Are boardroom quotas for the UK doomed?

27 March 2013 -

Women’s presence on boards boosts business performance. But voluntary approaches to getting them there mean male domination will continue for generations

Not even Europe’s biggest champion of female board quotas is committed to inspiring women by targeting inequality. By 2020, only a dismal 40% of board members in Europe’s biggest listed companies will be women – even if European commissioner for justice Viviane Reding is successful at imposing her quota policy.

Her proposal, which affects those listed firms with annual turnovers of more than €50m, has met fierce resistance from 11 out of the 27 member states. The furore has forced the European Commission (EC) to delay its decision and adopt a “softer” approach without sanctions. The UK’s commissioner, a woman (Baroness Ashton), was among the most strongly opposed to the quotas.

Instead, the UK favours voluntary measures. Its position is based on the Davies Report from 2011, which states that companies have to work towards targets, rather than quotas, to increase the proportion of women on their boards to 25% by 2015. The scope to penalise failure to comply is extremely limited. But the voluntary approach has its fans.

“It is good news,” says Professor Susan Vinnicombe, professor of organisational behaviour and diversity management at Cranfield School of Management. She is relieved that the EC quota proposal was shelved. “A quota on women non-executive directors does not address the key problem of lack of attention to nurturing the female talent pipeline,” she points out, arguing that the Davies Report contains a strategy to increase the recruitment of women at all levels, not just at the very top.

Sobering figures

But evidence from European countries that have adopted quotas suggests that the pipelines look strong enough. France, Belgium, Spain, Denmark and Italy, as well as non-EU nations Iceland and Norway, have seen impressive results since introducing quota laws. Norway’s scheme is the most mature. It took the leap 10 years ago, adopting a system that requires at least 40% of company boards to consist of women. Firms were given only two years to comply with the new regulations. They have since met the target, despite starting on less than 10% in 2003.

Compare these results to the UK experience. In Britain, the past ten years have seen the proportion of women on FTSE 100 boards increase by seven percentage points. But, last year, the Financial Times reported that the number of women executive directors in Britain’s 350 biggest companies had actually fallen from 45 in 2010 to 43 by November 2011.

That’s not to say there hasn’t been any progress. The percentage of women on the boards of the UK’s 100 largest companies has risen over the past year to a record level, although that level is still only 15.6%. Arguing that the Davies approach is the only workable way forward, Professor Vinnicombe says that recent recruitment rates offer some hope. “Our latest figures indicate considerable progress, with 44% of new appointments on FTSE 100 boards going to women over the past six months,” she says. Yet the numbers are sobering. Figures published in 2011 by Cranfield School of Management reveal that 89% of FTSE 350 companies in the UK still have no female executives on their boards. This raises a question: is the rate of progress fast enough?

‘Slippery ladder’

Martha Lane Fox, founder of lastminute.com and non-executive director for Marks & Spencer, thinks not. “I think we need a massive shock to the system,” she blogs. “So I am 100% in favour of quotas for the FTSE 100 companies.”

Herself a successful businesswoman, Fox rejects the argument that quotas will result in the appointment of unqualified or unsuitable women. “That is patronising and sexist,” she says. “There are hundreds of great women out there – headhunters and chairs just need to work harder to find them. We need to look in the charitable sector, in startups and in big public sector organisations – in the UK and internationally.”

Yet her call to recruiters to put more effort into finding women for top positions does not find favour with Michael Reyner, partner at MWM Consulting, a leading headhunting firm that claims a good record in finding women jobs on the boards of the UK’s biggest firms. According to a report by MWM Consulting, co-authored by Reyner, the problem is not a lack of interest in recruiting women, but insufficient focus on what prevents women from getting executive roles. “This is a much more complex issue that will take time to solve,” he says. “The problem is not a ‘glass ceiling’ that women can’t break through, but a ‘slippery career ladder’ that leads to women falling off at each stage of the management ranks.”

Unconscious bias in senior management and an issue of low supply – with women deciding that the working norms and expectations of big corporations are incompatible with other demands on their time – are among the problems Reyner cites. His report concludes that the current state is one of lack of diversity and loss of talent that undermines the efforts of businesses to strengthen their management teams.

Yet Reyner still opposes quotas. “Our focus and the focus of our clients is to find the best candidate for a specific job and produce the most effective boards,” he says. “If they are set at the wrong level or introduced with too short a time frame, quotas risk people being promoted simply because of their gender. This is not good for business. It is far too blunt an instrument to deal with a complex problem.”

And, at the EU level, skepticism is high among women as well. Out of the member states that were opposed to the EU proposal, some of the strongest opposition came from five female commissioners – among them UK commissioner Baroness Ashton.

Several of the male commissioners, including Olli Rehn from Finland and Michel Barnier of France, were in favour. “Quotas divert attention from the underlying reasons for women struggling to make it to the top,” says Reyner. “Women, in particular, feel it devalues their currency. They want to progress on merit.”

Waiting game

Of course they do. But what those few women who do reach the top think doesn’t alter the fact that the current approach has, so far, shown only very modest gains. Progress over the past ten years has been glacial: the reported annualised increase in the amount of women on big-business boards in the EU is just 0.6% since 2003, and that from a very small base.

At the current rate, the EC estimates that gender balance in EU boardrooms is more than two generations away. It is worse in the UK – the country’s Equality and Human Rights Commission forecasts a 70-year wait. Wherever in the EU they work, those in the workplace today will never see equality in corporate boards in the course of their career.

Despite this, the UK has decided it is willing to wait, seemingly swayed by the argument that quotas are a mechanism by which weaker candidates win places on boards. Unless you believe women are only good enough to deserve board places in just one in ten of the UK’s biggest 350 firms, you could advance the same argument when looking at the current situation: where weaker candidates win places purely as a consequence of being male. Yet, curiously, the argument is rarely heard that way around.

It may have run aground for now, but Viviane Reding’s quota proposition has helped breathe some new life into a tired, one-sided debate. Reding won’t go away. Mandatory quotas are an issue that she vows to continue to defend and, as she told BBC News, member states ought to implement biting sanctions to force companies to apply the law. “I regret to see that despite our calls, self-regulation so far has not brought about satisfactory results,” she says.

Mary Honeyball MEP, Labour’s spokesperson on gender and equality in the European Parliament, has heard enough. “If I thought voluntary measures would work, I would support them,” she says. “But it will take about 30 years to get us up to the 40% mark.

“We need quotas to move things along.”

THE X-X FACTOR: Why women matter

That women are massively underrepresented in the top tiers of businesses is undeniable. But so what? From a ruthlessly scientific business point of view, does it matter? Answer: yes. Several studies have showed that diverse boards are more effective.

“Diversity leads to better creativity and higher productivity – as more points of view contribute to business decisions,” says Lynne Copp, founder of consultancy Worklife Company. Moreover, Copp believes women have something unique to offer. Citing her own report, Lipstick Leadership, which is based on hundreds of face-to-face interviews, “Women are more likely to think longer term and hire on the basis of candidates’ attitudes,” she writes. “The rest, they feel, can be trained.”

She also found that women and men have different purposes to their leadership. While male leaders are driven primarily by the company’s raw financial performance, women are more likely to find satisfaction in effecting beneficial cultural or structural changes to a business. “This is clearly good for business,” Copp argues. “Create the right environment that allows masculine and feminine cultures to co-exist and you will see real results.”

Others disagree with the notion that some leadership and management characteristics are inherently feminine, but even those who do champion diversity as a business benefit.

There is no convincing academic evidence that proves that a diverse board produces better financial results,” says Reyner. But he points to the financial benefits in taking advantage of all the talent in a business. “You don’t need to believe in diversity to argue that UK businesses are not doing enough to help senior women to the top,” he says. “It’s an issue of wasting talent that the organisation has spent money and time on to develop. It’s a question of how, not if, this needs to be addressed.”