Gender Balance among Non-Executive Directors (EUC Report)

Lord Boswell of Aynho Excerpts

Thursday 10th January 2013 Lords Chamber

Moved By

[Lord Boswell of Aynho]

That this House takes note of the Report of the European Union Committee on the Commission proposal for a Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures (COM(2012)614, Council Document 16433/12) (9th Report, HL Paper 97).

[Lord Boswell of Aynho]

My Lords, in moving this Motion I invite the House to agree with the proposal of the European Union Committee that a reasoned opinion should be issued. Our report concerns a proposal for an EU directive on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures. This proposal was examined in great detail by our sub-committee on the internal market, infrastructure and employment, which is chaired by the noble Baroness, Lady O’Cathain. I should make it clear, first, that we are very grateful to her. Secondly, while I am moving these Motions that relate to subsidiarity, I will be looking to her to answer any detailed points about the underlying policy issues, for her committee has heard the evidence. I have merely had the opportunity of studying it.

Before I explain our thinking on this proposal I want to make it absolutely clear, for the avoidance of any doubt, that we fully support the aim of increasing gender diversity on boards. There is no backtracking on that. Having studied the report of the debate on a related Motion in the House of Commons earlier this week I was delighted to see that Her Majesty’s Government were of the same mind. In this debate it would be helpful if the Minister could respond by giving us an update on the current position in relation to women’s participation on boards and also, in particular, on Her Majesty’s Government’s initiatives in taking this further forward. I sense that the House is absolutely at one on the strategic objective.

Equally we applaud the achievement of the European Commission Vice-President, Viviane Reding, in bringing this issue to the forefront of political debate in Europe. However, our report is about whether the Commission’s proposal is the right way to respond to this important issue and we have come to the conclusion that it is not. Our view is that the Commission’s proposal is inconsistent with the principle of subsidiarity.

We are frankly not persuaded by the Commission’s suggestion that a figure of 40% should be imposed in order to ensure a so-called critical mass of women on boards in member states where boards are traditionally smaller. The proposal fails to take into account the rate of change and the board structures within each member state, and does not adequately make the case that measures taken at national level are not working. In the UK in just over a year and a half, from February 2011 to November 2012, the proportion of FTSE 100 board members who are female went up by 4.8% and by 4.2% in the case of FTSE 250 board members. There have been concomitant improvements in a significant number of other European member states, though not in all.

A key test under the subsidiarity principle within the Lisbon treaty is whether the European Union can add value. The Commission suggests that its proposal is necessary for the practical and competitive functioning of the internal market. We feel that this justification is weak when balanced against the administrative burdens of the proposal and the varying cultural contexts and practices within differing member states.

As I mentioned earlier the European Union Select Committee, which I have the honour to chair, fully supports the aim of increasing gender diversity on boards. I have a personal interest in this subject and can echo my own support of it. We believe that the European Commission can still usefully complement this by monitoring individual member states’ action and in cases where individual member states fail to comply with their general, pre-existing obligations to combat discrimination the Commission should then consider further action. However, it remains our view that the European Union-wide legislative action at the present time would be unnecessary and could be counterproductive to the Commission’s aim of increasing gender diversity on boards. Action at the member-state level to address these issues would be more effective. We therefore believe that the proposal is inconsistent with the principle of subsidiarity. Under the treaty, we as Members of Parliament have an obligation to consider that and to issue an opinion accordingly if that is our view. In that spirit and context, I beg to move.

[Lord Pearson of Rannoch]

My Lords, I am a strong supporter of women on boards but I offer only qualified congratulations to the noble Lord, Lord Boswell, and to his committee on opposing their imposition on our boards by Brussels. Of course, it is all that we as a national Parliament can do—but we must not make the mistake of thinking that somehow we are taking part in anything resembling a worthwhile democratic process.

The report put its finger on what has always been the fundamental flaw in the whole fraud of subsidiarity. It has always applied only to those areas of our national life that are not already controlled by Brussels. It has never been applicable to the single market and so to commerce and industry, agriculture, fishing, foreign trade and much else. Under the Lisbon treaty, a democratic fig-leaf was delicately placed on this unseemly state of affairs by introducing the procedure that we are using tonight. The transparently unsatisfactory nature of that fig-leaf can be found in Protocol 2 of the treaty, on the application of the principles of subsidiarity and proportionality. It is worth quoting from that protocol to show just how pointless this whole exercise is.

Article 7 of the protocol states:

“Where reasoned opinions on a draft legislative act’s non-compliance with the principle of subsidiarity represent at least one third of all the votes allocated to the national Parliaments … the draft must be reviewed … After such review, the Commission”—

or, where appropriate, other proposers of legislation—

“may decide to maintain, amend or withdraw the draft. Reasons must be given for this decision … Furthermore, under the ordinary legislative procedure”—

that is, qualified majority voting—

“where reasoned opinions on the non-compliance of a proposal for a legislative act with the principle of subsidiarity represent at least a simple majority of the votes allocated to the national Parliaments … the proposal must be reviewed. After such review, the Commission may decide to maintain, amend or withdraw the proposal”.

I will not bore noble Lords further. The treaty goes on to say that in the final crunch, you need 55% of the members of the Council or a majority of the votes cast in the European Parliament before you can stop the Commission doing what it wants.

That is how democratically weak this whole procedure is. If the noble Lord, Lord Boswell, does not agree, will he tell me how many Commission proposals have been withdrawn under the procedure that we are now using? What hope does he hold out for this one? In other words, have we got on our side at least one-third of all the votes allocated to national Parliaments? Will the Commission even have to review this proposal, never mind whether there is any chance of seeing it fall?

I hope that we succeed, because I strongly support the presence of women in the boardroom. However, their presence should be a matter for shareholders, perhaps with a little gentle persuasion from national Governments. It should not be just one more morsel of national sovereignty devoured by the corrupt octopus. To that extent, I support the noble Lord’s Motion and look forward to his answers.

--- Later in debate ---

[Baroness Stowell of Beeston]

My Lords, as this is a debate on a Motion from a Committee of this House, my contribution is purely to set out the Government’s position, not to respond to the debate; I will leave that to the noble Lord, Lord Boswell. As other noble Lords have described what the Commission is proposing and explained eloquently the general principles of subsidiarity, I will not take any time on that but get straight to the matter, which is the Government’s position on the directive.

We set that out in the Explanatory Memorandum, which was sent to the European Scrutiny Committee by my honourable friend the Minister for Employment Relations, Consumer Affairs, Women and Equalities. We gave the Government’s assessment of whether the Commission’s proposal meets the principle of subsidiarity. Since submitting that memorandum, the Government have had an opportunity to further analyse the directive from the Commission and we have concluded that its proposals do not meet the test of subsidiarity. We believe that there is no reason why member states cannot achieve these objectives acting alone, and there is no evidence of any value added by the involvement of the EU in the way put forward in that directive.

However, the Government are committed to increasing the number of women on boards; and, as the noble Baroness, Lady Thornton, and other noble Lords have said, it is very important that we, as a Government, make it absolutely clear that the fact that we do not believe that the Commission’s proposals meet the test of subsidiarity in no way dilutes that commitment. We believe that increasing the number of women on boards is the right thing to do because it is the right thing for women, for business and for our country’s wider economic success.

We pledged to promote gender equality on the boards of listed companies in the coalition agreement. An independent review in 2011, led by the noble Lord, Lord Davies of Abersoch, identified the barriers preventing women from reaching senior roles in business and recommended to the Government a business-led strategy to bring about the necessary change. We have been working with business to implement this strategy and we believe that the results already demonstrate that national-level solutions are working.

The Government believe that this voluntary business-led approach is right for the UK. We need to see a real culture change taking place at the heart of business if progress is going to be sustainable and long-term. Companies need to understand and believe that diverse boards are better boards. We want a business environment where women can and do take their seats at the boardroom table on merit and without the spectre of tokenism. I have always believed that, to attract not just more women but the best women with a wide range of experience, businesses need to show that they want them to join the team for what they bring, not because of who they are, and certainly not just because they have been told they have to.

The Government believe that member states must retain the flexibility to respond to their own individual circumstances. Likewise, businesses need to be able to respond to the varying needs of the sector, size and type of business. None the less, the Government agree that the EU has an important role to play in improving the representation of women on boards, which is the point made by the noble Baroness, Lady Thornton, my noble friend Lady O’Cathain and others. We share the Commission’s view that in the member states and throughout Europe, fair chances and opportunities for women in executive posts should and must be promoted. The EU has done a good job of highlighting the issue and raising member states’ awareness of its importance. As a result, many countries are developing their own individual programmes of initiatives. The Government agree that the EU should continue to show leadership on this issue, shining a light on and disseminating good practice across member states.

However, in line with the subsidiarity principle, it is first and foremost up to member states to find their own national approach to achieving this goal. Many member states are considering, or have implemented, various differing national measures on a voluntary basis to facilitate raising the proportion of women in boardrooms. Some have decided that domestic legal action is appropriate for their own circumstances. It is our view that these efforts must be granted more time in order to establish whether they can achieve fair female participation in economic decision-making on Europe’s company boards.

In the case of the UK, the Commission has projected that only 17% of UK listed companies would have at least 40% women directors by 2020. The Commission’s analysis is based on extrapolating the increase in the number of women on boards between 2003 and 2011 forward to 2020 using a linear progression. Of course, 2011 is when the noble Lord, Lord Davies of Abersoch, published his report on increasing the number of women in British boardrooms. Since his work started, we have seen nearly a 50% increase in the number of female non-executives in the FTSE 350. While we have therefore not forecast the number of individual companies that might have 40% female directors by 2020, we would expect it to be significantly in excess of the 17% projected by the Commission. Indeed, research by the Cranfield School of Management shows that should the current pace of change be maintained, we are on a trajectory to achieve 27% on FTSE 100 boards by 2015 and 37% by 2020.

As I have said, we believe that we need to see a real culture change taking place at the heart of business if progress is to be sustainable and long term. Companies need to understand and believe that diverse boards are better boards. Voluntary measures that businesses can truly buy into, such as the business-led approach that the UK is taking, can help to bring about this change in a way that blunt legal measures never can. We believe that prescriptive measures such as quotas or binding targets run the very real risk of undermining women and their contribution at the most senior levels in our economy. They will more than likely be counterproductive to our overall aim of seeing more women reach the boardroom. We do not want to see the spectre of tokenism.

We agree with the Committee that all parties need to work together to achieve gender-balanced boards via measures that focus on bringing about real, lasting change for the benefit of women, business and the economy in a way that is sustainable and achievable. The negotiations in Brussels on the Commission’s proposals have not yet started but we are already discussing them with a number of stakeholders. Clearly, today it is a matter for the House to decide whether to send a reasoned opinion to the Commission but the Government welcome this debate and the support expressed for our approach to addressing the very important matter of women’s reputation on corporate boards. This is clearly something on which we will continue to focus and seek to make good and strong progress.

[Lord Boswell of Aynho]

My Lords, I am very grateful to all noble Lords who participated in this debate and for the general message of support for this reasoned opinion. I am also grateful to the Minister for reiterating the Government’s support. The support has not of course been unqualified and it is right that the reasoned opinion be questioned but, if nothing else, it at least provides a mechanism for sending a message to the Commission to reconsider where it is and to look at the difficulties within its own proposals.

Perhaps I may take two points of substance from the report and the debate. One, which is in the substantive report prepared by Sub-Committee B, is on how there can be a distinction between executive and non-executive directors. There is none in English law, as I understand it. To meet the obligations being suggested by the Commission, it would be necessary to introduce one. The other, which I think did not get considered by the committee—although I am prepared to stand corrected on that—would be on the relations between subsidiary companies and the main company. The proposals from the Commission bear on the main quoted company, so one could have a situation where it was entirely compliant but where every single subsidiary had a ridiculously skewed structure without apparently breaching the proposed obligations. I mention those only as points of example on the substance of the matter.

Given that there has been strong support on what might be termed the constitutional or procedural issue about the reasoned opinion, I think I can turn my remarks to those of the noble Lord, Lord Pearson of Rannoch. His views on the European Union are perhaps well known to the House; he is, shall we say, not too keen on it. By extension he may therefore be, and is reasonably entitled to be, sceptical as to the use of a reasoned opinion procedure. He asked me first a specific question, which I will do my best to answer, on the progress of this proposal. As I understand it, as of yesterday the score among national Parliaments was 7:7. If we were to accept this Motion, those wishing a reasoned opinion would take a short-head lead on the matter. Whether the magic number of 14 would be reached in time to trigger the formal yellow card is of course still open to speculation and by no means certain.

I should perhaps explain to the House for completeness that it is complicated by the fact that roughly half the Chambers or the Parliaments of the member states are unicameral and the other half are bicameral. In fact, one requires to produce a third of 14 votes, one of which will come from the other place and one of which will come from our House, whichever way we choose to cast our decision or to abstain from doing so, which amounts to not playing a reasoned opinion. That is the state of play on this particular matter.

There is one case so far in what is still a relatively untried procedure—and the noble Lord, Lord Pearson, referred to this—in relation to the Monti issue and the right to strike, which has resulted in the Commission withdrawing its proposal on the presentation of a reasoned opinion. I just say to the House and to the noble Lord by way of advice that, whatever view he may take on the merits of this procedure, it is the best weapon we have. To borrow a motto from another context, we should either use it or lose it. I think it is right that where the circumstances so well set out in the report and by the noble Baroness, Lady O’Cathain, demonstrate the argument, we should say so. It is our constitutional duty to say so; that is what tonight’s debate is about.

As far as I am concerned, I am relaxed and very much support the committee’s approach for the issuing of reasoned opinions as and where they are appropriate. If passed tonight by the House, this would be the fifth reasoned opinion which this House has issued. I claim no credit for the fact that two of those would have been in the past three weeks. Equally, I do not wish to speculate that we are likely to produce a strike rate of anything like that amount. It very much depends on what comes forward from the Commission, but it is important.

I also point out to the noble Lord that when he suggests that the Commission might, in some cynical way, retire from this and come back with the same thing in a different form, in my view the formulation of policy within Europe is not a binary exercise—is neither one thing nor another. It is very much a matter of influencing opinion. The fact that, if this Motion is carried tonight, eight Parliaments within the European Union have said, “Hang on a minute—we are not happy about this”, is a very important political factor in the circumstances.

Finally, from the meetings I have had with colleagues in other countries, I think that there is a growing interest and appetite among national Parliaments to rebalance the policy debate, both within the remit of the Lisbon treaty and anyway because of the size of the European Union and the complexity of the issues it deals with. Picking up the points that the noble Lord, Lord Elton, made, we need to look very seriously at irredentism by the centre. We need to make sure that things that do not have to be decided by the centre—even if they are desirable as objectives—can be dealt with by the member states and by a process of dialogue and iteration rather than by the imposition of a centralised solution. It is on that—the constitutional issue, rather than the merits of women on boards or greater diversity generally, where I think there is a unanimous view across the House—that we should concentrate tonight.

Motion agreed.