On 24 February 2011, Lord Davies published his report on "Women on boards" which contains a series of practical recommendations with a view to increasing the number of women on boards in the UK. In August 2010, Lord Davies was invited by the Government to review gender equality on the boards of UK listed companies, to identify barriers preventing more women reaching the boardroom and to make recommendations regarding what could be done to increase the proportion of women on boards. Although the content of the report is not legally binding, there is likely to be market pressure on listed companies to follow the recommendations set out in the report.
The report contains ten recommendations, as follows:
- Within the next six months (that is, by September 2011), all chairmen of FTSE 350 companies should announce the percentage of women they aim to have on their boards in 2013 and 2015. The report sets a target of 25% female representation for FTSE 100 companies by 2015.
- Quoted companies should disclose the proportion of women they have on their board, the number of women in senior executive positions in the company and the number of women employees in the organisation as a whole.
- The Financial Reporting Council (FRC) should amend the UK Corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity, including measurable objectives for implementing the policy, and to disclose annually a summary of the policy and the progress made in achieving the objectives.
- Companies should report on the matters at paragraphs one, two and three, above, in their 2012 Corporate Governance Statement.
- In line with the UK Corporate Governance Code, a separate section of the annual report should describe the work of the nomination committee. Chairmen should disclose meaningful information about the company's appointment process and how this addresses diversity.
- Investors should pay close attention to the recommendations contained at paragraphs one to five above when considering company reporting and board appointments.
- Companies should periodically advertise non-executive board positions to encourage greater diversity in applications.
- Headhunting firms should draw up a voluntary code of conduct addressing gender diversity which covers relevant search criteria and processes relating to FTSE 350 board level appointments.
- Women from both within the corporate sector and outside the corporate mainstream, such as entrepreneurs, academics, civil servants and senior women in professional services, should be considered for board appointments.
- The steering board appointed by Lord Davies to assist with the preparation of the report should meet every six months to consider progress and report annually.
The report rejects the introduction of statutory quotas for female board representation (which are in place in countries such as Norway and Spain) on the basis that board appointments should continue to be made after evaluating business needs, skills and ability. Some of those consulted as part of the review also feared that quotas could lead to "tokenism". Lord Davies does, however, recommend that the Government should not rule out the introduction of quotas in the future if the business-led approach recommended in the report does not lead to significant change. The issue is also on the agenda of the European Commission which is currently considering whether to impose quotas throughout the EU.
The FRC has announced that it intends to consult on the recommendations made in Lord Davies' report and whether to make further changes to the UK Corporate Governance Code. If changes are made to the UK Corporate Governance Code, listed companies will be required to comply with the new requirements or justify any non-compliance to shareholders in their annual report.
View the full report (44 page pdf)