Issue 6 - December 2011
The Diversity Advantage - continued
Quotas: Necessary or Not?
At the moment, a majority of both political and business leaders in the United Kingdom seem to favor the current approach of using recommendations and exhortations to build the momentum toward greater female participation on executive boards. The Davies report urged FTSE 100 companies to strive for
at least 25% female board member representation by 2015.
But is this goal realistic? Even Davies had to acknowledge that 18% of the FTSE 100 companies and nearly half of the FTSE 250 companies do not have a single woman in the boardroom. Given the apparently glacial pace of progress toward diversification of FTSE 100 boards, can top U.K. companies possibly double the number of female board members in just five years? Would not hard quotas such as those employed in Norway be a more reliable way of achieving the desired goal of more equitable, diverse and effective boards?
I believe the current path is the right one and that quotas are not necessary. Even without quotas, the Fortune 500 companies in the United States have achieved a higher rate of female board member representation (15.2%) than many of their European counterparts (CDWI 2010 Report: Accelerating Board Diversity).
British business leaders already have shown their capacity and willingness to rise to the occasion and take the necessary bold actions. For example, Sir Win Bischoff of Lloyds Banking Group and Sir Roger Carr of Centrica have led the creation of the 30% Club, a group of chairmen from some of the leading British corporations who have promised to use cross-company mentoring programs, industry forums and political debate to keep the topic of board diversification front and center.
As the name of the group boldly proclaims, the 30% Club hopes to surpass the 25% standard set by the Davies report and rally FTSE 100 businesses to achieve 30% female representation on executive boards.
There are indications that this approach is starting to gain traction. A recent article in The Independent newspaper noted that just the threat of quotas implied in the Davies report had caused a major jump in the number of women hired as nonexecutive directors to FTSE 100 companies (“Boards Double Number of Women Members,” The Independent, May 29, 2011). The paper found that 23% of all new nonexecutive board appointments in the previous six months had been filled by women, a staggering increase from 2010, when less than 10% of such appointments went to female candidates.
The article also notes that French companies are on a similar path, with a 38% rise in the number of nonexecutive board appointments between 2008 and 2010. Surely that trend will only accelerate, since France passed a bill in January that calls for 40% female board membership by 2016 for listed companies, companies that have more than 500 employees or companies with a turnover of more than €500 million.
Take the Carrot or Get the Stick
Guidelines may be preferable to quotas, but if businesses in the United Kingdom and the rest of Europe do not move in the direction of diversifying their boards, these countries soon may find themselves facing them. Lord Davies has said, “I won’t be recommending quotas to the government, as the best solution is one of natural evolution. But if companies don’t take a radical change in attitude and hire more women at the top, then we will have to introduce quotas.”
This sentiment was amplified by EU Justice Commissioner Viviane Reding. In March, Reding challenged publicly listed European companies to sign a pledge representing their commitment to increasing the percentage of women leaders on their boards to 30% by 2015 and 40% by 2020.
Reding warned companies that her committee would be evaluating their progress toward the inclusion of women in executive decision making. “If this has happened by March 2012, I will congratulate the European business world,” she said. “If it has not happened, you can count on my regulatory creativity.”
Whether by carrot or by stick, it seems as though Europe is destined to move toward gender parity on corporate boards. The question for U.K. firms is whether they want to reap the advantages of being in the vanguard of this movement. I believe they should join the wave now rather than get caught later in an ugly
undertow of mandates and quotas.