Cracks are emerging in the corporate glass ceiling

Glass ceiling: companies with one or more women on the board have delivered higher average returns on equity and better average growth

Glass ceiling: companies with one or more women on the board have delivered higher average returns on equity and better average growth

Mon, Jun 2, 2014, 01:05

The US Federal Glass Ceiling Commission defined a “glass ceiling” as a political term to describe the unseen, yet unbreachable barrier, that keeps minorities and women from rising to the upper rungs of the corporate ladder, regardless of their qualifications or achievements. However, cracks have begun to appear in this ceiling and the concept of gender diversity in the boardroom is gaining momentum on a European and international scale.

The virtues of gender diversity in the business world are well documented. Credit Suisse issued a report entitled Gender Diversity and Corporate Performance following its review of almost 2,400 companies globally over a six year period to determine whether gender diversity within corporate management really does improve corporate performance. The analysis showed that companies with one or more women on the board have delivered higher average returns on equity and better average growth. In addition, it has been suggested that boards with limited female membership may be weak in terms of connectivity with customers and workforce. European Commissioner Michel Barnier has said that the focus on gender diversity in the boardroom is “not only a question of fairness. The presence of women in the leadership of a country or a region or a business is a question of good governance”.

Notwithstanding all of this, statistics published in a 2012 European Commission Report showed only one in seven board members in Europe’s top firms is a woman. Grant Thornton’s International Business Report 2013 found only 19 per cent of board roles around the world are held by women, despite quotas being put in place in certain countries to increase female participation at board level. An Institute of Directors’ survey found that the representation of women in publicly listed companies in Ireland was at 9 per cent, in comparison to the EU average of 16 per cent.

Globally, there have been a variety of approaches adopted to increase the participation of women at board level, ranging from voluntary measures and “comply and explain” initiatives alongside local corporate governance codes, to required disclosure about diversity policies and legal requirements including “female quotas”.

In the UK, the Davies Report (‘Women on Boards’) recommended that UK listed companies in the FTSE 100 should aim for a minimum of 25 per cent of female board representation by 2015 and that quoted companies should disclose the proportion of women on boards, in senior executive positions and employed in the organisations as a whole. In response, the UK Financial Reporting Council revised its Corporate Governance Code requiring listed companies to put in place formal procedures for director appointments with due regard for gender diversity; to disclose their boardroom diversity policies and to detail any measurable targets and progress made in achieving the objectives.

In November 2013, the European Parliament passed a legislative resolution to adopt a directive on improving the gender balance among non-executive directors of companies listed on the stock exchange.

If implemented, the proposed directive will require companies to put in place a target of at least 40 per cent for under-represented gender for non-executive boards.

Firms would also be required to commit to individual voluntary targets for gender balance among executive directors by January 2020 and to publish annual information on the gender composition of their boards.

Compared to the UK’s “comply and explain” approach, certain European countries, including France, have taken a more prescriptive approach, passing legislation to implement female quotes. In light of developments in the EU the time has come for Ireland to consider what approach it will take in relation to gender diversity in the boardroom.

One step in this direction is the recent signing into Irish law of the European Union (Capital Requirements) Regulations 2014 (the Regulations) to give effect to the EU Capital Requirements Directive IV. As part of its corporate governance remit, the Regulations require credit institutions and investment firms to establish nomination committees to evaluate the balance of knowledge, skills, diversity and experience of the board; set a target for female board representation; and prepare a policy on how to achieve this target.

These measures represent the first indication of Ireland’s approach to gender diversity in the boardroom. It remains to be seen how these targets and policies will be implemented in practice and what effect an increase in female participation on company boards will have on Ireland’s business environment.

Mary Brassil is a partner in the employment group of McCann FitzGerald

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