In August 2010 Lord Davies was commissioned by Business Minister Edward Davey and Lynne Featherstone, Minister for Equalities, to report on how to increase the number of women on the boards of listed companies in the UK. This was because the Government was concerned by the slow rate of progress in increasing the number of women on boards and asked Lord Davies to make recommendations on what could be done to increase the pace of change. Lord Davies reported on the 24 February 2011.
Summary of Recommendations
The recommendations of the Lord Davies review into women on boards are in line with what Opportunity Now asked Lord Davies to do. He recognises the importance of balanced boards for business, and sets out a realistic timescale by which companies can increase the number of women on their boards. His case is that, if turnover on boards continues at the current rate, and one third of all board appointments are women, we will reach 25% of women’s representation on boards by 2015. Many companies may be able to do better than this. He has avoided recommending quotas – rather he has advocated the use of organisations setting their own targets and action plans.
In summary, he has recommended the following: (please go to the Davies recommendations to read the complete set ):
Chairman are asked to set out the percentage of women they aim to have on their boards in 2013 and 2015, with a minimum 25% being expected by 2015 as a starting point on a longer journey. Companies should set aspirational goals and announce them in the next six months. Quoted companies should be required to disclose each year the proportion of women on the board, women in senior executive positions and women in the whole organisation.
The mechanism for facilitating this will be the Financial Reporting Council (FRC) – the FRC is asked to 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 disclose annually a summary of the policy and the progress made in achieving the objectives.
Companies are asked to report on these measures in their Corporate Governance Statement each year regardless of the action of the FRC, and to sign a Charter indicating their agreement to do so.
The FRC has indicated that they will be consulting on changes to their code to encompass these recommendations. A further set of recommendations are focused on the way in which board appointments are made. They cover the nomination committee, advertising board positions, executive search firms and the role of investors in engaging with company boards on diversity.
The final recommendation seeks to tackle the pipeline issue, encouraging entrepreneurs, existing providers and individuals to come together to consolidate and improve the provision of training and development for potential board members.
The steering board of the Davies review will meet every six months to consider progress against these measures and will report annually with an assessment of whether sufficient progress is being made.
Recommendations into practice
Recommendations 1-4 of the Davies Review are the recommendations that have the greatest implications for the bulk of UK listed companies.
All chairman of FTSE 350 companies are expected to set out their own targets for how many women they expect to have on their boards in 2013 and 2015. A target of 25% as an average number of women on boards by 2015 across the FTSE 100 is set, on the basis that many companies will be able to go further.
It is left to companies themselves to decide how they make the step change that is needed. The calculations in the Lord Davies review assume that one in three of all board appointments must be women in order for the overall targets to be met.
Clear targets and strategies for meeting them will be especially important as one of the recommendations of the Davies review is that the Financial Reporting Council (FRC) is asked to 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 disclose annually a summary of the policy and the progress made in achieving the objectives. The FRC will be consulting on this and the final shape of the reporting mechanism remains to be developed, but it seems likely that in future targets for boardroom diversity and gender diversity strategies will become public for all listed companies.