The focus on female directors

The focus on female directors

The last few years has seen a real focus on the lack of gender diversity in the boards of UK listed companies. The corporate governance world has been full of talk about the causes, the value in promoting diversity and possible ways to improve the situation.

The Davies Report[ref]Women on Boards, The Davies Report, February 2011[/ref] signaled the push from the UK government to aim to increase  the number of female directors and this report has been backed up by many other voices, notably the Chairman of many FTSE companies whom, through the 30% Club, have advocated 30% of women in senior executive positions by 2015. The FRC has now released its new wording for incorporation into the UK Corporate Governance Code (the “Code“) implementing some of the recommendations from the Davies Report and the government has indicated its intention to implement certain recommendations of the Davies Report related to disclosure.

The attention that this topic has gained has been remarkable and the improvements that have already been attained (and hopefully will be in the near future) are hugely commendable. However, there is a risk that the focus on gender diversity will potentially make boards less diverse in other ways, which would be a shame considering all the good work that has been achieved.


The figures from 2010 are telling[ref]Women on Boards, The Davies Report, February 2011[/ref]:

– women made up only 12.5% of the members of the corporate boards of FTSE 100 companies;

– 52.4% (131) of FTSE 250 companies had no women on their board;

– Only 7.8% of FTSE 250 directors were women; and

– women predominately hold non-executive director roles (15.6% of FTSE 100)  rather than executive roles (5.5%).

The Davies Report not only makes a strong argument about the importance of women on boards both from a principled stand point but also from a commercial and economic stand point. The report highlights the findings of a non-academic study that ‘found that operational and share price performance were significantly higher at one and three year averages for those companies with women making up over 20% of board members than those with lower female representation.’ Though this ignores the question of cause and effect (ie are companies better because they have more female directors and do better companies employ more female directors) this and many other points highlighted by the report are compelling.

Recent Progress

The Davies Report did consider advocating compulsory quotas for listed companies as some other jurisdictions have done, notably the Scandinavian countries of Norway, Sweden and Finland but instead opted for a non-binding target that 25% of the boards of all FTSE 100 companies should be made up of women by 2015.

The Davies Report also recommended that the rules relating to quoted companies should be updated in various ways:

  • 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.
  • listed companies should be required by the Code 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.
  • All Chairmen of FTSE 350 companies should set out the percentage of women they aim to have on their boards in 2013 and 2015.
  • Companies should report on the above matters in the 2012 Corporate Governance Standard regardless of whether the rules are in place.

As well as this, the latest iteration of the Code, which came into effect in June 2010, introduced a principle of boardroom diversity with a particular focus on gender. The Code now states[ref]Supporting principle B.2.[/ref]:

The search for board candidates should be conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the board, including gender.

Despite this prompting, only 28% of companies since the Davies report made reference to their targets for female board representation and only 6% set out the full detailed report that Lord Davies expected.[ref]Cranfield School of Management , ‘Women on Boards: Six Month Monitoring Report’, October 2011[/ref]  However, during the same period, the actual recruitment of women to boards has improved. 22% of directors appointed to FTSE 100 companies and 18% appointed to FTSE 250 companies were women.[ref]Cranfield School of Management , ‘Women on Boards: Six Month Monitoring Report’, October 2011[/ref] Compared with the proportion of female directors before the Davies Report, this is a significant improvement.
In October 2011, the FRC announced changes to the Code to continue to strengthen the requirements around diversity. Consequently, the following revised provisions will apply to accounting periods beginning on or after 1 October 2012 (new wording in italics):
Provision B.2.4
A separate section of the annual report should describe the work of the nomination committee, including the process it has used in relation to board appointments. This section should include a description of the board’s policy on diversity, including gender, any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives. An explanation should be given if neither an external search consultancy nor open advertising has been used in the appointment of a chairman or a non‐executive director.
Supporting Principle B.6
Evaluation of the board should consider the balance of skills, experience, independence and knowledge of the company on the board, its diversity, including gender, how the board works together as a unit, and other factors relevant to its effectiveness

Finally, the government intends to implement statutory changes implementing the recommendation of the Davies Report regarding reporting of female employees (the first bullet point listed above) with effect from the same date.

I suspect that as companies and investors become more comfortable and familiar with all of the different initiatives and measures their effect will strengthen. There will also hopefully be a virtuous circle that as more women are appointed to boards, it will become easier for other women to be appointed. In the words of Helen Morrissey, founder of the 30% Club, the ‘system will be self-perpetuating’.

What about other diversity?

However, the risk of all this good work is that an arguably overwhelming focus on gender diversity on company boards could come at the expense of other forms of diversity.

One of the main tenants of the Davies Report itself is 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.” This is equally true of all aspects of diversity and not just gender.

Only 5.5% of FTSE 100 directors are from ethnic minorities compared with 12% of the UK population.[ref]an open letter from Business in the Community’s Race for Opportunity campaign to David Cameron dated 17 October 2011,

It’s also true that the average age of non-executive directors among the FTSE 350 is nearly 60.[ref]Corporate Governance Review 2011, Grant Thornton[/ref]

The statistics on other forms of diversity are not as well researched it is true, but perhaps this provides all the more reason for people to focus on and there is clearly a feeling amongst some listed companies that the focus on gender is unhelpful. One listed company informed the FRC that “we are concerned that the current focus on gender diversity will not help boards address in a holistic manner their own imperatives to improve board diversity and effectiveness” and a number of other companies highlighted the importance of international experience to companies when entering new geographical markets.[ref]Financial Reporting Council, Feedback Statement: Gender Diversity on Boards, October 2011[/ref]

Lessons from History

 The UK now enjoys the benefits of the Equality Act 2010 which provides anti-discrimination law relating to gender, race, disability, religion or belief, sexual orientation and age. However we took a while to get there and did it in a piecemeal fashion. Although I won’t purport to provide a history of anti-discrimination law, the Equality Act 2010 did replace the following legislation:
  • Equal Pay Act 1970 and Sex Discrimination Act 1975;
  • Race Relations Act 1976
  • Disability Discrimination Act 1995
  • Employment Equality (Religion or Belief) Regulations 2003
  • Employment Equality (Sexual Orientation) Regulations 2003
  • Employment Equality (Age) Regulations 2006
It appears that, as far as the composition of UK listed boards is concerned, we are back to focusing on the first of these, gender. Perhaps in due course we will move on to the other forms of discrimination and give them the attention they deserve but only time will tell.
Nick Lindsay is a corporate lawyer and a director of Element CoSec. Please see Elemental’s website for details of the company secretarial services they provide.

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