Equality provisions fail to add up in UK boardrooms (Westlaw Business)

By Guest Contributor
January 28, 2011

 Burberry CEO Angela Ahrendts leads a discussion at the IHT Heritage Luxury conference in London 09/11/2010By Christopher Elias

Jan. 27 (Westlaw Business) With annual meeting season just around the corner in the UK, attention is once again turning to corporate governance issues and in particular, board composition, as a recent report from Cranfield University reveals that only 12.5% of FTSE 100 directorships are held by women.

With an overhaul of discrimination law provided by the Equality Act 2010, the importance of gender diversity in boardrooms has never been more profound and the new act strives to achieve better gender equality in companies among other things.

Recent developments seem to suggest, however, that the UK government has stepped back from imposing the full force of the act and will not be imposing mandatory gender quotas or compulsory gender pay reporting – bad news for Cranfield University who produced a damning report on gender diversity in FTSE 100 companies recently.

FEMALE FTSE 100 REPORT

According to the Cranfield Female FTSE Index, 2010 saw “another year of barely perceptible change in the representation of women in leadership positions of UK PLC’s top 100 companies.” With only 13% of new appointments going to women, the overall number of female directors remained around 12%, representing a three year plateau. Incremental increases included three additional women on FTSE 100 boards taking the total to 116; one additional female executive director; four more companies with women on their boards; and two more companies with more than one woman on the board.

Burberry topped the list of Female FTSE 100 Rankings with 37.5% of board members being women including the chief executive and the chief financial officer. Diageo was in close second being the only FTSE 100 company to have more than three female board members and Alliance Trust pinched bronze with three of nine board members women.

With the UK seemingly achieving little or no progress towards increasing the representation of women in British boardrooms, many have called upon the Government to impose more stringent measures to generate greater gender equality.

EQUALITY ACT 2010

Spearheading the regulatory change for greater equality is the Equality Act 2010 (‘the Act’) which was passed into law on 8 April 2010. Voted into force in little under a month before the general election, the Equality Act has found itself in a kind of legal limbo as political momentum fades before all of its provisions come into force.

Replacing previous legislation such as the Race Relations Act 1976 and the Disability Discrimination Act 1995, the Act provides a basic framework of protection against direct and indirect discrimination, harassment and victimisation. More than restating and codifying previous equality laws, the Act goes further and even creates new equality laws.

Whilst most of the Act was brought into force in October 2010, certain new and more politically sensitive aspects still await activation as they continue to lumber in a legal no man’s land.

POSITIVE DISCRIMINATION

Proving particularly controversial has been Section 159 of the Equality Act 2010 that gives “positive discrimination” powers to employers to prefer a person with a “protected characteristic” for recruitment or promotion over other candidates of equal qualification.

The Act lists nine “protected characteristics” that may justify positive action including: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation.

Having been recently approved, Section 159 will now come into force from April 2011 giving employers the option, when faced with two or more candidates of equal merit, to choose a candidate from a group that is under-represented in the workforce. The hope for listed companies is that they will use Section 159 to hire women onto FTSE 100 boards in advance of equally qualified male candidates.

GENDER PAY REPORTING

Less favoured is the gender pay reporting provision contained in Section 78 of the Equality Act 2010 which remains to be implemented. Section 78 gives the power to set regulations to require that employers publish information setting out the differences in pay of male and female employees.

Originally conceived of as a mandatory provision, the section applies to companies who have more than 250 employees and may prescribe descriptions of the employer, employee and may stipulate how to calculate the number of employees that an employer has. Under Section 78(4) regulations will be restricted so that they may not require an employer to publish information more than once every 12 months.

Lynne Featherstone, the Equalities minister, announced recently that the government would be stepping back from making gender pay reporting mandatory under Section 78 and instead would advocate a voluntary system of gender pay reporting. This voluntary system of gender pay reporting will be assessed annually by the government with the threat of imposing mandatory rules if things don’t improve.

DISCRIMINATION IMMUNITY

Slightly confusing matters was the Equality and Human Rights Commission, an independent public body established under the Equality Act 2006, who announced on 20 January 2011 that it would offer limited immunity from investigation for pay discrepancies for those that chose to analyse and report publicly their gender pay gaps.

Hoping to encourage voluntary gender pay reporting the Commission’s proposals give companies the option of reporting pay differences in the hope of achieving immunity from proceedings for discriminatory salary practices. The Commission’s proposals give companies a menu of options for how to voluntarily report on pay by gender. These include:

1. A single figure difference between the median hourly earnings of men and women;

2. The difference between the average basic pay and total average earnings of men and women by grade and job type; and,

3. The difference between men’s and women’s average starting salaries.

Employers will have the option of including a narrative of the causes of their organisation’s gender pay gap, which may be combined with one or more quantitative measures. Organisations with 250 to 500 employees are being encouraged to opt initially to publish information measured by at least one quantitative indicator with organisations of 500+ encouraged to report on initially two indicators, including a narrative, rising to all three over the next two years. The Commission is expected to provide guidance to companies on how to comply with gender pay disclosures in April.

CONCLUSION

Recent developments suggest that the full force of the Equality Act 2010 may never see the light of day despite its earlier high aspirations. As provisions such as compulsory gender pay reporting are dropped and positive action provisions only narrowly make it into law, it seems likely that quotas for the number of women on boards may also fail to be introduced. As the government steps back from earlier commitments, proponents will eagerly wait to see whether these watered down provisions will equate to greater equality.

This article was first published by ThomsonReuters’ Westlaw Business Currents, a leading provider of legal analysis and news on governance, transactions and legal risk. Visit Westlaw Business Currents online at http://currents.westlawbusiness.com.

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