In 1995, the US Federal Glass Ceiling Commission defined a “glass ceiling” as a political term to describe the unseen, yet unbreachable barrier, that keeps minorities and women from rising to the upper rungs of the corporate ladder, regardless of their qualifications or achievements. However, cracks have begun to appear in this ceiling and the concept of gender diversity is gaining support on a European and international scale.

Boardroom

Globally, there has been a variety of approaches adopted to increase the participation of women in the boardroom, ranging from voluntary measures and “comply and explain” initiatives alongside local corporate governance codes, to  required disclosure about diversity policies and legal requirements including “female quotas”. We have reviewed the current situation in respect of the approaches taken by the UK and Europe generally in relation to gender diversity to determine what may be around the corner for Ireland and what this suggests for Irish businesses.

Overview

In 2013, Grant Thornton published an International Business Report entitled “Women in senior management: setting the stage for growth” (the “GT Report”) which examined the global shift in the number of women at the top of the business world. In particular, this Report found that women hold 24% of senior management roles globally and that there has been a significant increase in this representation in China with 51% of senior management positions being held by women (compared to 25% in 2012).

Independent consultancies have suggested a direct link with the financial bottom line and the proportion of women on boards or in senior management, arguing that gender diversity is not only the “right” thing to do but the “bright” thing to do. European Commissioner, Michel Barnier, has said that the focus on gender diversity in the boardroom is “not only a question of fairness. The presence of women in the leadership of a country or a region or a business is a question of good governance”.

The virtues of gender diversity in the business world have been well researched and documented in recent times.  In 2012, Credit Suisse issued a report  entitled “Gender Diversity and Corporate Performance”(the “Credit Suisse Report”) following its review of almost 2,400 companies globally over a six year period to determine whether gender diversity within corporate management really  does improve corporate performance. The analysis showed that companies with one or more women on the board have delivered higher average returns on equity and better average growth. Boards with limited female membership may be weak in terms of connectivity with customers and workforce limiting the scope for “group- think” where very similar people reach very similar conclusions, and, therefore, improve the quality of corporate decision-making.

Notwithstanding all of this, from a global perspective, 19% of board roles around the world are held by women, despite quotas being put in place in certain countries to increase female participation at board level.

The UK Position

In February 2011, the UK Government commissioned an independent report (“Women on Boards”) by Lord Davies which recommended that UK listed companies in the FTSE 100 should aim for a minimum  of 25% of female board representation by 2015 and that quoted companies should disclose annually the proportion of women they have on their board, the number of women in senior executive positions and the number of female employees in the organisations as a whole.

In response, the UK Financial Reporting Council published a revised Corporate Governance Code (the “Code”) requiring listed companies to put in place a formal procedure for director appointments with due regard for gender diversity and to disclose their boardroom diversity policies, including gender, to detail any measurable objectives / targets that the board has set for implementing these policies and related targets, and progress made in achieving the objectives.

Some of the key findings in the publication of the most recent Annual Report on the Davies Report (March 2014) noted an increase in female participation on FTSE 100 boards from 12.5% in 2011 to 20.7% and on FTSE 250 boards from 7.8% in 2011 to 15%. In addition, 83 of the FTSE 250 all-male boards in 2011 have now recruited one or more women onto their  boards.

In terms of legislation, the UK Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 requires companies to produce a standalone strategic report to include the number of persons of each gender within a company who are, respectively, directors, senior managers (other than directors) and employees.

The European Position

Although statistics published in January 2013 by the European Commission, showed that the number of women on boards in publicly listed companies in Europe had increased to almost 16%, a quarter of the EU’s largest companies had no women in their top-level boards.

Although the EU has been actively pursuing measures to increase the numbers of women at board level, including the 2010 “Gender Equality Strategy” to promote equality in senior positions and the 2011 “Women on the Board Pledge for Europe”, which calls on publicly listed EU companies to pledge to increase the number of women on boards to 30% by 2015 and 40% by 2020, progress in this regard to date has been slow.

In April 2013, the Commission published a proposal for a directive to amend existing directives in respect of the disclosure of non-financial and diversity information by large listed companies with more than 500 employees and a balance sheet total of over EUR 20 million or a net turnover of over EUR 40 million. Similar to the UK’s approach,  the proposal will require these companies to provide information on their diversity policy and set out the implementation of that policy and results obtained. Any companies that do not have such a policy in place will be required to provide an explanation in this regard. This proposal remains to be endorsed by the European Parliament and Council.

Most recently, in November 2013, the European Parliament passed a legislative resolution to adopt a directive on improving the gender balance among non- executive directors of companies listed on the stock exchange (the “proposed Directive”). The Commission proposal is based on Article 157(3) of the Treaty of the Functioning of the EU (“TFEU”) enabling the European Parliament to adopt measures to ensure the application of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation.

Briefly, if implemented, the proposed

Directive will require:

  • Target: 40% minimum under-represented gender for non-executive boards
  • Companies will be required to commit to individual voluntary targets for gender balance among executive directors by January 2020
  • Companies will be required to publish annual information on the gender composition of their boards
  • Sanctions – effective, proportionate and dissuasive sanctions, including exclusions from public calls for tender and partial exclusion from the award of funding from the EU’s structural funds or, in the case of repeated infringements, the forced dissolution of the company.

It should be noted, however, that the envisaged target requirement of 40% is only to give priority to a female candidate where that woman is equally as qualified for the position as a male candidate—not a requirement to appoint a candidate simply because she is female.

Irish Position – what approach will be taken?

A survey carried out by the Institute of Directors in 2013 found that the representation of women in publicly listed companies in Ireland was at 9%,in comparison to the EU average of 16%. Significantly, the GT Report ranks Ireland among the bottom 10 in the world in this regard, noting that, in Ireland, women hold only 21% of senior management positions. This is of note particularly where Ireland was so progressive in the implementation of its Employment Equality legislation in 1998 ahead of its European counterparts. Also of note is Ireland’s extremely proactive and protective stance on disabilities in the workplace.

In light of international advances in this area, and developments in the EU (including the proposed Directive in particular) the time has come for Ireland to consider what attitude it will take in relation to gender diversity in the boardroom. Globally, given the variety of approaches adopted in this regard, including national self-regulation, voluntary targets, corporate governance initiatives and, to a lesser degree, female quotas, it remains to be seen what line Ireland will ultimately follow.

France, for example, has taken a more prescriptive approach, and is one of a handful of European countries, including Belgium, Spain, Italy and the Netherlands, that has implemented “female quotas” for board representation in respect of its largest publicly traded companies. In January 2011, France passed legislation requiring 20% of those companies’ board members to be women, increasing this quota to 40% by 2016. Currently, almost 9 out of 10 companies in France have at least one female director.

The primary criticism of “female quotas” has been the perceived risk of recruiting under-qualified persons or making token appointments to meet a quota rather than hiring the most qualified person for the job. However, from an employment law perspective, the primary issue is one of discrimination, albeit positive discrimination. The EU approach, as set out in the proposed Directive, clearly provides that preference will only be afforded to a female candidate in circumstances where she is as equally qualified as a male candidate. Accordingly, fears of symbolic appointments of under qualified candidates to reach a target seem unfounded. Nevertheless, it is likely that the less onerous UK approach, which currently requires a combination of reporting obligations and targets, may be a more prudent path for Ireland to look to at this juncture, against  the background of increasingly focused EU initiatives in this field.

One step in this direction is the signing on 31 March 2014 of the European Union (Capital Requirements) Regulations 2014 (the “Regulations”) to give effect to the EU Capital Requirements Directive IV (“CRD IV”). As part of its corporate governance remit, the Regulations require large banks, building societies and investment firms to establish nomination committees to evaluate the balance of knowledge, skills, diversity and experience of the board; set a target for women in the board; and prepare a policy on how to achieve this target. The target, policy and its implementation must be made public (Regulation 76). Regulation 79 requires these institutions to ensure that they and their nomination committees put in place a board diversity policy.

These measures represent the first grass shoots in Ireland’s approach to gender diversity in the boardroom, but it remains to be seen how these targets and policies will be implemented in practice and what effect an increase in female participation on company boards will have on Ireland’s business environment.

While some countries, like France and China, have broken through their glass ceilings in respect of gender diversity in the boardroom, Ireland is somewhat further away from denting its own glass ceiling in this regard. It will be interesting to see the approach Ireland will take to implement the proposed Directive if and when this Directive becomes law. As referenced above, research has demonstrated the great benefits, both financially and otherwise, that may be reaped by Irish employers diversifying their approach to board appointments, which will be in the best interests of the Company, its employees and its customers/consumers. Given Ireland’s enlightened approach in relation to addressing disability issues in the workplace from an equality perspective, it is possible that the incorporation of a proactive and progressive approach to gender diversity in the board room along similar lines will be identified as a priority.