Gender Balance on Corporate Boards

Meg Munn Excerpts

Monday 7th January 2013 Commons Chamber

[Matthew Hancock]

May I make a little progress? I shall come to some of these points in detail.

The Government are committed to increasing the number of women on boards. In the coalition agreement we pledged to promote gender equality on the boards of listed companies, and we did so for a good reason. Historically, the proportion of women on boards has been too low. In 1999 women made up just 6.2% of the boards of FTSE 100 companies. By 2004, that was 9.4% and in 2010 it was 12.5%. In 2010 there were only five female chief executive officers of FTSE 100 companies.

As the House will know, we published the review by Lord Davies of Abersoch in 2011 and have been working to implement the recommendations. The Davies review identified several barriers preventing women from reaching senior roles in business. The research shows that people have an unconscious bias to reward and promote people who are like themselves. Davies found that informal networks are highly influential in determining board selections and that a lack of transparency over selection criteria continues to be an obstacle to progress. Davies also suggests that differences in the way men and women are mentored could be giving men the edge over their female peers, for the clear reason that there are fewer women in senior roles to act as mentors and role models for female colleagues.

[Meg Munn (Sheffield, Heeley) (Lab/Co-op)]

I very much welcome what the Minister is saying and the issues he is describing. Will he say something about the differences between non-executive, as opposed to executive, women board members? We know that significant progress has been made in respect of non-executive roles, but executive positions are enormously important because they are about the day-to-day running of businesses and what is happening within businesses.

[Matthew Hancock]

It is true that progress has been slower in executive appointments, but it is also true that where legislation has been passed to increase the number of women on boards—for example, in Norway—the increase has come almost entirely in non-executive roles, which shows that legislation is not a panacea. The Davies review recommended a business-led strategy to bring about the necessary change, and we have been working with business to implement the strategy.

I pay tribute to the 30% Club and Helena Morrissey. They are both pragmatic and passionate about reaching their target of 30% representation on boards. Their approach is one of persuasion and moral suasion to change the culture of business from business, and so far it has been highly effective. The figures clearly show that we are moving in the right direction.

Since Lord Davies’s work was started, we have had a near 50% increase in the number of female non-executives in the FTSE 350. Now, 17.3% of FTSE 100 board directors are female and, importantly, 38% of newly appointed FTSE 100 directors and 36% of newly appointed FTSE 250 directors since March last year have been women. Research by Cranfield School of Management shows that should the current pace of change be maintained, we are on a trajectory to reach 37% of women on FTSE 100 boards by 2020, just shy of the 40% proposed by the commission. We think that that business-led voluntary approach is the right one for the UK and that it is making progress. Central to it is a change in culture at the heart of business, and that is the only way in which progress will be sustainable and long term.

--- Later in debate ---

[Matthew Hancock]

I will come to the point that, under the principles of subsidiarity in the Lisbon treaty, should there be enough motions in national Parliaments across the Union, that is enough to ensure that the Commission cannot introduce the current draft proposals.

We want a business environment in which woman can and do take their seats at the boardroom table on merit and in which businesses can respond to the varying needs of their sector, size and type of business. We need to tackle those problems without unduly burdening business. That is the substance of the challenge of getting more women on boards. It is clear that the Government have taken a lead on that and things are moving in the right direction, and the current strategy is leading us towards the target that the EU has proposed.

I will now move on to the argument about whether this should be an EU competence at all. The Government’s position is clear: we believe that member states must retain the flexibility to respond to their own individual circumstances. Today’s debate is about allowing Parliament, as distinct from the Government, to express its view on whether this should be an EU competence. The Government are strongly of the view that the principle of subsidiarity should be respected and adhered to. The principle of subsidiarity rests on two tests that a Commission proposal must pass: the necessity test, which is that the objectives of the proposed action cannot be sufficiently achieved by member states acting alone; and the EU added value test, which is that the objectives can be better achieved by action at EU level. Under protocol 2 of the Lisbon treaty, national Parliaments may raise an objection, referred to as a “reasoned opinion”, if they do not believe that a draft proposal is compliant with the principle of subsidiarity.

The Government’s explanatory memorandum, which was sent to the European Scrutiny Committee by the Under-Secretary of State for Women and Equalities, sets out the Government’s assessment of whether the Commission’s proposals meet the principle of subsidiarity. We find that they do not. There is no reason why member states cannot achieve the objectives by acting alone and there is no evidence that value would be added through EU involvement. Indeed, the Commission’s own impact assessment found that the evidence base for demonstrating the need for, and proportionality of, binding EU action was “very weak”, stating that members states had a

“proven ability to act in this area”

and that

“a number of Member States had taken measures which appeared to have achieved significant progress”.

I hope that list includes us.

[Meg Munn]

One way of making progress on this is through the voluntary approach, but Lord Davies has made it clear in speeches I have heard him make that he feels that there must be progress and that, if progress is not made, we should look at a non-voluntary approach. Is the Minister arguing that the Government would be willing to look at that as something the UK would do, rather than something the EU would do?

[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.

--- Later in debate ---

[Meg Munn (Sheffield, Heeley) (Lab/Co-op)]

Before I move on to my substantive point, which will be brief, I have to correct the statement of the hon. Member for Esher and Walton (Mr Raab) that the last Government did nothing on child care. I have to tell the hon. Gentleman that when we took office there was no child care in many parts of the country and there were no options for parents who wanted to work. I know that from my work in the social services sector. I welcome, however, the Minister’s words about the importance of this issue and the fact that companies are hampering themselves by not having diversity, as this means not doing all they can in the achievement of economic output.

My main point is that the issue is not about imposing quotas. I do not want to see the European Union imposing quotas, but neither do I want to see this country or this Government being complacent about how to move towards gender equality—not just in the one area of women on boards, but across our whole culture as well as across our businesses as a whole. We know that substantive and sustained progress has been made more recently in the appointment of non-executive directors, and we should all welcome it. We saw it previously, but there has been an increase in the number. We also know—here we can learn from the experience of Norway—that it is easier to achieve appointments of non-executive directors. Focusing just on that, however, will not help the vast majority of companies, and it will not help us see greater gender equality.

This weekend, The Observer told us about its research on the 100 top private companies, of which only 64 currently publish their board composition. Of those, 73% have all-male executive directors, and we know, too, that 51% have all-male non-executive directors. If we look at the FTSE 250, we find that 71% of companies have all-male executive directors. This relates not just to who is sitting around the board table, but to what is happening within companies. We need a culture that, right from the time a woman first enters a company, promotes those who have talents and supports them whatever their circumstances.

The hon. Member for Esher and Walton made some important points about both parents being able to work, but we know that all too often it is women who take on the majority of the responsibility for child care. We know from all the statistics on the gender pay gap about the disadvantage that comes from spending time away from work, whether it be working part-time or taking a career break, which impacts for ever on the woman’s earning capacity. We must look much more broadly at the general culture of work. The hon. Gentleman was right to say that the Government had given the issue a profile, but the discussion in Europe has done so as well, and has enabled people to understand the need for progress. The Government have a much bigger job to do in the world of work overall.

As I said in an intervention, the Government should think seriously about what they, and Parliament as a whole, would want to happen if the progress that is currently being made in relation to non-executive directors did not continue. It is all very well to say that we believe in voluntary arrangements, but if more progress is not made in the future, will the Government opt for more prescriptive measures? If so, what will those measures be?

[Several hon. Members]

rose—