Month: October 2018

by Anindita Jaiswal, Ph.D. Candidate, Edinburgh School of Law

While countries like Denmark, Austria, Greece, and Finland have introduced gender balance mandates within the boards of public (state) owned enterprises, similar initiatives within the UK were unknown until Scotland enacted and implemented the Gender Representation on Public Boards (Scotland) Act of 2018 (the “Public Boards Act”). Passed with majority votes[1] and having received the royal assent in March 2018, the Public Boards Act is notable for setting targets for women representation in board of directors. Heretofore, this matter has been addressed in the UK via expert reports (primarily, the Davies[2] and Hampton-Alexander[3] reports), voluntary industry-led measures and the UK Corporate Governance Code.[4]

Objectives

With the force of a legislated enactment, the Public Boards Act seeks to achieve or make progress towards 50% women representation in non-executive directorships by 31 December 2022. While this outlines the broad objective sought, the scope of the target and its mode of application is elucidated in greater detail within the enactment, as follows.

Scope and Application

It is imperative to note that the above 50% target applies only to “public authorities” as enumerated in schedule 1.[5] Thus, boards of the private sector companies remain outside its purview. Moreover, as the target applies only to non-executive positions, appointment of executives even within such public boards are not subject to any gender mandates.

On a closer scrutiny, further pre-conditions emerge, which must be met before the 50% target could get triggered. These include, firstly, a requirement that the appointment sought to be made must be for a vacancy that arises in non-executive position; secondly, there must not be any single best fit for the position, such that more than one candidate must compete for the position, out of which at least one (but not all) must be a woman; and thirdly, each candidate must be equally qualified for the position.[6] When all these conditions are met, preference must be given to the woman candidate while making an appointment to such directorship if such appointment helps to achieve or to make progress towards such gender balance. The “if” further signifies that even where all these conditions exist, preference may not be given to the woman candidate where her appointment does not advance the objective of gender balance “immediately after the appointment”.[7] Does this mean that her appointment in an all-male members’ board that does not immediately achieve the 50% target, or in a board where majority of the directors are women, would remain excluded of such gender preferences? Finally, notwithstanding fulfillment of all of the foregoing requirements, such preference would still not be absolute, as it may be overridden by preferences for other characteristics or situations peculiar to competing candidates.[8]

Alongside the targets, the enactment contains provisions to encourage applications by women candidates.[9] While it is silent as regards means to do so, which is left to be determined by the appointing entities, the explanatory note accompanying the legislation hints at advertising strategies and outreach events, among others.[10] Other mechanisms and operatives in relation to administering the Public Boards Act are to be subsequently notified by way of guidance, regulations and progress reports by the Scottish Ministers, appointing persons and public authorities, as the case may be.[11]

Some Critical Observations

The Public Boards Act is the first State-enacted gender balance mandate for public enterprises within the UK, which otherwise has refrained from adopting hard law measures in this regard. The approach thus far has been industry-led and driven predominantly by business motives, as opposed to legislative impositions. Scotland, in furtherance of its commitment to improving women representation undertaken by the Scottish Government in its “2016-17 Programme for Government: A Plan for Scotland”, seems to have moved a step ahead and enacted the 50% target. This is more so, as the underlying rationale that one can decipher at the outset from the Policy Memorandum[12] appears to be one that seeks to address the under-representation of women in decision-making, or in other words, that of promoting gender equality and social justice. Having said that, it would be premature to conclude that social justice is only rationale for this measure. Rather, on a critical assessment, it becomes clear that the enactment that enables gender preferences in appointments of non-executive directorships is subject to several pro-business adjustments and caveats, such as no single best-fitting candidate must exist, and the requirement for equally qualified candidates for the gender preference to apply. “Not only is this fundamental to equality and social justice, but there is a strong economic imperative for diverse boards too”[13] denotes its explicit reliance on the business case of diversity. This is further proven from the absence of any sanctions in case of non-conformity, despite being advocated for during the consultation rounds that preceded the Act.[14]  Thus, structuring the mandate as guiding objectives or targets rather than quotas seems to suggest that business-oriented concerns have prominence over considerations for social justice.

While the foregoing business-oriented approach broadly conforms to the broader UK approach to gender diversity in corporations, some differences are worthy to note. For instance, there is clearly a deviation in the policy approach that appears to be rather a mix of hard law and soft law (as against purely soft law[15] of the broader UK approach). Next, the difference of thresholds and timelines, i.e. 50% target by 2022 under the Public Boards Act vis-à-vis 33% target by 2020 adopted by the Hampton-Alexander Review, is notable. Likewise, the enactment specifically excludes the application of sections 158 and 159 of the Equality Act of 2010,[16] which means that the legislative clarifications concerning how the tie-breaker would apply and as regards the interpretation of “equally qualified” cannot be followed. This means separate set of clarifications/guidance for the Public Boards Act is needed.

In addition, some concerns arise from within the enactment, such as its scope and ambit which extends only to such public authorities that are listed in Schedule 1, which appears to be an exclusive one. In other words, an enterprise not mentioned within the list would not be captured, and every time amendments would have to be undertaken in such schedule to include other authorities or exclude positions. On another note, while prescribing for how the 50% mandate is to be computed in case of odd number of non-executive directorships, it is stated that the round-off must be made to one lesser (as against the higher) number, which might allude to the tendency to see men (and not women) as the default majority. Finally, considering that the target applies only to non-executive directorships, which are most often viewed as outsider roles, the gender mandate may inadvertently further the risk of gender segregation and stereotyping.

Overall, with a progressive legislation that hinges upon a mix of strategies (located at the intersection of hard mandatory quotas and soft voluntary targets), the Public Boards Act resembles the European Union’s procedural quota, as stipulated in the 2012 Directive proposal on gender balance in non-executive directors of listed companies.[17]

[1] ‘Gender Representation on Public Boards (Scotland) Bill Summary’, available at https://tinyurl.com/y9vmfte3, last accessed 15 October 2018.

[2] Lord Davies, ‘Women on Boards’ (The Department for Business, Innovation & Skills, February 2011).

[3] ‘Hampton-Alexander Review- FTSE Women Leaders, Improving gender balance in FTSE Leadership’ (KPMG, November 2016).

[4] See Financial Reporting Council, ‘The UK Corporate Governance Code’ (2018), Principles J and L and Provisions 17, 19, 23.

[5] Sections 1 and 2 of the Public Boards Act.

[6] Sections 3 and 4 of the Public Boards Act.

[7] Section 3(2) of the Public Boards Act

[8] Section 4(4) of the Public Boards Act.

[9] Section 5 of the Public Boards Act.

[10] ‘Explanatory Notes – Gender Representation on Public Boards (Scotland) Act 2018’ < http://www.legislation.gov.uk/asp/2018/4/notes/division/2> accessed 25 October 2018.

[11] Sections 7 and 8 of the Public Boards Act.

[12] ‘Gender Representation on Public Boards (Scotland) Bill Policy Memorandum’, available at https://tinyurl.com/y9byeqcz, last accessed 15 October 2018.

[13] Id, at 4.

[14] ‘Gender Representation on Public Boards (Scotland) Bill Summary’, n 1 and 2, available at https://tinyurl.com/y9vmfte3, last accessed 09 October 2018. See also, Scottish Women’s Convention Response to: Gender Representation on Public Boards (Scotland) Bill (August 2017), available at https://tinyurl.com/yay3qxwj, last accessed 15 October 2018.

[15] Except for premium listed companies, who have to comply with the UK Corporate Governance Code on a ‘comply or explain’ basis.

[16] Section 11(1) of the Gender Representation on Public Boards (Scotland) Act of 2018.

[17] Proposal for a Directive of the European Parliament and of the Council on ‘Improving the Gender Balance among Non-Executive Directors of Companies Listed on Stock Exchanges and Related Measures’ – COM(2012) 614 Final 2012/0299 (COD) (The European Commission, Brussels, 14 November 2012).