Gender Balance on Corporate Boards

Debate between Seema Malhotra and Dominic Raab

Monday 7th January 2013 Commons Chamber

[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.

[Seema Malhotra]

Will the hon. Gentleman clarify what he meant when he said that the measure to increase diversity on boards would damage business competitiveness?

[Mr Raab]

If the hon. Lady will just have an iota of patience, I will come to the empirical evidence for that in a moment.

I want to cite some empirical research from Kenneth Ahern and Amy Dittmar of the business school of the university of Michigan, which examined the introduction of mandatory quotas in Norway from 2003. Looking assiduously at the impact on the boards, they found that the quotas damaged equity, asset and shareholder values in the companies affected. The report also found

“significant decreases in operating performance and higher costs as a result of the imposition of the quota.”

I would be happy to debate this afterwards with the hon. Member for Feltham and Heston (Seema Malhotra) if she wants to quibble with the empirical evidence of this study, but let me cite its findings correctly:

“These results are consistent with boards of directors that lack sufficient experience to act as capable advisors.”

The point is that if we have tokenism of this kind, we get inexperienced people on the boards and it damages shareholder value. Equality and diversity policy must be about widening the talent pool. On that we all agree, and it is through that that we strengthen business competitiveness. Tokenism is utterly counter-productive.

Equally, high-flying women would see minimal benefits from this directive because it focuses only on non-executive directorships. In that sense, I agree with some of the comments of Opposition Members. That, of course, encourages tokenism. If we look again at the Norwegian example—it is the one place in Europe where mandatory quotas were introduced—research in 2011 by Dr Hakim of the London School of Economics showed that Norway, the pioneer of gender quotas, had no female executive directors at all. That is why this measure feels—to me and, I think, to many outside the cloistered politically correct Westminster village—like a political elite debating an issue that is relevant pretty much solely to a business elite. It is largely irrelevant to the challenges of the millions of working women who live in the real world.

Of course, to come back to the point made by the hon. Member for Streatham (Mr Umunna), there are still outdated attitudes in the City. There is a problem of group-think among those from similar backgrounds. I worked in the City before I went into the Foreign Office, and I saw that all the time. It is true in many professions, including—and it would be useful to see more acknowledgement of the fact—some of the politically correct institutions such as the Government Equalities Office and the Equality and Human Rights Commission, which have an appalling imbalance in the gender composition of their staff. If anyone bothered to look at it, they would find it deeply hypocritical that these bodies are constantly lecturing others on the subject.

In terms of the City, which is what the directive is about, raw competitive forces are ensuring that companies look far more carefully at their boardroom composition to maximise their breadth of experience. It is taken far more seriously as a strategic business issue. McKinsey and various other firms have been cited with that in mind. I am confident, given the rates that we are seeing, that a rising flow of talented women into more senior positions will continue to break through the glass ceiling, which I do not deny we residually have.

We need to be careful, however, not to give succour to the very stereotypes of which we want to rid ourselves. The deputy leader of the Labour party notoriously suggested that we might not have suffered the financial crisis if we had had “Lehman Sisters” rather than Lehman Brothers. That sort of progressive prejudice, for want of a better term, is scarcely more subtle or savoury than the conventional kind. It is also—this is the interesting point for those who care to look at the evidence—positively refuted by the available empirical material. Research for the Bundesbank—hardly an institution regarded as lacking in rigour—that reviewed German boards between 1994 and 2010 found female board members tended to increase, not decrease, risk taking. The report attributes that to a public policy drive for more female directors, which resulted in the recruitment of less experienced women, as we discussed before. The issue was really about experience, not about gender. A similar review of Swedish boards found exactly the same. This kind of evidence punctures the prejudice promoted by people such as the right hon. and learned Member for Camberwell and Peckham (Ms Harman) that men are somehow innately more reckless than women. Of course it depends on the individual and their personal character, not on crude gender stereotypes, which too often inform this debate and have too often informed this sort of proposal.

I welcome the Government’s reasoned opinion arguing that the directive does not comply with the principle of subsidiarity, but let us be careful not to give the impression that we are making process points here. This directive is corrosive of a meritocratic vision of our society where we are gender blind and what matters is who people are and what they are capable of. If we really care about maximising opportunities for working women, we should be talking about such things as transferable parental leave and other family-friendly policies, which this coalition is adopting. We should be addressing the exorbitant costs of child care—

[Seema Malhotra]

rose—

[Mr Raab]

I will not give way, as I am conscious that others wish to speak and I have already given way to the hon. Lady.

The last Labour Government did nothing to address the soaring costs of child care, which is arguably the single biggest practical problem for working women today, so I am delighted that the Government are shortly to announce proposals to address it. These are the policies that will make a real difference in the real world.

Finally, let me touch on a point raised by the right hon. Member for Leicester East (Keith Vaz), the Chairman of the Home Affairs Select Committee. It is about the tendency of those on the left to label and treat any form of ostensibly low representation in one area or one sector or another as inequality, then bluntly equating it with discrimination. This fails to recognise, in the words of the great British liberal thinker Isaiah Berlin, that from

“the crooked timber of humanity no straight thing was ever made.”

That tendency is destined to stoke up social tensions, not to ease them. If we bow to this and go down the path that quotas and positive discrimination tempt us to go down, we will open the floodgates to special interest politics, with every conceivable social group turning every gripe and grievance into an equality issue. We invite lobbying under the Equality Act 2010 based on gender, sexuality, ethnicity, faith, age, parenthood and even non-religious beliefs, but for those who bother to look at the Equality Act and at the list and number of protected characteristics, it becomes mind boggling. Instead of reducing these dividing lines as factors that determine people’s fate in life, we make them decisive. That is a major social mistake and I would argue against it at all costs.

I would like to see us build a meritocratic society where people are not judged according to tick-box criteria—one that recognises that, in a free country, perfect parity of representation is not only utopian but positively dangerous, and one that in the words of the great Martin Luther King judges people

“based on the content of their character”,

not on race, gender or any other arbitrary social dividing line. This directive is a social engineer’s dream and every meritocrat’s nightmare. I hope we send it back to Brussels and never see it again.