More women in the boardroom?

More women in the boardroom?

How can we increase the number of women directors on boards in Malta? Can we learn from other countries?

Governments and corporations have attempted to address the disproportionality of gender representation on corporate boards through legislation mandating gender quotas and comply and explain guidelines, a reform based on the principle of equality of opportunity. Norway and the UK are often used as examples of what can be achieved.

Norway introduced legislation in 2003, whereby equality was extended into the corporate sector, stipulating a 40 per cent representation of each gender on the board of publicly limited liability companies. The primary objective was to increase the representation of women in top positions in the corporate sector and decrease gender disparity in earnings within that sector.

Today, Norway has 40.7 per cent of women non-executive directors (NEDs) at listed companies but only 6.4 per cent of managers are female. There are zero female CEOs in the country’s 60 largest listed companies (2015). The great bulk of 250,000 local companies are privately held, with only 90,481 directorships filled by women out of a total of more than 500,000.

Research findings in Breaking the Glass Ceiling? The Effect of Board Quotas on Female Labour Market Outcomes in Norway, a paper issuded in 2014, concluded: “The law may have helped in the boardroom but has had little impact else in helping to increase the number of female executives. Overall, the effects are zero: we don’t see any spillover effects.”

The reform may have also improved the representation of female employees at the very top of the earnings distribution (top five highest earners) within listed firms. However, there is no evidence that these gains at the very top trickled down. Moreover, the reform had no obvious impact on highly qualified women whose qualifications mirror those of board members but not appointed to boards.

“Raising the number of female executives should have automatically led to an increase in the pool of women available for non-executive posts. But this has clearly not happened,” say the authors.

Norway and the UK are often used as examples of what can be achieved

The UK model has been a voluntary one and stems from the Lord Davies government-backed Women on Boards 2010 review. It was argued that by appointing more women to boards, this “would create a strong pipeline of women with the experience to run a FTSE100 giant”.

Davies’ first report (October 2015) stated that the 2010 target of 25 per cent women on their boards had been exceeded – more than doubling the initial 2011 target number set. Then, just 135 of 1,076 (12.5 per cent) FTSE100 directorships were held by women, which shows that there are more women on FTSE350 boards than ever before – 26.1 per cent at FTSE100 and 19.6 per cent at FTSE250 firms; 550 women had been appointed in just over four years. All-male boards fell from 152 to 15.

However, the Equality and Human Rights Commission in April 2016 showed that the targeted 25 per cent headline was masking the reality. Of the 150 big companies that had increased the proportion of women on their boards between 2012-2014, 46 did so by simply shrinking the size of their boards, partly to stop boards becoming too unwieldy.

Three out of five firms in the FTSE350 were failing to meet the target and fewer than half increased female board representation in recent years. Nearly 75 per cent of FTSE100 companies and 90 per cent of FTSE250 companies had no female executive directors between 2013 and 2014.

Another report in 2016 (Ridgeway Partners and the Pipeline) found that women make up only 16 per cent of executive committee members across the FTSE 350. In fact, 52 companies had no women at all on these committees.

The position was worse for executive posts, with almost three out of four FTSE100 companies and 90 per cent of FTSE250 firms having no women in the positions.

Thus, while British companies have been appointing more female directors, these are NEDs.

In Norway, if legislation was designed to increase the number of women as NEDs in public companies, then it has succeeded; at executive levels, it has failed. In the UK, voluntary targets have been achieved with NEDs, not with executive positions.

The law should not be expected to do everything and boards need to boost numbers of top women. Quotas are not a panacea and embedding voluntary targets would be viewed as a quota.

While there may be more gender equality, this does not necessarily lead to increased company profitability.

Women Directors in Malta believes that equal opportunity is the key to equality which leads to gender imbalance in organisations. This has led to a lack of talented women being identified and developed for executive positions at senior management level.

So what can be done as a starting point?

Changes in the Corporate Governance Code need to take place so that every listed company is required to publish its diversity policy and the numbers of women on its board and in executive positions.

Required narrative reporting by the government is also needed so that companies disclose the number of women at different levels.

Regular communications from the government highlighting successes and economic benefits or reminders of the need to change also need to be ongoing.

Dr Michelle Gialanze and Prof. Louis Naudi are president and committee member of Women Directors in Malta respectively.

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