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Big banks forced to set quotas for women on boards

Proposals are due to come into force by the start of next year. Picture: AP

Proposals are due to come into force by the start of next year. Picture: AP

  • by ERIKKA ASKELAND AND SCOTT MACNAB
 

British banks will be legally obliged to introduce quotas setting out the number of women they will have on their boards from next year, under new rules planned by Europe.

The regulations will force major financial institutions to establish figures for females in senior leadership roles.

Under the ground-breaking rules, banks will become the first British businesses obliged under regulations to set out targets on gender balance.

Details are being set out as part of a consultation by UK regulators, responding to European Commission plans which are part of a wider package of proposals designed to prevent banks failing.

They are due to come into force by the start of next year and will affect large banks such as Royal Bank of Scotland and Lloyds Banking Group, building societies and investment firms.

The provisions will not set the level of the targets. But institutions will be obliged to publish a policy relating to how the targets they set themselves for women in senior roles will be achieved and potentially report on progress.

The changes were set out by the EC and formally published in June.

They are being overseen by regulatory bodies the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA).

The gender targets will only apply to larger institutions, but all financial firms regulated by the PRA and FCA will be required to publish a policy which sets out how they propose to promote diversity in the boardroom.

The proposed changes are set out in a document called the Capital Requirements Directive IV (CRD IV) and if enacted, are due to come into effect on 1 January, 2014.

The European document sets out rules on how much capital banks must have, as well as new rules on corporate governance, including remuneration. But the requirement for quotas on gender has just come to light after analysis by legal experts.

It follows failed plans to introduce quotas across all large companies in Europe in May. Several countries, including France, Italy, Spain and the Netherlands have introduced targets, but UK ministers have opposed quotas, arguing they could undermine women.

In 2011, former banker Lord Davies of Abersoch set out recommendations in a report commissioned by the UK government that said FTSE 100 companies should try to achieve 25 per cent representation of women on boards or face the risk of seeing regulation imposed.

Lloyds, which includes HBOS, and RBS have already exceeded Lord Davies’s target.

A spokeswoman for Lloyds said: “The board of Lloyds Banking Group continues to focus on improving gender diversity. With the appointments of Sara Weller and Carolyn Fairbairn as non-executive directors in 2012, the board has shown demonstrable progress, raising the percentage of female representation from 8 per cent to 27 per cent.

“Whilst gender diversity is improving at the board level, we recognise that more needs to done to improve the representation of women in senior management roles.”

A spokesman for RBS pointed to its existing diversity policy which states the bank had an “aspirational target” to have a quarter of its board members as women – currently one out of three of its 12-strong board members is female, including Baroness Noakes and former Coca-Cola director Penny Hughes.

The Department for Business, Innovation & Skills yesterday refused to comment on the plans.

But a Scottish Government spokesperson said: “There is no doubt that there is a need to increase the diversity and gender balance of the boards of institutions in both the public and private sectors across Scotland and we will await the outcome of the current consultation with interest.”

Last week, the Governor of the Bank of England, Mark Carney, pledged to boost the number of senior female economists at the bank and said the lack of female representation was “anomalous”.

There are just two women in the top ranks of the Bank of England, including the newly appointed chief operating officer, Charlotte Hogg. None of the nine-member monetary policy committee which votes on the bank’s management of the economy is female.

Linda Jones, an employment partner at Pinsent Masons, said: “This is the first time that a regulatory requirement to set gender targets for senior management teams has been imposed on UK businesses.

“While the requirement only applies to financial institutions at the moment, it may be a taste of things to come for other large businesses.”

Tanya Castell, chair of Changing the Chemistry, a Scottish-based group promoting greater board diversity, welcomed the directive. She said: “People generally underestimate the impact of unconscious bias in making appointments. For example, without realising it, people can undervalue the skills that more diverse candidates offer.”

Helena Morrissey, chief executive of Newton Investment Management and founder of the 30% Club, which campaigns to increase board diversity but without quotas, called the directives “unnecessary and unwelcome”.

Norwegians show the way forward

Norway passed a law in 2006 requiring 40 per cent of boardroom seats go to women – or men in the rare cases of female-dominated boardrooms.

The legislation meant all publicly listed companies had to implement the law by 2008. It was achieved a year later.

But the number of women in chief executive posts still remains fairly stable. One reason is believed to be that many of the most qualified women – dubbed the “Golden Skirts” – ended up sitting on several boards, leading to a smaller than predicted increase in the overall number of women on corporate boards.

The gender quotas in Norway have, by most measures, made only marginal improvements to the bottom line for corporations, disappointing news for supporters of the quotas – although it may be too early to measure the impact.

Studies more women on boards has led to more focused, strategic decision-making, increased communication and less conflict.

Royal Bank ‘in public hands for five more years’

Vince Cable has cooled expectations over Royal Bank of Scotland’s return to private ownership by signalling it may be in public hands for another five years.

The Business Secretary said he believed there was little prospect of any sale taking place before the next election in 2015 and that it is probable that the state will have a stake for the majority of the next parliament as well. His comments conflict with remarks by Prime Minister David Cameron, who has said that the stake should be sold as soon as possible, while RBS’s chairman Sir Philip Hampton believes that the process could begin next year.

Mr Cable said: “I don’t think it would be sensible for the government to set a rigid timetable, but given where we start from I think it is pretty unrealistic to think of RBS going back into private ownership this parliament or probably within five years.”

The prospect of a lengthy spell in private ownership will increase the pressure on the bank to be broken up, with assets such as Ulster Bank and RBS’s £63 billion commercial property book hived off and recapitalised separately.

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