Gender Balance on Corporate Boards

Jonathan Djanogly Excerpts

Monday 7th January 2013 Commons Chamber

[Matthew Hancock]

So would I. The right hon. Gentleman makes an important point that is not in today’s document. The importance of diversity on boards is not just about sex, race or background. It is that good boards bring a range of experience, a range of different people, together. Good boards tend to have members with different points of view and with all sorts of different characteristics. All the hard research shows that that is what promotes a good board both for economic and business purposes and for social reasons, as the right hon. Gentleman highlights.

[Mr Jonathan Djanogly (Huntingdon) (Con)]

I recognise this as an important issue and I recognise also that the number of women on boards has increased, which is welcome. Is not the question: why is the European Union dealing with this? Is this not a matter for the Financial Reporting Council, the UK Listing Authority and the Department? Why are we discussing it in the context of the European Union?

[Matthew Hancock]

We are discussing it because the EU has put forward a proposal. Whether we think it is right that it should do so is exactly what we are debating. I have an awful lot of sympathy with what my hon. Friend says. In fact, I think I agree with all of it, although I am always cautious about saying that I agree with all of anything in case I missed something or misunderstood.

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[Matthew Hancock]

For the purposes of today’s debate, the Government are arguing that this does not pass the EU’s subsidiarity test. For those purposes, the Government’s position is clear: we think that the voluntary approach is best. Before becoming a Minister, I wrote a book in which I stated that that needs to happen and that we should hold open the possibility of having legislation, but the Government’s position is clear: we should approach this on a voluntary basis.

[Mr Djanogly]

I thank the Minister for being so generous in giving way. I wholly support what he has said and the Government’s position. However, he might wish to look at the Financial Reporting Council’s most recent annual report, which basically says, “Over to you, Europe. We’ll see what you have to say and then we’ll deal with it.” I think that the FRC needs to be told that it must look at this, because it is an important issue and we want to deal with it.

[Matthew Hancock]

It might be that this debate and the decision of Parliament that will follow will be brought to the FRC’s attention. I wonder who might do that.

Of course, we share the Commission’s view that fair opportunities for women in executive and non-executive posts should be promoted and we are happy for the EU to disseminate good practice across member states, but it is up to member states to find their own national approaches. Many member states are considering, or have implemented, various and differing national measures on a voluntary basis to facilitate raising the proportion of women on boards. Some have decided on domestic legislation and some, like us, think that we can get there without it. That multitude of approaches is likely to help us find which one works best and has the most benefits and the fewest unintended consequences. The reasoned opinion is intended to set out the views of Parliament separately from the views of the Government, so I am very much looking forward to contributions on that front from Members in all parts of the House.

Let me turn to a couple of the specific questions from the European Scrutiny Committee. The Committee asked for the Government’s view of the Commission’s projection that only 17% of UK listed companies would have 40% women directors by 2020. It is safe to say that the Commission’s projections are rather out of date, because we already have 17% women directors in the FTSE 100. The Commission’s analysis is based on extrapolating the increase in the number of women on boards in the period 2003 to 2011 and using a linear progression, but, as we have already discussed, the rate of change increased markedly at the back end of the last decade, and we will be within a whisker of reaching the target that the Commission has set by 2020.

The Committee asked whether the Government consider that the measures proposed by the EU would be counter-productive. It is true that legislation can have unintended consequences, and if an objective can be reached without legislation it is usually better to do so.

Finally, the Committee asked about the outcome of the Government’s consultations on the proposed directive and the progress on negotiations. We are discussing the proposals broadly, but negotiations in Brussels have yet to start.

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[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.