New European law could oblige large businesses to have more women on their boards. Trevor Loveday explores where UK utilities stand and whether or not quotas are the answer
Draft legislation from Brussels is seeking to end the overwhelmingly male make-up of boards running the largest European companies. UK-quoted utilities are near the front of the pack in appointing more women directors, yet tend to resist regulatory compulsion.
Under the proposed legislation drawn up by European Union justice commissioner Viviane Reding, companies with at least 250 staff or sales of £40 million must have at least 40 per cent female boards by 2020 or face sanctions. Reding has condemned progress to date, saying that at the current pace it would require 40 years to achieve her proposed target.
The UK government is opposing Reding’s proposed law on the grounds that companies here are doing well in their efforts to increase the number of female leaders. The government has argued that quotas undermine the value of women appointed under such a regime.
In the year to March 2012, FTSE 100 boards went from being 12.5 per cent women to 15.6 per cent. If growth continued at that rate, companies would be on track to hit 40 per cent around 2020 anyway. However, in the decade to 2009, the female contingent on boards crept up at just half a percentage point a year to 12.2 per cent and levelled off for the next two years.
Ticking boxes
British businesses too are pushing back on quotas. A group of FTSE 100 chairmen who back voluntary increases in female board representation – the 30% Group – has rejected Reding’s proposals as “box-ticking”. Its members include Centrica’s Roger Carr and Severn Trent Water’s Andrew Duff.
The recent UK rise in numbers of female board members followed a 2011 report on a public inquiry led by former Labour trade minister Lord Davies. His report set a target for UK boards to be 25 per cent female by 2015. And UK-quoted utilities are shaping up relatively well, according to figures from Cranfield University’s School of Management (see box).
But why might it be important to even the balance between the sexes in board membership? Is it a question of fair play? Perhaps. Is it wasteful to halve the pool of eligible talent? Certainly. But it appears a more even mix of men and women can do great things for a business.
Consultancy McKinsey showed in more than 800 companies worldwide, including utilities, companies who had the highest proportion of female members performed better than all-male rivals. From 2007-09 they scored an average return on equity of 22 per cent against the male-led companies’ 15 per cent and won on earnings before interest and tax by 17 per cent versus 11 per cent.
McKinsey conjectured the findings came from “the way women exercise leadership.” It found that women rate higher on five of nine key leadership behaviours, with men leading in only two. According to Cranfield’s Professor Susan Vinnicombe, the value women directors add is amplified where female consumers are important to a business: “Particularly where women make up a large percentage of your customer base, women have very valuable perspectives to bring to boardroom discussion.”
Utilities take note
Indeed, at a Utility Week round table recently (held under the Chatham House Rule), one senior executive with a big six energy supplier said: “There is a move away from the male as the target for marketing.” Women, he said, were the decision makers on household expenditure.
Irrespective of the business case for more women directors, should companies be compelled to meet targets for female board membership?
The UK is moving at a pace that will make UK FTSE 100 boards hit Lord Davies’ and Reding’s targets. But it took a target set by a public inquiry to inspire them – and there remained the threat of intervention: “Government must reserve the right to introduce more prescriptive alternatives if the recommended business-led approach does not achieve significant change,” said Lord Davies.
Furthermore, a year after seeking voluntary pledges from EU firms to increase numbers of female directors, Commissioner Reding has received just 24 responses. The average proportion of directorships held by women in EU businesses is 11 per cent. And while the UK has made a start, of the 163 FTSE 100 directorships held by women, only 20 are executive positions.
The UK has demonstrated that a prod at least is needed to galvanise female board appointments. What remains to be seen is whether it will be the legislative stick or the carrot of prospective improved returns that will drive companies to appoint more women directors.
Trevor Loveday is a freelance journalist
This article first appeared in Utility Week’s print edition of 26th October 2012.
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