the noble Lord has done a great job and we are all indebted to him, but there are so many architects and investors in this policy, and no one person can be thought to have achieved that change. However, being led by a man—regrettably—has probably been a factor in achieving the necessary results. We are now on target for women to constitute 40% of board membership by 2020.

This is, therefore, a success story, but it is important that it is not a passing fad. It needs the tenacity, the long-term approach and the monitoring. I congratulate my noble colleagues on determinedly resisting the idea that this is an area of EU competence. It will simply be counterproductive in our context. We endorse the importance of this principle and congratulate the Government on the progress to date, and I support my noble friend in his Motion.