Getting women on the board

Hannah Langworth asks whether the government should take legal action to tackle Britain's male-dominated boardooms

Should legal action be taken to force the UK's biggest businesses to promote more women into executive positions? The question recently hit the headlines when David Cameron, the prime minister, commented at a summit in Sweden that he wouldn't rule out forcing large companies to have a proportion of female board members. However, he also said he would prefer to accelerate the number of women in leadership positions by other means.

Watching the board

According to BoardWatch, an organisation which tracks the number of women on the boards of UK-listed companies, as of February 2012 only 15.2 per cent of FTSE 100 directors, and an even smaller 9.6 per cent of FTSE 250 directors, are female. What's more, 11 of the FTSE 100 companies have all-male boards, as do 112 of the FTSE 250 companies, representing 44.8 per cent of the total.

A government commission headed by Lord Davies set up to investigate the issue published a report last year, which recommended that by 2015, 25 per cent of directors on FTSE 100 boards should be female. The report based these recommendations on a growing body of academic evidence which, it claimed, presents �a strong business case for balanced boards". According to the report, this research suggests that �inclusive and diverse boards" are �more likely to be effective boards, better able to understand their customers and stakeholders and to benefit from fresh perspectives, new ideas, vigorous challenge and broad experience" leading to �better decision making." The report also pointed to research which has shown that businesses with some female leaders are more profitable, outperforming their rivals �with a 42% higher return in sales, 66% higher return on invested capital and 53% higher return on equity."

In the face of such a strong case for change, the Davies report advocated that action should be taken to achieve it. However, Lord Davies and the rest of the commission chose not to recommend legal quotas, instead suggesting increased openness and monitoring of the appointment process, the support of investors and headhunters, and that companies should aim to ensure that at least a third of their newly-appointed board members are female.

The commission justified its decision on the grounds that only 11 per cent the responses they'd received during the consulting process supported the introduction of quotas, indicating a lack of support for legal action in the UK's business community. The report added that �we believe that board appointments should be made on the basis of business needs, skills and ability", suggesting a fear that enforcing quotas in law would lead to �token" appointments of women who might not be appointed were the quota system not in place.

Other arguments have been made against legal quotas. Anne Pritam, employment partner at City law firm Stephenson Harwood, pointed out in an article in The Lawyer that legal quotas with regard to the number of women on corporate boards ought not to be introduced without similar legal requirements with regard to those from ethnic minority ethnic groups, or disabled or LGBT people. She also added that under the Equality Act 2010, a piece of legislation designed to consolidate the UK's anti-discrimination laws into one statute, companies already have the power to discriminate positively in favour of women and other minorities, making a quota law unnecessary.

Norway forward?

However, those in favour of legally-enforced quotas argue that this approach, if properly administered to ensure that female candidates appointed are high-quality and able to wield real influence, is the only way to effect significant change. EU justice commissioner Viviane Reding, speaking at the World Economic Forum in Davos in January, argued that because progress has been so slow in European countries other than in those where laws have been passed on the issue, enforcing quotas may be necessary as many companies are not taking sufficient action voluntarily.

Many other countries in Europe and around the world have historically had equally low proportions of women on corporate boards, and some of these have chosen to take legal action to address the problem. Finland, Iceland, Norway and Spain have all passed quota laws. The most extreme of these regimes is Norway's, which required all listed companies to have boards made up of at least 40 per cent women by January 2008 (an extension on the original deadline of July 2005) or face fines or even closure. Full compliance was achieved by 2009. France, Germany, and the Netherlands are also considering introducing quotas, while the governments of several other European nations and Australia, Canada and the US have not introduced quotas by law, but are taking steps to promote change and monitor progress.

In the UK, initiatives such as BoardWatch and the 30 Percent Club continue to campaign on the issue and to advocate action to tackle it, though neither directly endorse the introduction of legal quotas. Their efforts are supported by several prominent City firms, including Allen & Overy, Clifford Chance and Freshfields.