The Davies Report: Women on Boards, Contributed by Martin Webster, Pinsent Masons LLP

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It is more than six months since Lord Davies of Abersoch produced his report, Women on Boards,1 and in October he will be reviewing progress to date on the 10 recommendations he made to increase the number of women in senior roles at the UK's largest listed companies.

What Davies Said

Davies painted a stark picture of the under-representation of women in UK board rooms. At December 2010, women made up just 12.5 percent of directors in the FTSE 100 (with only 2 percent in executive roles) and only 7.8 percent in the FTSE 250. That contrasts with up to 60 percent female graduate intakes in some sectors and highlights what has been termed the "leaking pipeline" – well qualified women are recruited by companies that invest heavily in their training and career progression, only to see them drop out before reaching senior executive level. The reasons for this attrition of female talent are diverse but Davies identified lack of flexible working, work-life balance and disillusionment at poor career progression. Whatever the cause, Davies quoted figures claiming that companies with more women directors outperform with significantly higher returns on sales, invested capital and equity2 and that having just one woman director appears to cut a company's chance of going bust by 20 percent.3 Which is cause and which effect may be debatable, but Davies concluded that women "take their non-executive roles more seriously, preparing more conscientiously for meetings. . . . . Women ask the awkward questions more often, decisions are less likely to be nodded through and so are likely to be better."4

The Ten Davies Recommendations

Davies came up with ten recommendations to begin to solve the problems he had identified:

  • All FTSE 350 chairmen to announce by September 2011 their goals for women directors in 2013 and 2015. FTSE 100 companies should aim for 25 percent female representation by 2015; no target was given for the FTSE 250. Davies also expects CEOs to review the percentage of women they aim to have on their executive committees in 2013 and 2015.
  • All quoted companies should disclose each year the proportion of women directors and senior executives and the proportion of women among the work force as a whole.
  • The UK Corporate Governance Code (Governance Code) should require listed companies to have a policy on boardroom diversity, with measurable objectives and annual disclosure as to progress.
  • Companies should report on the above matters in their 2012 reports even if the necessary regulatory changes are not then in place, and chairmen will be encouraged to sign up to a charter supporting the recommendations.
  • The process for appointments to the board and how it addresses diversity should be described in each annual report, with a description of the search process used.
  • Investors should "pay close attention" to the above recommendations.
  • Non-executive board positions should be advertised "periodically."
  • Search firms should draw up a "Voluntary Code of Conduct" dealing with best practice on gender diversity for FTSE 350 board appointments.
  • Recognition needs to be given to two populations of women who are well-qualified for director roles: executives in the corporate sector who need mentoring and training; and entrepreneurs, academics, civil servants and those from the professions who in the past have not normally been considered for such roles.
  • The Davies Report team will meet every six months and report on progress annually.

The Reaction so Far

Much of the public reaction to these recommendations was positive and some company reports already talk about diversity in the workforce and what is being done to measure and improve it. But, compliance with the Davies call for FTSE 350 companies to announce their goals for female board members in 2013 and 2015 has been more patchy. Research carried out by us found that by the end of August the number of FTSE 100 companies that had publicised their intentions as Davies requested barely struggled into double figures. More have followed since, but the numbers remain slim, despite reported pressure from some institutional shareholders.5 This failure to make a public commitment is surprising given that a number of companies have already achieved the Davies' targets: 14 from the FTSE 100 have 25 percent female representation in the boardroom and another 32 have 15 percent or more. Davies said companies would be on track for his target if they had 15 percent women directors by the end of 2011; 46 of the FTSE 100 can already tick that box. Percentages can, in any event, be misleading. Burberry, for example, has the best ratio in the FTSE 100 with 42.9 percent, achieved by having three women directors out of seven; but Prudential, with the same number of women on a board of 16, scores only 18.8 percent. Looking at the FTSE 100 as a whole, by the end of August women comprised 14.3 percent of all directors, up from the 12.5 percent Davies recorded at the end of 2010. Some companies seem to remain resolutely against the Davies proposals, particularly some of the overseas entities with a London listing. At the end of August, 14 of the FTSE 100 had all male boards.

How Will the Recommendations be Implemented?

Davies is recommending quotas in all but name, but he came out against legislation to enforce them, preferring to encourage compliance by recommendation, example and disclosure. Nonetheless, he has adopted a carrot and stick approach, with the stick being the threat of further action: "Government must reserve the right to introduce more prescriptive alternatives if the recommended business-led approach does not achieve significant change." Vince Cable, Secretary of State for the Department of Business, Innovation and Skills (BIS), has made clear that he expects to see results and the EU is also keen to take action (see below). The Financial Reporting Council (FRC) encouraged greater boardroom diversity when it amended the Governance Code for accounting periods starting on or after 29 June 2010. A supporting principle on board appointments says: "The search for board candidates should be conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the board, including gender."6 As a supporting principle, this is not something that the Financial Services Authority's Listing Rules (LR) oblige a company to follow, nor is it part of the "comply or explain" regime. Rather, it provides guidance as to the application of the related main principle, which in this case says: "There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board."7 As a response to the Davies Report, the FRC has consulted on further changes to the Governance Code which would include a new provision for a company's annual report to describe the work of the nomination committee which ". . . should include a description of the board's policy on gender diversity in the boardroom, including any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives."8 This would apply on a "comply or explain" basis, meaning that premium listed companies will have the choice to include such a description or explain why they have not. The FRC has also suggested that annual board evaluations should consider a board's policy on gender diversity. Some of the responses to the consultation suggested the emphasis on diversity should not focus exclusively on gender but incorporate also age, education, background and other factors. Davies urged companies to comply with his disclosure recommendations in their 2012 reports, whether or not regulations were then in place. The FRC is weighing up whether to apply the changes to the Governance Code in 2012, to implement at the same time as necessary legislative changes (likely to be the end of 2012), or to postpone until 2013 to coincide with European changes.


The proposed "Voluntary Code of Conduct" for executive search firms came out in July this year9 and has been accepted by 20 leading headhunters. They commit to ensure that a long list for any board role at a FTSE 350 company should have at least 30 percent women candidates. If not, the search firm should ". . . explicitly justify to the client why they are convinced that there are no other qualified female options, through demonstrating the scope and rigour of their research." There is no equivalent commitment to ensure female representation on any shortlist – that was considered to be down to the board or the nomination committee to decide.

Future Regulation

On 19 September 2011, BIS published its consultation on The Future of Narrative Reporting10 which proposes the replacement of the current Business Review and Directors' Report with a high-level Strategic Report detailing the company's strategy, direction and the challenges it faces, and including summary financial information and remuneration disclosures, all backed up by detailed information in a more formulaic Annual Directors' Statement. The Strategic Report will need to disclose the proportion of women directors but the Government has recognised that, in reporting on women in senior executive roles and in the workforce as a whole, there can be difficulties of definition and in gathering the information. It is therefore proposed that disclosure concerning the workforce will be limited to that part for which information is available, with a note of the proportion of the workforce the stated figure applies to and a description of the parts of the world where information is not available. These changes are due to apply for years beginning on or after 1 October 2012.


Whatever action might be taken by the UK Government and regulators on diversity, the EU is strong on initiatives in this area. In March 2011 the European Commission called on publicly listed companies to commit to 30 percent women directors by 2015 (more ambitious than Davies) and 40 percent by 2020. By August 2011 eight companies had signed up. The effectiveness of this voluntary approach will be considered in March 2012 and a decision taken on whether further action is needed. In the meantime, the European Parliament has come out in favour of imposing these quotas by legislation,11 and an EU green paper on corporate governance12 has said that companies should be required to consider whether they need a diversity policy and to disclose the decisions they take. The EU Justice Commissioner, Viviane Reding, has said that she wants to give companies "a last chance to act through credible self-regulation . . . However, if there has not been credible progress by March 2012, I stand ready to take the necessary legislative steps at EU level."13 Outside the EU, Norway has had legislation in place since 2006 and achieved 40 percent women on boards in 2009. Within the EU, Spain followed the Norwegian example in 2007 with a target of 40 percent by 2015 and France has also legislated for 40 percent, but allowed an extra year for compliance by 2016.


Imposing quotas by law highlights the need to decide on the sanction to be applied if targets are not met. In Norway, fines and possible liquidation were the threat; Spain will give priority in the allocation of government contracts to those who comply; and France will cancel nominations to the board and suspend the fees of all board members. It remains to be seen what sanctions the EU and the UK decide on should the voluntary approach not succeed and they resort to legislation. 

Martin Webster has practiced as a corporate lawyer in the City of London for more than 25 years. He has acted for both quoted companies and growing private businesses and now heads Pinsent Masons' corporate governance unit, advising companies and their boards on governance, risk management and general compliance issues. Telephone: +44 (0) 20 7418 9598; E-mail:

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