Race to the top

According to Cranfield University, the number of women on the boards of FTSE 100 companies has risen to 20.7 per cent from 17.3 per cent last year and 15.6 per cent on FTSE 250 boards, up from 13.3 per cent in the same period. Its School of Management’s annual female FTSE board report said that there are now just two FTSE 100 companies with all male boards – a considerable turnaround from 2011 when one in five boards was all male.

It forecasts that if the rate of female appointments to FTSE 100 boards continues as it has done over the six months to March this year, the target set by former UK Government minister Lord Davies of 25 per cent women on boards by the end of 2015 is achievable.

In joint top place of this year’s ranking, with 44.4 per cent female representation on their boards, are Capita and Diageo. In third place is Royal Mail – a new entry to the FTSE 100 – with 36.4 per cent of women on its board. There are four more new entries to this year’s top ten: Unilever (up from 16th to 4th), SSE (up from 28th to 5th), WPP (up from 66th to 8th) and InterContinental Hotels Group (up from 12th to 9th).

Thirty-six companies in the FTSE 100 have already reached the 25 per cent target and a further 19 companies have between 20 and 25 per cent female directors. Today there are 205 women - holding 231 directorships - on 98 of the UK’s top 100 boards.

“The rate of change that we have seen at the heart of our biggest companies over the last three years has been impressive,” commented Lord Davies. “The voluntary approach is working and companies have got the message that better balanced boards bring real business benefits.

“We are finally seeing a culture change take place at the heart of British business. However, the eyes of the world are on us as we enter the home straight. They are judging us as to whether the voluntary approach, rather than regulation, will work – we need to now prove we can do this on our own.”

But in Scotland, companies are being asked whether quotas should be introduced. The question forms part of the Scottish Government’s consultation on introducing quotas for the boards of public bodies, which would set the base at 40 per cent (last month, Shadow Scottish Secretary Margaret Curran pledged that Labour would mandate for 50 per cent of public body boards to be women).

First Minister Alex Salmond underlined his commitment to the initiative by promoting Shona Robison, the Minister for Commonwealth Games and Sport, and Angela Constance, the Minister for Youth Employment, to form a 10-strong cabinet, alongside Deputy First Minister Nicola Sturgeon and Culture Secretary Fiona Hyslop.

The Scottish Government’s consultation points out that women make up 52 per cent of the Scottish population and, in October 2013, the level of female employment in Scotland reached its highest level since 1992 at 69 per cent. Women also now make up the majority of university graduates.

But there is still significant gender inequality on public boards, with women comprising only 36 per cent of board places and 21 per cent of the current board chairs.

The Scottish Government wants the power to ensure a minimum of 40 per cent of women’s representation on public boards and is seeking views on how the quota should be introduced. It added: “We are also seeking initial views in this consultation on whether potential legislation should be extended to company boards. We will explore this in more detail separately in due course.”

Norway was the first country to introduce a quota for women on boards and it has now reached the 40 per cent required by law. The Norwegian Companies Act was passed in 2003 and imposes regulation on gender composition for a wide variety of company boards, public limited companies, state and local government-owned companies as well as cooperative companies.

The baseline of female representation from which Norwegian public boards were starting from was much lower than is currently the case in the UK. In 2002, the year before the gender quota law came into force, the proportion of women on boards stood at 6 per cent.

According to its government, sanctions were necessary to enforce compliance. Although no new sanctions were introduced - because the law was an amendment of an existing one - the threat of fines and company dissolution had a galvanising effect.

“The successful implementation of the quota was due mainly to sanctions, the toughest of which was the forced dissolution of noncompliant companies,” said Cilia Ebert-Libeskind, an international policy analyst. “When there were no sanctions in the initial phase, companies did not widely implement the policy on a voluntary basis.”

Companies were given four years to meet the quota, data bases were established for women to register and for companies to search for talent and the Norwegian employers’ association created a ‘female future’ training programme that companies could join and send their employees to. Today, the quota is widely accepted in Norwegian politics and society.

But, the effect has not been universal; although 40 per cent of board members were female by 2009, the majority of boards were still chaired by men and a mere 2 per cent of the CEOs listed on the Oslo stock exchange were women. And Ebert-Libeskind said of Norway’s example: “There is one thing that other countries should not emulate. The whole process, from the first government motion until the final implementation of the quota, took ten years.”

The same criticism could be applied to the UK initiative, with its emphasis on the very top tier of businesses, prompting calls for it to be embraced by small and medium enterprises. For an illustration of how rapidly progress declines the smaller the business, the Cranfield report said that 48 companies on the FTSE 250 still have all-male boards - albeit this is a substantial decrease in the number from three years ago.

Elena Doldor, co-author of the Cranfield study, said that pressure must be brought to bear on firms to encourage them to genuinely foster female talent rather than just perform a gender box-ticking exercise: “In order to close this gap and generate a sustainable talent pool, companies must invest more effort in developing the pipeline of female talent.

Sibylle Rupprecht, executive director for Catalyst Europe, an organisation that promotes women in business, suggested that change is good in and of itself even if it does not have the desired impact immediately: “Our research has actually shown that if you have three women on the board [in non-executive positions] this translates over a period of four to five years into 21 per cent more women in executive positions.

“The executive positions are appointed by the board or at least approved by the board. If you have more women on the board then you will have a more diverse executive thought. There is a correlation but it takes a bit of time.”

Previous research by Catalyst has shown not only that diversity in the workforce is important to a company’s performance, but that there is a direct link between success and the gender balance of its leadership. Companies with the highest representation of women on their top management teams experienced better financial performance than companies with the lowest women’s representation.

The finding was true for both financial measures analysed; return on equity (ROE), which was 35 per cent higher and total return to shareholders (TRS), which was 34 per cent higher. In each of the five industries analysed, the companies with the highest women’s representation on their top management teams experienced a higher ROE than the companies with the lowest women’s representation. In four out of five industries, the companies with the highest women’s representation on their top management teams experienced a higher TRS than the companies with the lowest women’s representation.

Several UK companies have embarked on their own initiatives. In February, Lloyds Banking Group said that it will ensure that 40 per cent of its 5,000 senior workforce is made up of women within the next six years, up from 28 per cent now. Barclays said that by 2018, 26 per cent of its roughly 2,000 senior leaders should be women, up from the current 21 per cent. And global law firm Herbert Smith Freehills aims to have its leadership comprise 30 per cent women by 2019.