New proposals for increasing gender diversity favour targets over quotas
The recent proposal from the Prudential Regulation Authority (PRA) that large UK banks should set their own targets for women in senior roles has reignited the debate about how to increase gender diversity at the top of organisations
This debate has revealed widespread confusion about the difference between targets and quotas. Reporting the PRA’s proposal, some newspapers referred to "quotas for women on boards", and others to "targets for women"
Targets
The distinction between a target and a quota is significant from a legal perspective. A target is a voluntary measure designed to encourage people to work towards a desired outcome. It is a form of positive action typically used to increase participation of an underrepresented group in particular occupations or roles – for example, by providing them with additional training. Positive action is lawful; positive discrimination is not.
There is normally no sanction for failing to meet a target. So the PRA's consultation document does not refer to any sanctions that would be taken against banks for failing to meet their voluntary targets. And since banks are free to choose their own targets, non-compliance is unlikely to be an issue.
However, the PRA’s diversity proposals do not simply refer to targets. They go further by also asking banks to introduce policies for promoting diversity in their management bodies. If a bank were to flout the PRA's rules, then strictly speaking the regulator could take action against it. This could range from disciplinary action to more stringent intervention, depending on the severity of the breach.
We are likely to know more about how the proposals will operate in December 2013 when the PRA publishes its finalised rules and supervisory statement. Meanwhile, it is clearly significant that one of the UK's leading regulatory bodies wants to see Britain’s largest banks setting gender targets for their management body.
Progress
The view that targets are preferable to quotas informed the 2011 report‘Women on Boards’ by Lord Davies, which recommended that large PLCs should aim for at least 25 per cent female board member representation by 2015. Although there is no sanction for failing to achieve this target, the government has been applying pressure on companies by using naming and shaming tactics. Despite recent signs of a slowdown in progress, the overall position has greatly improved since the Davies report.
This may be due to interventions that the report recommended to improve gender transparency and asking shareholders and institutional investors to become engaged in this issue. And it's not simply large banks that must consider boardroom diversity. Companies with financial years beginning after 1 October 2012, which must comply with the UK Corporate Governance Code, are now obliged to include a section in their annual report setting out their boardroom diversity policy, any objectives they have introduced and a report on progress.
Quotas
Unlike a target, a quota is an example of positive discrimination, which is currently unlawful under both UK and EU law. Sanctions are normally imposed for non-compliance with quotas.
Arguments in favour of quotas usually cite the example of Norway where quotas were introduced to increase female representation at board level. But despite the significant progress made in Norway, there are some wider issues that the country’s quota system has not tackled.
The Equal Opportunities Review has reported that while women make up 35 per cent of non-executive directors in Norway, the number in senior management roles has increased by just 3 per cent in the last five years. There is now growing recognition that an increase in female non-executive positions does not necessarily translate into an increase in women in senior executive roles.
Alternative measures
Change is also needed further down in organisations, where many women struggle to balance careers and childcare. Employers need to value outputs, rather than encourage presenteeism, and accept that women in key roles can work flexibly. That would have a much greater influence on future recruitment to senior jobs than quotas ever will.
Eilidh Wiseman is a partner in the employment team at Dundas & Wilson
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