Gender Balance on Corporate Boards

Chuka Umunna Excerpts

Monday 7th January 2013 Commons Chamber

[Mr Chuka Umunna (Streatham) (Lab)]

Before I discuss the substance of the motion, it is important to make three brief observations for the record.

First, today we debate the need for greater gender balance among those in positions of leadership in business, but in so doing this House and the Government should acknowledge their own failings in this area. Just 22% of the current Members of this House and just four—18%— of the Cabinet are women. That is a disgraceful state of affairs in 2013. Labour Members are proud that 33% of the parliamentary Labour party and almost 40% of the shadow Cabinet are women, but we all need to do better. By all means we should debate the matter, but we in this House are certainly in no position to lecture.

Secondly, the subject of the motion is gender balance, but, as my right hon. Friend the Member for Leicester East (Keith Vaz) said, it is important to note that there is woeful under-representation on company boards in other respects that must be addressed too. For example, according to the latest research from Cranfield university, just 5.7% of FTSE 100 directors are drawn from an ethnic minority while the new census figures indicate that 14% of the population is now from a non-white background. How can we inspire young black and Asian Britons to reach for the top when they see so few people who look like them in our boardrooms, never mind here in Parliament?

Thirdly, diversity in executive directorships also matters, as does the diversity of the boards of directors of non-listed private companies. I think that Sir Richard Branson has made that point, too.

We cannot stand idly by on other issues of representation in the leadership positions that people hold in modern Britain. Today, however, we are bound to focus on the issue of gender balance among non-executive directors of listed companies, because that is the subject of the draft directive and the motion.

Two central questions flow from the motion. The first is whether we should take action, and if so what sort, in relation to the gender balance on the boards of listed companies. The second is whether that action should be taken at the level of the European Union. As the noble Labour Lord and former Business Minister in the Labour Government, Lord Davies, made clear in his excellent February 2011 report “Women on boards”, despite some progress under the previous Government, the representation of women on boards in this country is woefully low, as the Minister has set out today.

In 2003 we set up the Higgs review of corporate governance, which called for greater diversity on our corporate boards. In percentage terms, female-held directorships in the FTSE 100 doubled under the previous Labour Government, but I am clear that we must concede, with regret, that despite that, progress was lacking, with—I think the Minister cited the figure—women holding just 12.5% of FTSE 100 directorships when we left office in 2010. As Lord Davies pointed out, if that rate of change continued, it would have taken about 70 years to achieve some level of parity.

As Lord Davies made clear, there is as much a moral imperative to change this state of affairs as there is a strong business case to do so. The Minister has echoed those sentiments. I do not believe that this is a matter of party political discord.

[Keith Vaz]

I welcome my hon. Friend’s mea culpa in respect of the previous Labour Government. Does he know why we failed to make more of an impact? Was it because of a lack of a message from the then Government to the constituent parts that could have acted upon it, or was it the case, as the Minister has said, that the culture in the business community took so long to change? Is my hon. Friend able to offer an explanation of why we did not do better?

[Mr Umunna]

I think that some of the things that my right hon. Friend has just mentioned may have contributed to the state of affairs when we left office. As the Davies report makes clear, this is an historically complex issue. The easy conclusion to draw would be that our business community has a high level of overt and outrageous discrimination. I know through my own practice as an employment lawyer that, unfortunately, that still exists in some small pockets of the business community. However, I think that there are cultural factors at play and that the issues that women in the workplace face with regard to child care and flexible working all contribute to the lack of progression in the pipeline of appointments in different companies. To tackle that, individuals need to take a lead and have the will to bring about cultural change in individual organisations.

To be frank, one thing for which I do not apologise is our reluctance to move straight towards prescriptive legislative solutions to these problems. I believe that we should regulate or legislate as the last resort, but what has become clear is that, as Lord Davies concluded, there needs to be far more will in the business community, never mind the political community. Another important point that Lord Davies made is that we should be clear about not ruling out taking further action in this House if we do not see enough progress culturally in the business community.

As the report made clear, many of the more than 2,500 responses to the Davies review said that women with the relevant experience were frequently overlooked for development opportunities and that there were differences in how men and women were mentored and sponsored, giving men an edge over their female peers in gaining appointment to boards. We cannot tolerate that in a society that seeks equal opportunities for all, regardless of background. To do an effective job, boards must be made up of competent, high-calibre individuals who offer a mix of skills, experience and backgrounds. I fail to see how our boards can optimise their performance unless they are representative of the population as a whole. After all, in many cases, their customers are the population as a whole. There is a wealth of evidence to back that up, and it is all in the Davies report.

If we accept that the status quo is wrong and believe that it compromises the performance of our companies and our economy, as Opposition Members do, action has to be taken. That is why we endorsed all the recommendations of the Davies report. Those who argue against action often accuse those who argue for it of engaging in tokenism and of promoting diversity over merit. Of course board appointments must always be based on merit, with the best qualified person getting the job, but to suggest that no action should be taken is to presume either that there are not enough women who merit appointment or that there are not enough women who want to be appointed. That flies in the face of the evidence in 2013. There are plenty of women who merit appointment. Diversity and appointment on merit are not mutually exclusive. The problem is that there are barriers and obstacles that must be broken down to ensure that the appointment of women is as usual as the appointment of men.

The Davies report advanced a set of 10 voluntary measures, as the Minister has said, with a view to there being a minimum of 25% female representation on boards by 2015. The Minister went through the most recent update so I will not go through all the details, but there has been not insubstantial progress towards achieving the 25% goal. However, more action is clearly needed if we are to achieve the goals set out in the Davies report. Even if the goal is met, I believe that 25% is a modest aspiration. We should all want companies to make more progress than that. The Government should keep the matter under review and should reserve the right to introduce more prescriptive measures to force faster and greater change if necessary.

[Mr Djanogly]

The hon. Gentleman mentions the 25% figure, but that is an absolute figure. He should also point out that 27% of all board appointments in FTSE 100 companies are now being taken up by women.

[Mr Umunna]

I do not disagree. As I said, I do not think that the progress in this country towards achieving the goals since the report came out in February 2011 has been insubstantial. Whether we are on course to reach the aspirations set out in the Davies report will be clearer next year, when the recommendations have had three years to bed in. At that point, we will form a view on whether further measures are needed. Let me be clear: if we are to continue with a business-led approach, we expect to see much greater progress towards parity.

That is the case for action, but what of the EU? The draft directive produced by the Commission seeks to introduce a new procedural requirement for the recruitment of non-executive directors that would apply to all boards of public listed companies in the EU. The objective is to raise the proportion of non-executive positions held by the under-represented sex to 40% by January 2020 by introducing a new preference rule in the selection of non- executive directors. Under that rule, priority would be given to a candidate of the under-represented sex who was equally qualified in terms of suitability, competence and professional performance as a candidate of the other sex—a man in this case—unless an objective assessment, taking account of all the criteria, would tilt the balance in favour of the candidate of the other sex. That system would not amount to the introduction of a quota per se, as has wrongly been reported in some places, but it would introduce a degree of positive discrimination in favour of female candidates, in the scenario that I have outlined, for non-executive director positions on boards. The Commission decided not to take action in respect of executive directors because it says that it would constitute

“excessive interference in the day-to-day management of a company.”

The Commission argues that action at EU level is justified on a number of grounds, including that if there is not action at supranational level, insufficient progress will be made at national level towards more gender-balanced representation on company boards by 2020. The European Scrutiny Committee rejects that and objects to the draft directive on the grounds that it does not comply with the principle of subsidiarity. The reasons the Committee cites for its view include that it does not feel it is fair to say that member states acting individually will not achieve sufficient progress, given that

“many national measures have been introduced within the last year or two”.

The Committee’s objections to the directive are set out in the draft reasoned opinion that it proposes be sent to the presidents of the European institutions. The Business Secretary, who is once again absent from the House for the debate on this important issue, asks us in the motion to endorse the draft reasoned opinion, with which the Government agree.

The principal problem we have with the motion is that although there may well be strong arguments against the action envisaged under the draft directive, for the reasons that the Committee cites in the draft reasoned opinion, we have heard very little from the Government about how they might work constructively in other ways to advance the cause of equality in company boardrooms along with our European partners.

The Under-Secretary of State for Women and Equalities, who is also a Business Minister—[Interruption.] Yes, why is she not here? In her response to the report of the House of Lords European Union Committee on the issue, she said that the Government

“agrees that the EU has an important role to play in improving the representation of women on boards.”

If that is the case, surely the Government are obliged to say how that should happen, and to give more of a lead on what that role should be, if we want to lead the way in Europe on the issue.

Given that other European countries are also keen to see more women on boards, and given the extent to which many of our major companies operate across Europe, why have the Government not put forward proposals on what constructive moves European countries could make to work more positively together to promote having more women on boards? That would be good for tackling discrimination and promoting equality, and it would be good for business.

The situation is most unsatisfactory, because the Government have had a golden opportunity to make it clear that the UK wishes to be at the forefront of the debate on achieving greater equality across society both here and in the EU. Instead, without the Government having set out proposals on how member states could work together to improve matters, I fear that the motion will leave people with the impression that yet again, the Government are dragging their feet on issues of equality, diversity and representation. That is the problem. Although we do not propose to divide the House on this technical motion on a directive that is still at an early stage of development and negotiation, we urge the Government to reconsider their overall approach.

[Several hon. Members]

rose—

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[Mr Dominic Raab (Esher and Walton) (Con)]

The draft directive is unprincipled and counter-productive. It needs to be understood in the context of the progress that has been made towards a more equal society in this country. We are sometimes churlish in acknowledging the strides that we have made, notwithstanding our desire to go further and faster. For example, the UK median full-time gender pay gap has almost halved since 1998. Women in their 20s now earn 3% more than men; women in their 30s earn almost the same. One of the key residual issues—in regard to the pay gap and, arguably, more broadly—appears to arise at the age of 40, when women with young families strive to strike the critical balance between child care and breadwinning.

Even at the top level, however, progress is being made. Figures from Cranfield university, some of which have already been cited, show that the number of female FTSE 100 directors more than doubled between 2000 and 2012. That demonstrates a high rate of change, albeit starting from a low base. Since March 2012, 44% of new FTSE 250 non-executive directors have been women. That is evidence in favour of the argument that the problem is to a large extent an historical hangover that will be corrected over time, although we can argue about how quickly that is likely to happen.

If we look across the piste at this issue, rather than just at what is happening in the boardrooms, we see that, for most modern couples, the juggling act between work and family is not just about women. It is about teamwork and about freeing couples to make their own choices. Let us also recognise that fathers are increasingly doing their bit, with a tenfold rise in stay-at-home dads in 10 years, supporting more and more women to pursue their professional ambitions. A 2011 study by Aviva found that 39% of cohabitating couples now share child care responsibilities equally, or have the father as the main child-carer. It is these grass-roots, bottom-up changes in social attitudes, and not regulatory diktat, that will deliver real change in this country.

In the light of that progress, it is anti-meritocratic in the extreme to suggest that women need quotas to succeed in modern Britain. I have lost count of the number of women who have told me how deeply insulting they find the idea. No one has mentioned this in the debate today. Boardroom appointments, like any other competitive recruitment, should be based on individual talent and hard work, not on positive discrimination. The entrepreneur and “dragon” from “Dragons’ Den”, Julie Meyer, powerfully argues that if someone is on a board because of a quota,

“your voice will be neutered and your advice won’t be heard”.

That is what this directive would achieve; that is what it is about. It would force top FTSE companies faced with equally qualified applicants to positively discriminate in favour of women, with fines and court-ordered annulment of appointments as the sanctions for non-compliance. Let us not kid ourselves, as those on the Opposition Front Bench are trying to do. This is a quota, not a target.

[Mr Umunna]

I have read the hon. Gentleman’s contributions on this topic, and I see that the headline to his recent piece in The Sunday Times was “Sorry, girls, a seat on the board must be earned”. I am sure that many women would find that quite insulting, although I am sure that he did not write it himself. I hear what he is saying about child care—I have said it myself—but does he not accept that there are certain cultural issues at play here? Lord Davies’s report indentified the fact that people seek to select people who are like them to positions on their boards, and that that operates as a barrier to women getting on to those boards.

[Mr Raab]

I note that the hon. Gentleman did not take issue with the substance of my article—[Interruption.] No, listen to my point. He talked about the headline, but, as a media-savvy politician, he well knows that I had no hand in writing it. He also mentioned group-think, and I think that there is a substantive point there, although it might not be the one that he wanted to make. If he will bear with me, I will come to that shortly.

I was about to make the point that the Commission’s notion of equally qualified candidates is an utter fallacy. As anyone in the real business world knows, a rigorous recruitment process will always identify the best, the brightest, the top person for the job, on merit. My wife works for Google, and she was interviewed 10 times, even after they had got rid of all the other candidates. That is a good example of a cutting-edge, high-tech firm testing and testing until it finds the very best candidate.

The directive is not just anti-meritocratic; it would also damage business competitiveness. No one has yet mentioned that. The Government estimate that it would cost listed companies £9 million between now and 2020, with additional ongoing monitoring costs. There is a far greater cost involved, too, but people are just too politically correct to mention it.