UK: Board diversity - Davies Report recommends targets

The Davies Report on how to increase the proportion of women on boards has been published.  In its key recommendation, the report rejects quotas (although says that this should be kept in reserve by the government if there is no significant change going forward). Instead, the report recommends that FTSE companies should set public targets for women on boards. All chairmen of FTSE 350 companies should announce by September 2011 the percentage of women they aim to have on their boards in 2013 and 2015. FTSE 100 boards should aim for a minimum of 25% female representation by 2015.

The report also looks at recruitment process, recommending that companies should periodically advertise non-executive board positions, to encourage greater diversity in applications and that headhunters should draw up a voluntary code of conduct addressing gender diversity and best practice for FTSE 350 board level appointments.

There are also a number of reporting recommendations, as set out in more detail in our corporate ebulletin.

The report considers that the target is achievable if there is an average ratio for new appointments of 2/3 male and 1/3 female. The report does, however, recognise that companies are different  and have different starting points (particularly outside the FTSE 100) and so need to develop their individual targets and strategies.

The European Commission is expected to publish a green paper on corporate governance, including boardroom diversity, in the next few months. The European Commission vice-president has made it clear that if there is no progress in this area over a period of time, then the Commission is prepared to introduce targeted measures to improve the representation of women in senior positions.

The FRC has announced that it intends to consult on the recommendations made to the FRC in Lord Davies' report, and whether to make further changes to the UK Corporate Governance Code in relation to reporting on policies concerning boardroom diversity.

Companies seeking to achieve these targets must bear in mind that positive discrimination is unlawful, eg it would be unlawful to set a lower standard for women to achieve before being offered an interview than for men.  Employers must tread carefully if they are to stay within the confines of lawful positive action:

• Currently, where an employer reasonably thinks that persons with a particular protected characteristic are disadvantaged or have different needs, or that their participation in an activity is disproportionately low, the Equality Act allows the employer to take proportionate measures to enable or encourage persons with that characteristic to overcome the disadvantage, to meet their needs, or to enable or encourage their increased participation.  Measures could include reserving places on a training course for members of that group, or encouraging them to take up training or mentoring opportunities.
   
• From April 2011, where an employer reasonably thinks that persons with a particular protected characteristic are disadvantaged or that their participation in an activity is disproportionately low, the employer can treat a person with the relevant characteristic more favourably than others in recruitment or promotion where the person is "as qualified as" the other candidates.  It will be a brave employer who seeks to rely on this provision prior to case law clarifying what "as qualified" really means.

It is also lawful to target specific recruitment methods at a particular group (eg placing an advert in a particular journal read mostly by women), provided other more general methods (such as placing it in a national newspaper, on the employer's website etc) are also used.

Employers should also ensure they give clear instructions to headhunters and recruitment agents not to discriminate unlawfully.  An employer can be vicariously liable for the actions of a consultant or agency if they are undertaken with the employer's authority (regardless of whether the agent's acts were done with the principal's knowledge or approval).