Gender Balance on Corporate Boards

Lord Sharma Excerpts

Monday 7th January 2013 Commons Chamber

[Alok Sharma (Reading West) (Con)]

As you say, Mr Deputy Speaker, this is a time-limited debate, so I will keep my remarks fairly brief.

I welcome the Government’s work to increase gender balance on boards. As we have heard, the Davies review was a seminal piece of work that helped to identify how not just the Government but particularly the corporate sector can respond to the challenge of having more women on boards and of increasing the diversity of boards. As the Minister said—the shadow Minister made this point too—diverse boards make for better companies, better decisions and ultimately better outcomes for shareholders. That is something for which every company should be striving.

The Government have absolutely the right approach in getting companies to co-operate rather than coercing them into coming up with artificial quotas or targets—and certainly by not forcing legislation on them. The approach is clearly working. A number of colleagues have pointed out that the number of women on boards, both executive and non-executive, has been increasing over the past few years. I suspect that this work will continue. I also commend the Government on the work to increase mentoring, which is an incredibly important part of the jigsaw puzzle in informing not just women but people from ethnic minorities how they can aspire to get on boards and into senior management positions in our companies.

[Keith Vaz]

I congratulate the hon. Gentleman on his appointment as vice-chairman of the Conservative party with responsibility for ethnic minorities, but I am not clear what he is saying, because so far we have failed on ethnic minority representation. Is he in favour of continuing with voluntary arrangements and hoping that things will get better, or does he think that Government and business should send a much stronger message about boards needing to be made more diverse?

[Alok Sharma]

I thank the right hon. Gentleman for his comments; let me come to that point shortly.

I am also pleased that last year the Government introduced a set of draft regulations that will require listed companies to set out the gender breakdown of their work force at board level, in senior management and in the work force as a whole. Normally, those of us on the Conservative Benches are not particularly keen on huge amounts of business regulation, but this is a good regulation, which would not be burdensome but helpful in shining a light on companies and getting them to focus on increasing diversity and, in particular, improving the gender balance on corporate boards. Indeed, the regulations, which are due to be introduced, have already been implemented in a number of other jurisdictions across Europe, so this is nothing new. At the end of last year, the Secretary of State—who is now in his place—urged head-hunting firms to break down the number of individuals they place in senior positions by gender. Again, that is extremely good news.

The right hon. Member for Leicester East (Keith Vaz) made the point about work force diversity. Gender balance is one measure of work force diversity, but ethnicity is another. Championing diversity should undoubtedly be about improving both. The hon. Member for Streatham (Mr Umunna) pointed out that just as there is under-representation of women at senior levels on boards, there is also under-representation of those from non-European ethnic backgrounds. He gave the figure of 5.7%. To break that down even further, research by Cranfield university showed that only 4.4% of board members in FTSE 100 companies are ethnic minority male, while only 1.3% are female. Indeed, of the 48 male directors from minority backgrounds, only eight are British. As has been pointed out, the census showed that the proportion of people from non-white or ethnic minority backgrounds is currently around 14%.

The all-party group on race and community has just published a report—it came out at the end of last year—on ethnic minority female unemployment. Let me set out what it uncovered by quoting briefly from the executive summary:

“Discrimination was found to be present at every stage of the recruitment process—when assessing applications, during interviews, at recruitment agencies and also in the workplace itself. Strikingly, it was estimated…that 25% of the ethnic minority unemployment rate for both men and women could be explained by prejudice and racial discrimination. Discrimination based on name and accent was also uncovered both in data received and from personal testimony.

In addition, it was found that discrimination based on both gender and ethnicity is taking place in job interviews.”

I think all hon. Members today would agree that that is incredibly worrying.

I appreciate the fact that today’s motion is about women on boards, but may I ask the Minister to consider extending the draft regulations for listed companies to disclose their gender balance—which are due to be introduced this year—to include the ethnic balance at senior level, on boards and in the work force as a whole? As for further disclosure that could be considered—this could be part of a voluntary code—perhaps we could ask listed companies also to break down the total number of job applicants, interviewees and new employees they take on every year by gender and ethnicity. That would help to highlight which companies and sectors ethnic minority candidates and women are just not applying to in numbers, as well as which are not giving them any interviews.

I share the view that people should be appointed to jobs on merit and experience. That is absolutely right. The whole idea of artificial quotas is not particularly helpful. However, what I am suggesting for the proposed new regulations is about taking companies one step forwards, towards focusing on what they need to do to increase diversity as a whole in the workplace, whether in the gender or ethnic make-up of boards or in the workplace as a whole.

I will end, as many others want to speak. As we have heard, at the end of the day, diverse boards are much more effective, and they absolutely outperform their rivals—there are reports out there by McKinsey and many others. If a company’s work force and senior management are representative of its customers, it is much more likely to make decisions that respond to their needs and, ultimately, benefit the business. That is a virtuous circle that every company should be looking to square.