Gender Balance among Non-Executive Directors (EUC Report)

Lord Pearson of Rannoch Excerpts

Thursday 10th January 2013 Lords Chamber

[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.