A "Hands-Off" Intervention: The UK's Approach to Increase the Number of Women on Corporate Boards

BACKGROUND AND GENERAL POLICY CONTEXT OF THE UKThe UK takes a voluntary regulatory, rather than a mandatory legal, framework approach to boardroom governance and behaviors, aiming "to set a global standard for good practice in corporate governance" (Heidrick and Struggles 2009, 44). This regulation is overseen by the Financial Reporting Council (FRC) and has been guided by a code of conduct that has undergone a number of reviews over the past twenty years. The FRC is the UK's independent regulator responsible for promoting high quality corporate governance and reporting. The UK Corporate Governance Code (referred to as "the Code") is a set of principles of good corporate governance aimed at FTSE-listed (Financial Times Stock Exchange) companies. These FTSE-listed companies, or public limited companies (PLCs), are required to disclose how they have complied with the Code and explain where they have not applied the Code-in what the Code refers to as "comply or explain" (FRC 2012,4). The Code adopts a principles-based approach in the sense that it provides general guidelines of best practice. This contrasts with a rules-based approach, which rigidly defines exact provisions that must be adhered to. The Code is essentially a consolidation and refinement of a number of different reports and codes concerning good corporate governance produced in the UK over the past twenty years.Investigations by Derek Higgs (2003) and Laura Tyson (2003) into UK corporate governance called for more independent directors and greater variety of experience, and recommended the use of external search consultants for board appointments. Changes to the Code were made accordingly. In May 2010, a principle was introduced, which, for the first time, recognized the value of gender diversity in the boardroom, stating that "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" (FRC 2010,13).MONITORING THE BOARDROOMIn 1999, Cranfield School of Management's International Centre for Women Leaders (CICWL) created its first index of FTSE-100 companies ranked in terms of their percentage of female board directors, similar to the Catalyst Board Census in the United States. Each year the project grew, and it now reports annually on the board and executive committee composition for up to 1,400 FTSE-listed companies in the UK. The report has been backed by government at the highest ministerial level and sponsored by several major businesses, and receives much media coverage.By 2010, after a decade of reporting, the headline percentage of women on boards in the UK had risen just 5 percentage points from 7 percent to 12 percent. The sense of growing frustration felt by government and women in business was reflected in the media. Following Norway's 2008 adoption of a 40 percent quota for either gender on boards and Spain's move to recommended targets, discussion among other European countries about possible action increased. Parts of the then-UK government were keen to become more actively engaged with this issue.In 2010, the Australian Stock Exchange Securities Council (SESC) introduced gender metric reporting as part of its governance code. The aim was to significantly increase the proportion of female board directors and avoid any requirement for (threatened) government intervention in the form of legislation. The SESC figures show that the percentage of new appointments going to women has risen from 5 percent in 2009 to 27 percent in the first half of 2010, demonstrating what could be achieved once individual stakeholders are motivated (Australian Institute of Company Directors 2012.Australia has similar board structures and corporate governance rules to the UK and so CICWL recommended a similar approach to the UK government. In 2010 a new coalition government took office and, concerned about the lack of progress on the issue of women on boards in the UK, asked Lord Mervyn Davies to set up a review. …