As Lord Davies reported, women form 51% of the UK population and 46% of the economically active workforce.They are estimated to be responsible for about 70% of household purchasing decisions and to hold almost half of the UK's wealth. In a group as wide as half of the total population, it is worth wondering why is change for the better is taking so long.
Efforts for gender diversity in UK boardrooms started more than a decade ago, and the 2018 UK Corporate Governance Code (CGC) clearly indicates the importance of gender diversity in its Principles. A momentum was built up when Lord Davies’ report set solid targets for UK boardrooms. Progress on the matter, which is now monitored by the Hampton-Alexander Review, a business-led, independent body, is apparent in certain metrics – for instance, female representation on the FTSE 100 boardrooms improved from 26.6% in 2016 to 33.4% in 2019.[1]
Despite the improvement in numbers, it is important that the change happens for the right reasons. However, the ‘one and done’ approach of many organisations indicates that there is a long way in achieving true cultural change.
The UK Corporate Governance Code
The CGC is a standard of good practice aimed for listed companies, which must report annually the extent of their compliance with the Code’s rules and explain where and why they have failed, if at all. The Code is a soft law instrument which encourages companies to make changes without enforcing or making the rules unavoidable.
The CGC advises regarding the appointment process of directors and gender diversity. When an appointment of director is to be made, that 'should be based on merit (…) and should promote diversity of gender (…)' (Chapter 3, Principle J). There is also a provision for the establishment of a 'nomination committee' whose purpose would be to ensure that the appointment and succession of the board members is done in an orderly way and to 'oversee the development of a diverse pipeline for succession' (Chapter 3, Principles J-L, Provision 17). The work of the nomination committee is to be reported on and must include observations on 'the gender balance of those in the senior manager and their direct reports' (Chapter 3, Principles J-L, Provision 23).
If not complied with, the above must be ‘explained’ by the directors. The rule is designed to be flexible, though the Code warns that this flexibility must be used wisely, while explanations must not be shallow and lacking insight to the decision.
From 2016 onwards, the Hampton-Alexander Review tracks the progress of the FTSE 350 on their journey towards gender diversity. The Review also sets specific, yearly targets that companies should aim to achieve. That is achieved by following positions of leadership and monitoring the percentage that is occupied by women. The Review is also insightful for giving figures for numerous other variables, such as examples and testimonies from the industry, which help shape a better understanding of the bigger picture. You can read the reports here.
The ‘one and done’ approach: is cultural change a mission impossible?
It is important to examine the ‘comply or explain’ rule from two perspectives; whether the companies actually conform to the rule and second, their motivations for complying. Positive answer to the first question could bring immediate solution to the problem but changing for the right reasons is what will bring about cultural change. These distinct factors show themselves when analysing the Hampton-Alexander statistics, as well as the Annual Review of the Corporate Governance Code of the Financial Reporting Council.
The ‘one and done’ approach involves the appointment of a single female director, a move that has been followed by many organisations, for the sole purpose of meeting the requirements set by the UK Corporate Governance Code (CGC). As Denise Wilson OBE, Chief Executive of the Hampton-Alexander Review noted:
‘The 33% target is a collective effort and it is incumbent on every FTSE 350 listed company to play their part - get with the new norm - today one woman at the table, is little different to none!’[3]
Having a single female director just because the Code designates so is ineffective for many reasons. Significantly, it highlights the female director as ‘other’ to her male counterparts in the boardroom, when active efforts should be taken to eliminate the ‘distance’ in such circumstances. The mental and practical focus on ‘otherness’, then exacerbates broader cultural issues and stereotypes that women have dealt with at the workplace. For instance, the need to put significant effort in putting points across, taken seriously and not be discounted.
The issue acquires an added depth when combined with the knowledge that the original board was left no other choice but to appoint a female director, which might reinforce feelings of impostor syndrome to the female director and tokenism towards her. These claims have been substantiated by the latest Hampton-Alexander Review, which gave insights from a King’s College study of 348 professionals, of which 272 were women (78%) and 74 (22%) were men.[4] The study showed that 52% of the women in leadership positions – 34% of those in executive and non-executive positions, had experienced someone at work ‘ignoring or failing to speak to them or giving them the "silent treatment"’[5] Only 23% of their male counterparts in executive and non-executive positions had experienced the same. Alarmingly, 33% of women on boards reported ‘that someone at work had made disrespectful or insulting or remarks about them’ when only 13% of their male counterparts had experienced the same.
The above calls for reflection; is the laissez-faire, ‘comply or explain’ approach enough to bring about change in UK’s corporate culture?
Are quotas the solution?
Many academics have suggested that legislated gender diversity quota, implemented in Norway, Iceland and Sweden are significantly more effective in achieving the desired results. Norway initially followed UK's 'comply or explain' approach, however without success. Following two unsuccessful attempts to increase the percentage on a voluntary basis, Norway made the quota compulsory, with ‘punishment’ in case of non-compliance, by imposing heavy fines or even, liquidation. The legislated quota was more than effective since the 40% mark was achieved without further delay, in four years.
Although quotas can achieve rapid change, just as with the ‘comply or explain’ approach, it is questionable whether the changes were made for the right reasons, regardless of the bringing about of a cultural change in the sector. The quota did not overcome the ‘pipeline challenge’ and it remained hard for women to emerge within their organisation and pursue their career until senior management. At the time the figure was achieved in Norway, the number of women CEOs was barely 2% and the effect of 40% gender balance was achieved mainly by increasing the size of the board.
Comparing the quota and comply or explain models, it is impossible to pinpoint one approach from the other as more effective or likely to change attitude. What is certain is that the change will not be brought by the mechanism itself but through the constant effort of initiatives like the Hampton-Alexander Review in the UK and the Confederation of Norwegian Enterprise in Norway, which persistently remind the corporate world of an injustice that requires their attention and supply younger generations with role models that respect gender diversity to the fullest.
[1] Targets & Progress, Hampton-Alexander Review [3] Hampton Alexander Review, 'Improving gender balance in FTSE Leadership November 2018', 41
[4] Hampton-Alexander Review, 'Improving gender balance in FTSE Leadership November 2019', 24 [5] Ibid Further Reading
Charlotte Villiers, Achieving Gender Balance in the Boardroom: Is It Time for Legislative Action in the UK, 30 Legal Stud. 533 (2010)