UK: Women on Boards: Voluntary Code for Executive Search Firms – March 2014 Review

In a review of the Voluntary Code of Conduct for Executive Search firms, published on 4 March 2014, Charlotte Sweeney considers whether the Code continues to have a positive impact on the board recruitment process and makes recommendations to improve gender diversity within corporates.

The Code was drawn up in 2011, in response to the recommendations of the Davies Review; it aimed to increase the number of female directors of corporate boards to meet Lord Davies' target of 25% female representation on FTSE 100 boards by 2015.  There has been significant progress over the last few years towards this target: as of January 2014, 20.4% of corporate board members of FTSE 100 companies are women, and of FTSE 250 15.5% are women.

The review sets out the following key recommendations:

1. Search firms should identify at least one woman whom they would "strongly recommend" the client should meet and put forward onto the shortlist of all executive searches for board positions.
2. The Code should be considered the minimum standard and search firms should collectively identify requirements for a higher standard and identify how to assess whom should become part of a "supergroup".
3. Search firms should be encouraged to capture information on the male/female candidate ratio during various recruitment stages and to share this with the Government as and when requested.
4. Search firms should be more overt on their websites, marketing literature and when talking to clients, about their commitment to the Code.
5. Companies should challenge search firms to include in their search contracts or agreements that they will comply with the Code
6. A database of "board ready" women should be created, with each FTSE 100 chairman putting forward two female candidates from senior management teams to create a deeper pool of women with the skills to take a FTSE 350 board position.
7. The Investor community should play a more active role to create more gender-balanced boards.
8. The Equalities and Human Rights Commission should create guidance on the legality of women-only shortlist for the executive search sector.
9. Search firms, the Government and the Financial Reporting Council should all raise awareness about the existence of the Code.
10. The Voluntary Code for Executive Search should be referenced on the FRC website and within the FRC Guidance on Board Effectiveness when it is next updated.

The recommendation in relation to all-female short-lists has generated the most press coverage. 

Would all-female short-lists be lawful?

Although the Equality Act 2010 does allow employers to take positive action, the legal constraints within these provisions mean that, in practice, taking such action can be problematic.  Having a policy of all-female short-lists is likely to fall outside the scope of the positive action provisions.

The specific provision which relates to recruitment only permits positive action where the person is "as qualified as" the other candidates.  The government's Quick start guide uses the phrase "equal merit" rather than "as qualified" which suggests an assessment of a candidate's overall ability, competence and experience as well as academic qualifications would be appropriate.  The Equality and Human Rights Commission has published a Code for tribunals to have regard to when considering claims under Equality Act 2010 but this was published before the specific positive action provision came into force and, as such, it is not specifically addressed in the Code.  Government guidance suggests that it should be given an expansive meaning, not limited to academic qualifications. 

An all-women shortlist would only be lawful if the women shortlisted were 'as qualified’ (in a broad sense of ability, competence, experience and qualifications) as the men who were long-listed, and the employer reasonably thinks that women are disadvantaged or their participation is disproportionately low.  Our view is that the 'as qualified' requirement is likely to be difficult to satisfy, so we would not recommend such shortlists.

The employer cannot have a blanket policy of treating women more favourably. 

There is no obligation on an employer to take positive action measures.  However, if they do, their actions must be proportionate.  The extent to which it will be proportionate to take positive action measures will depend, among other things, on the seriousness of the relevant disadvantage, the extremity of need or under-representation and the availability of other means of countering them. 

Given the level of uncertainty for employers as to what types of action will be lawful, some commentators argue that the law should be changed to allow firms to specifically look for and appoint women to be company directors, without having to worry about being sued for sex discrimination.

Practical tips for lawful action

There are a number of steps which companies can take to encourage greater female representation on their boards:

General

• Review the company’s workforce to establish whether there is significant under-representation of women within senior management, and across all levels of the organisation.
• Measure the success of women at each stage of the recruitment process (junior, mid-level and senior appointments) as well as how women are progressing within the company, including the retention rates.
• Consider setting targets (eg aiming to have 30% women in senior management and 25% female board representation) and involving institutional shareholders in any discussions (however, do not have a blanket policy of treating women more favourably per se).
• Consider succession planning and any proposed retirement plans of current board members.
  • Consider whether there is scope to increase the number of board-level positions.
  • Consider a voluntary pay audit to identify whether a gender pay gap is deterring women from applying from senior positions.

Recruitment

• Ensure the nomination committee is engaged with the company’s gender diversity strategy.
• When advertising positions, choose journals or magazines known to have a strong female readership, as well as general advertising.
• Discuss the company’s diversity goals with head hunters and executive search agents. Encourage a search for a diverse range of candidates. Care should be taken, as an employer can be vicariously liable for the actions of a consultant or agency.
• Avoid setting a lower standard for women to achieve before being offered an interview than for men, but actively consider how merit should be measured.
• If positive action is taken, be aware of the risks and uncertainty of taking such action and make sure  the basis for appointing the female candidate is carefully documented.
• Take account of the impact that periods of maternity absence or part-time work due to child-care responsibilities have on experience and career progression.

Retention and promotion

• Introduce mentoring or sponsorship programmes for female staff with influential male or female senior executives within the company.
• Establish or encourage membership of internal and external networks for female staff.
• Make equality and diversity training compulsory for all managers and staff. Also consider training in relation to unconscious bias.
• Offer specialised training events for female staff where a need is identified and encourage female staff to attend senior management development programmes.
• Monitor retention levels carefully, conduct thorough exit interviews and use employee opinion surveys to gauge morale and identify pressure points which may be resulting in a loss of female talent.
• Encourage female staff to consider alternative ways of gaining relevant experience such as taking up non-executive roles at a non-competing company.
• Review company policies on flexible working and maternity and adoption pay and leave.
• Offer practical support for female employees returning to work following maternity absence.
• Consider subsidising nursery care and emergency childcare arrangements.
• As with recruitment, do not set a lower standard for women to achieve before being offered a promotion than for men.