CBI supports ‘comply or explain’ code for UK boards

The CBI has today announced its support for proposals to force companies in the UK to set their own internal targets for board diversity.

In its submission to Lord Davies of Abersoch’s review of the lack of women in the boardroom, the employers’ group rejected mandatory quotas, but said it would back legislation that would require companies to explain any failure to meet their gender diversity goals.

As discussed in an earlier post, a similar system due to be introduced in Australia next year has already had a dramatic effect on the number of female directors participating at board level. In the first half of 2010, 27 per cent of new appointments to the top 200 companies listed this year on the Australian Securities Exchange were women, compared with just 5 per cent in 2009, according to the Australian Securities Council.

Helen Alexander, president of the CBI, said:

“We need to see more women progressing through the ranks and do more to keep them moving along the career pipeline into the top jobs. Schemes such as flexible working, mentoring and networking have helped, but making progress at the very top levels of business will require more sophisticated talent management.

“What is needed is cultural change, not quotas, ratios or tokenism. That is why we are calling for a flexible system that will allow firms to set targets that reflect the realities of their businesses.”

The CBI also highlighted the declining total number of board directorships that has contributed to fewer opportunities for women and the fact that most female appointments are to non-executive positions. Of all female directors of FTSE 100 companies in 2010, 87 per cent were in non-executive roles, it said, and the number of executive directors in the FTSE 100 had grown from 12 in 1999 to just 16 this year.

The business organisation called for chairmen to lead the charge for change, becoming mentors for women in their companies. It said recruitment companies needed to ensure diversity in candidate lists and that companies should strengthen their talent pipelines to include more women.

Even when companies do increase participation to executive committee level, the doors to the boardroom remain closed. The CBI noted:

“The fall in female representation from 17.2 per cent at executive committee level to 5.6 per cent in holding executive directorships is evidence of specific barriers to the boardroom.”

Looking at catalysts for change, the CBI argued for stronger advocacy, greater transparency and a wider talent pool. It said it supported the “comply or explain” code because, it argued, “what gets measured gets done”.

Some will argue that allowing companies to set their own internal targets lets them off the diversity hook and that minimum board quotas should be imposed. Speaking at the FT Women at the Top conference held in London in November, Christine Lagarde, the French finance minister, eloquently argued the case for mandatory quotas, since the voluntary approach had yielded such poor progress.

This is the time for anyone with an interest in board diversity to join the debate. Whether you are a working woman, a board director or a search consultant, add your comment. What do you think? Is the CBI championing the “comply or explain” code because it is the least demanding of options? Or does the Australian example show that nudging can work?

Andrew Hill adds:

Actually, there’s a fascinating difference of opinion between the two big UK business organisations on this issue.

While the CBI favours targets, the Institute of Directors does not. The IoD endorses the aim but says “targets of any kind are just quick-fix solutions”. Such proposals put “unjustifiable emphasis on gender diversity in comparison to other dimensions of diversity, eg experience, professional background, personality, age, nationality, etc.”

Here’s Miles Templeman, IoD director-general:

“There are no shortcuts to greater gender diversity in the boardroom. As in other areas of corporate governance, the government should focus on long-term solutions rather than measures – such as board quotas or targets – that merely mask the symptoms of the problem.”

So there.

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