UK pushes for greater board diversity

The UK Government has asked the Financial Reporting Council to consider including a new principle in its code of conduct (UK Corporate Governance Code) to require companies to report on what they’re doing to increase the number of women in senior management positions.

Under proposals announced by The Equalities Office, companies may be required to report on their progress to get more women into the boardroom. According to a survey commission for for International Women’s Day, half the respondents believed there will be equal numbers of men and women directors within the next 20 years. However, at the current rate of progress that timescale is likely to be 60 years for women to gain equal representation on the boards of the top 100 companies.

Lord Davies, the minister for trade, investment and small businesses, who has written to Sir Christopher Hogg, the chairman of the FRC, said: “Company boards benefit greatly from the contribution women members bring. Companies who fail to grasp the growing economic power of women and rely on outdated business models are missing significant business opportunities. The days of male domination of business are long over.”

So what of government influenced or controlled enterprises. Their board diversity has come under the scrutiny from a number of media commentators with the BBC’s Robert Peston pointing out that even after the post-crisis board shakeouts: “chief executives at the Rock and RBS: men. The new chairs of the Rock, RBS and Lloyds: men. The vast majority of board members of all three organisations: men. All three banks are playgrounds for ageing white men just like me and the prime minister. The Rock has one woman on a board of eight. RBS has one woman on a board of 12. Lloyds has one woman on a board of 14.”

Any comply or explain measures in the UK will fall short of Norway’s approach which in 2002 introduced a 40 percent female quota rule for listed and state-owned companies. Since then, Spain has followed suit with rules for female board representation and France has proposed a similar law. 

The Norwegian experience appears to be have only been a qualified success. One of the by-products of the legislation has been the rise of the “Golden Skirts”, a select group of professional board members, some of  whom sit on up to a dozen different boards. According to the Center for Corporate Diversity, an elite group of 70 women hold more than 300 board seats. So it would seem that the Old Girls Club is as much part of board selection as is the Old Boys Club.

Meanwhile, a new study by Société Générale finds that European companies with comparatively more female directors have “slightly better” stock price performance than companies with no or few female directors. The report, “Women on Board: Last Call for New Pilots,” is in line with a 2009 study sponsored by CalPERS which found that “[US] companies with more diverse boards, especially in terms of gender, have higher performance on key financial metrics such as return on equity, return on sales, and return on invested capital”. According to SocGen, comparing a ‘best-in-class’ index of companies – comprised of firms with higher female director representation than the sector average – against a “no women” index drawn from DJ Stoxx 600, showed a positive link between higher female board representation and stock performance from June 2006 to 2009, though the degree of outperformance declined following the financial crisis. The best-in-class index also outperformed the DJ Stoxx index as a whole, although the relationship becomes more complicated if market capitalization is taken into account. The benefit of gender diversification was more pronounced in small caps and disappeared altogether for large caps.

Additional reporting by ProxyGovernance Inc.


Robert Peston: Sex and the state-controlled banks >>

CalPERS Study >>

SEC Board Diversity Disclosure >>

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