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Gender quotas on boards would not "address root causes of inequality", say Lords

Out-Law News | 12 Nov 2012 | 9:47 am | 2 min. read

The introduction of mandatory quotas for the number of women on EU corporate boards would not "address the root causes of inequality", according to a House of Lords Committee.

In a report, published ahead of expected EU action to tackle corporate gender inequality, the Lords EU Committee urged the UK Government to "strongly oppose" the introduction of mandatory quotas. Instead, the European Commission should introduce measures to monitor the number of women in senior positions across the EU and hold businesses to account.

Baroness O'Cathain, chair of the committee, said that although many member states had already taken "positive steps" to ensure a better balance, the number of women in top positions remained "far too low".

"More balanced boards are to everybody's benefit," she said. "We found that they will be more able to tap into the wealth of available talent in the labour market, provide a broader spectrum of ideas and improve corporate governance. However, we are not persuaded that the only way to stimulate change is through the introduction of EU quotas."

Businesses should instead be given a chance to build upon voluntary initiatives before quotas were considered "as a last resort", she said. She pointed out that the proportion of women on boards across the EU as a whole has risen by 16% since 2010, while more than a third of people appointed to FTSE 100 boards in the UK in the last year were women.

An anticipated vote on the introduction of a Europe-wide quota for women on company boards was postponed last month in order to give commissioners "more time to reach an ambitious consensus". Justice Commissioner Viviane Reding had proposed a Directive mandating 40% female representation on the boards of publicly-traded companies by 2020. The vote is now due to take place later this month, amid speculation that Reding has been asked to "water down" her proposals.

Several EU member states including Belgium, France, Italy, the Netherlands and Spain have already introduced rules on gender quotas for company boards, while other countries have insisted on gender balance on the boards of state-owned companies. Norway, which is not an EU member, already has a 40% quota. However other states, including the UK, have spoken out against the idea of mandatory rules and have instead argued in favour of voluntary targets.

Baroness O'Cathain said that the introduction of a legislative quota at a time when business-led initiatives were beginning to have a positive impact on gender diversity at board level would "do more harm than good" and "be unpopular with many of the women it would seek to help". Quotas should only be introduced "where the business world has shown itself to be unwilling and unable to change its ways", she said.

The report argued that the European Commission should "continue to show leadership" on gender diversity and hold member states to account on voluntary, state-specific initiatives. National corporate governance regimes should be reformed to require companies to report at a national level on the proportion of women throughout their workforces, while the Commission should use this data to determine whether progress was being made on an annual basis.

The UK Government's Department for Business, Innovation and Skills (BIS) is currently consulting on draft regulations (21-page / 275KB PDF) aimed at improving the quality of companies' narrative reporting. As part of the changes, quoted companies could be required to publish the number of women and men within their organisations both overall and in senior executive positions. A review into gender diversity on company boards in the UK, led by Lord Davies, has set a target of 25% female representation on FTSE 100 company boards by 2015.

Corporate law expert Martin Webster of Pinsent Masons, the law firm behind Out-Law.com, said previously that UK companies would have to do more to promote women into senior management roles to avoid the introduction of quotas at an EU level.

"While the increase in the appointment of women non-executive directors over the past year is welcome, the appointment of female executives has barely moved," he said. "That is why the European Commission continues to see quotas as the solution. If legislation is to be avoided, corporate Britain not only needs to maintain this momentum but also has to encourage the promotion of women into senior management."