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Diversity on corporate boards and the rejection of quotas

By Christine Mallin

In late February, Lord Davies’ report on ‘Women on Boards’ was published.

The report was awaited with much speculation especially as to whether he would recommend quotas whereby listed companies would have to have a certain proportion of female board members.  Brian Groom reported that Lord Davies, had rejected quotas and that ‘only 11 per cent of submissions were in favour of quotas and the vast majority of women were vehemently opposed’ to quotas.  The report stated that ‘we have chosen not to recommend quotas because we believe that board appointments should be made on the basis of business needs, skills and ability’.

From their consultation, the report identified that ‘the informal networks influential in board appointments, the lack of transparency around selection criteria and the way in which executive search firms operate, were together considered to make up a significant barrier to women reaching boards.’ Aiming to improve the situation and increase the number of women on boards, the report has made ten recommendations including, inter alia, that FTSE 100 companies should aim for a minimum of 25% female representation by 2015 and that all Chairman of FTSE 350 companies should set out the percentage of women they aim to have on their boards in 2013 and 2015; quoted companies should be required to disclose each year the proportion of women on the board, women in senior executive positions and female employees in the whole organisation; the Financial Reporting Council (FRC) should amend the UK Corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity, including measurable objectives for implementing the policy, and disclose annually a summary of the policy and the progress made in achieving the objectives; investors to pay attention to the report’s recommendations as part of their central role in engaging with companies; and executive search firms should draw up a Voluntary Code of Conduct addressing gender diversity and best practice which covers the relevant search criteria and processes relating to FTSE 350 board level appointments. Moreover this steering board led by Lord Davies will meet every six months to consider progress against these measures and will report annually with an assessment of whether sufficient progress is being made.

Companies themselves can provide support and encouragement through mentoring schemes.  Executive recruiters (or ‘headhunters’) also have a role to play as Gill Plimmer and Alison Smith report in their article ‘Agencies to help break glass ceiling’.  The pressure is on for headhunters to put forward more women candidates to companies for consideration for board positions.

Internationally, some countries have quotas, others do not.  As Joe Leahy reports, women executives may find it easier to climb up the corporate promotions ladder in Brazil but getting to the top rung can still be very difficult. For example, in Brazil the percentage of women board directors is only 8%, and to be appointed to the CEO position is even more difficult. In the European context, Daniel Schäfer and Peggy Hollinger point out that in 2010 only 2.2 per cent of executive board members at Germany’s 30 blue-chip DAX companies were women. They also highlight that in Germany ‘until 1977 a husband was legally allowed to terminate his wife’s labour contract’!

It remains to be seen whether the European Commission will impose quotas for the proportion of women on the boards of large listed companies in Europe.  For now there is no Europe wide quota system in place although this may change in future.  However there is much to be said for the view expressed in the Davies report ‘we believe that board appointments should be made on the basis of business needs, skills and ability’.

Christine Mallin is Professor of Corporate Governance and Finance and Director of the Centre for Corporate Governance Research at the Birmingham Business School, University of Birmingham. She is the author of Corporate Governance, which is now in its third edition.

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