Overcoming Barriers to Equality and Diversity Representation on Public, Private and Third Sector Boards in Scotland

9 Looking Ahead

Potential Impact of EU Law on the UK

9.1 Although the UK position has been to support voluntary measures to improve gender equality in the boardroom, momentum is building from the European Parliament for the introduction of legislative measures to support improvements in gender balance in the boardroom. On 20 November 2013, the European Parliament introduced draft legislation to improve the gender balance among directors of companies listed on the stock exchange. The legislation would, if approved, require: openness and transparency in the appointment of non-executive board members to listed companies; listed companies take effective and binding measures to guarantee equal access for both women and men to non-executive positions on boards so as to ensure that by 2020, at least 40% of non-executive directors' positions are held by women with public companies having to reach the target by 2018^[138].

9.2 Research on the impact of EU gender directives on the UK suggests that their impact could be significant. The UK Government may have to reconsider the voluntary approach that has been the preferred method for improving gender equality in the boardroom. If the EU directive is finalised and if it appears that corporations subject to the legislative are not likely to meet gender targets by 2020 (or 2018 in the case of public bodies), then it may be necessary to redraft the provision for positive discrimination under the Equality Act 2010 applied to create all-women parliamentary shortlists:

'Once the EU directive is finalised, the UK government must consider what measures will be required to implement the directive. Women currently hold 21.5 per cent of FTSE 100 non-executive directorships so it will be a challenge to achieve 40 per cent by 2020. Specific legislation may be required to accelerate progress. A re-drafting of the current positive action provision in the Equality Act 2010 may be necessary as the current provision is quite limited in scope' (Herbert Smiths Freehills, 2013^[139]).

Support for other Equalities Groups

9.3 In 2012-13, only 5.2% of public appointments in England and Wales were made to candidates from ethnic minority backgrounds. The Commissioner for Public Appointments in England and Wales in March 2014, stated that the proportion of people from ethnic minority backgrounds being appointed to public boards needs to improve^[140]. In May 2014, the chief executive of NHS England, Simon Stevens, spoke of the need for more ethnic minority representation on health boards: 'It can't be right for example that ten years after the launch of the NHS race equality plan, while 41% of NHS staff in London are from black and minority ethnic backgrounds (similar in proportion to the Londoners they serve) only 8% of trust board directors are, with two-fifths of London trust boards having no ethnic minority directors at all^[141].

9.4 Similarly in the private sector, a study published in 2014 noted a 'diversity deficit' in the senior ranks of Britain's most important firms. The study revealed that: More than half of FTSE 100 companies have no non-white leaders at board level, whether executive or non-executive; and two-thirds have no full-time ethnic minority executives at board level. Women and ethnic minority leaders feature disproportionately as non-executive board directors: as a consequence their true level of influence is far smaller than their numbers suggest. The fifteen industrial sectors of the FTSE 100 show very different levels of diversity; strikingly, those which typically show a smaller gender deficit, such as utilities, tend to show a much larger ethno-cultural deficit; and vice versa, as, for example, in the case of natural resources^[142]. As we have seen with the case of gender equality, several groups are emerging that are campaigning for better ethnic minority representation at senior organizational levels, notably Race for Opportunity^[143].

9.5 Van der Walt, et al.^[144] commented that pressure by institutional investors, shareholder activists and interest groups to appoint directors with different ethnic and gender backgrounds helps promote boardroom diversity. Westphal and Milton^[145] also note that 'institutional investors and the popular press have routinely called for the appointment of directors who lack social ties with existing board members and can therefore be considered independent, while also strongly advocating greater board diversity with respect to functional background, industry experience, and expertise'.

9.6 Although the ethnic minority population in Scotland is less than in England, the increasing pressure for greater ethnic minority representation in England may have spillover effects in urban areas of Scotland where the ethnic minority groups are larger. 12% of the population of Glasgow are from ethnic minority groups with slightly smaller proportions in Edinburgh (8%) and Aberdeen (8%)^[146]. The same arguments used to justify gender equality on public boards, that it is good for governance, leads to better decision making and provides better representation for the communities' boards serve, also apply to ethnic minority representation on boards.