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Motion to Take Note

Gender Balance among Non-Executive Directors (EUC Report) – in the House of Lords at 6:17 pm on 10th January 2013.

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Moved By Lord Boswell of Aynho

That this House takes note of the Report of the European Union Committee on the Commission 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, Council Document 16433/12) (9th Report, HL Paper 97).

Photo of Lord Boswell of Aynho Lord Boswell of Aynho Chair, European Union Committee, Principal Deputy Chairman of Committees 6:19 pm, 10th January 2013

My Lords, in moving this Motion I invite the House to agree with the proposal of the European Union Committee that a reasoned opinion should be issued. Our report concerns a proposal for an EU directive on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures. This proposal was examined in great detail by our sub-committee on the internal market, infrastructure and employment, which is chaired by the noble Baroness, Lady O'Cathain. I should make it clear, first, that we are very grateful to her. Secondly, while I am moving these Motions that relate to subsidiarity, I will be looking to her to answer any detailed points about the underlying policy issues, for her committee has heard the evidence. I have merely had the opportunity of studying it.

Before I explain our thinking on this proposal I want to make it absolutely clear, for the avoidance of any doubt, that we fully support the aim of increasing gender diversity on boards. There is no backtracking on that. Having studied the report of the debate on a related Motion in the House of Commons earlier this week I was delighted to see that Her Majesty's Government were of the same mind. In this debate it would be helpful if the Minister could respond by giving us an update on the current position in relation to women's participation on boards and also, in particular, on Her Majesty's Government's initiatives in taking this further forward. I sense that the House is absolutely at one on the strategic objective.

Equally we applaud the achievement of the European Commission Vice-President, Viviane Reding, in bringing this issue to the forefront of political debate in Europe. However, our report is about whether the Commission's proposal is the right way to respond to this important issue and we have come to the conclusion that it is not. Our view is that the Commission's proposal is inconsistent with the principle of subsidiarity.

We are frankly not persuaded by the Commission's suggestion that a figure of 40% should be imposed in order to ensure a so-called critical mass of women on boards in member states where boards are traditionally smaller. The proposal fails to take into account the rate of change and the board structures within each member state, and does not adequately make the case that measures taken at national level are not working. In the UK in just over a year and a half, from February 2011 to November 2012, the proportion of FTSE 100 board members who are female went up by 4.8% and by 4.2% in the case of FTSE 250 board members. There have been concomitant improvements in a significant number of other European member states, though not in all.

A key test under the subsidiarity principle within the Lisbon treaty is whether the European Union can add value. The Commission suggests that its proposal is necessary for the practical and competitive functioning of the internal market. We feel that this justification is weak when balanced against the administrative burdens of the proposal and the varying cultural contexts and practices within differing member states.

As I mentioned earlier the European Union Select Committee, which I have the honour to chair, fully supports the aim of increasing gender diversity on boards. I have a personal interest in this subject and can echo my own support of it. We believe that the European Commission can still usefully complement this by monitoring individual member states' action and in cases where individual member states fail to comply with their general, pre-existing obligations to combat discrimination the Commission should then consider further action. However, it remains our view that the European Union-wide legislative action at the present time would be unnecessary and could be counterproductive to the Commission's aim of increasing gender diversity on boards. Action at the member-state level to address these issues would be more effective. We therefore believe that the proposal is inconsistent with the principle of subsidiarity. Under the treaty, we as Members of Parliament have an obligation to consider that and to issue an opinion accordingly if that is our view. In that spirit and context, I beg to move.

Photo of Lord Pearson of Rannoch Lord Pearson of Rannoch UKIP

My Lords, I am a strong supporter of women on boards but I offer only qualified congratulations to the noble Lord, Lord Boswell, and to his committee on opposing their imposition on our boards by Brussels. Of course, it is all that we as a national Parliament can do-but we must not make the mistake of thinking that somehow we are taking part in anything resembling a worthwhile democratic process.

The report put its finger on what has always been the fundamental flaw in the whole fraud of subsidiarity. It has always applied only to those areas of our national life that are not already controlled by Brussels. It has never been applicable to the single market and so to commerce and industry, agriculture, fishing, foreign trade and much else. Under the Lisbon treaty, a democratic fig-leaf was delicately placed on this unseemly state of affairs by introducing the procedure that we are using tonight. The transparently unsatisfactory nature of that fig-leaf can be found in Protocol 2 of the treaty, on the application of the principles of subsidiarity and proportionality. It is worth quoting from that protocol to show just how pointless this whole exercise is.

Article 7 of the protocol states:

"Where reasoned opinions on a draft legislative act's non-compliance with the principle of subsidiarity represent at least one third of all the votes allocated to the national Parliaments ... the draft must be reviewed ... After such review, the Commission"- or, where appropriate, other proposers of legislation-

"may decide to maintain, amend or withdraw the draft. Reasons must be given for this decision ... Furthermore, under the ordinary legislative procedure"- that is, qualified majority voting-

"where reasoned opinions on the non-compliance of a proposal for a legislative act with the principle of subsidiarity represent at least a simple majority of the votes allocated to the national Parliaments ... the proposal must be reviewed. After such review, the Commission may decide to maintain, amend or withdraw the proposal".

I will not bore noble Lords further. The treaty goes on to say that in the final crunch, you need 55% of the members of the Council or a majority of the votes cast in the European Parliament before you can stop the Commission doing what it wants.

That is how democratically weak this whole procedure is. If the noble Lord, Lord Boswell, does not agree, will he tell me how many Commission proposals have been withdrawn under the procedure that we are now using? What hope does he hold out for this one? In other words, have we got on our side at least one-third of all the votes allocated to national Parliaments? Will the Commission even have to review this proposal, never mind whether there is any chance of seeing it fall?

I hope that we succeed, because I strongly support the presence of women in the boardroom. However, their presence should be a matter for shareholders, perhaps with a little gentle persuasion from national Governments. It should not be just one more morsel of national sovereignty devoured by the corrupt octopus. To that extent, I support the noble Lord's Motion and look forward to his answers.

Photo of Baroness O'Cathain Baroness O'Cathain Chair, EU Sub Committee B - Internal Market, Infrastructure and Employment 6:29 pm, 10th January 2013

My Lords, I support the Motion. Before giving my reasons for doing so, I want to reassure the noble Lord, Lord Pearson, whom I greatly admire, particularly for his assiduousness in pursuing all the nooks and crannies of European legislation. As far as we know, eight member governments and parliaments are against this draft directive, which is just under a third. As there are 27 members and about a third of them are yet to be clear about their position, it looks quite likely that the proposal will be withdrawn. I will not say very likely and I will not bet on it because I am not a betting woman. However, the response we had wholeheartedly in support of this has been remarkable. It has made me very proud to chair Sub-Committee B, which did this exercise. We received so much goodwill and the whole point is to say that the Commission is right to highlight this. This Government have benefited from the actions undertaken by the previous Government in asking the noble Lord, Lord Davies, to look at this whole area. That was the spark that ignited a great flame of interest, for which all credit is due both to the previous Government and of course to the noble Lord, Lord Davies.

Anybody who reads the newspapers now realises that there is huge support for this. I am not saying that our committee started it-not at all-but the reality is that the time is right. When it is said that the European Union will not do this or that, we think the European Commission has a strong role to play in highlighting the issue. However, it also has to get itself attuned to what is likely to be best practice. Unfortunately, there is quite a lot of confusion at the moment about non-executive directors, executive directors, listed companies and private companies. I read the debate that took place in the other place on Monday. So many Members there just do not understand what is going on. What we really need to do is encourage the Commission to look at the whole thing before it even thinks about going down the regulation route. Instead of legislating, we need to encourage. I am convinced that there is an open door which needs very little pushing at the moment.

As anyone who attended the debate on our report in November will realise, the Commission came up with this draft directive-at least, it was going to issue one, but changed its mind, obviously because of some problem within the Commission. We issued our report, the Commission then issued its draft directive, which was a lot less regulatory that we thought it was likely to be. However, it still has the idea of mandatory quotas. By persuasion and by discussing it quite widely, we are now trying to clear people's minds about what we are talking about: encouraging boards to look at the real problem of gender inequality at the top level. That is not because we just want women on boards but because we absolutely believe that they would make a very positive contribution. There is no question about that.

I want to take issue with some of the things that have been said, including in the debate. It has been said that there is evidence that business would be better and that there would be more profits. We have been rigorous in examining this and we cannot find evidence that there is a direct link between putting more women on boards as non-executive directors and better financial performance by the company itself. That is why we stated it. We do not want to make any statement at all which has not been proven by the evidence. I assure noble Lords that if they go back to the original report, they will find that it is all evidence based and we can all stand up and support it.

We need to get away from the confusion. At the moment this is only a start. People are now saying, "What about executive directors? Why are there no executive directors on the way up?" Having women as non-executive directors on boards acts as a stimulus for women within organisations to say, "If she can get there, why can't I?" I know of two specific cases where that happened to me as a non-executive director of two different FTSE 100 companies. I used to go and talk to the senior women and they all thought it was a great example. Both those boards now have several women directors on them.

We are starting from a very low base and people say that it is not going to be achieved. However, there were no other women on the first board that I was on in 1984, and in the FTSE 100 companies at that stage there were six women directors. Now around 17% or more of the people on boards are women. That is a huge increase. People say that it is not happening fast enough-of course it is not happening fast enough-but at least we are getting there. We have highlighted these issues and formulated this reasoned opinion so that the European Union can think again, moderate its demands and not be so entrenched about legislative quotas. Those will turn women off. Women will say that it is tokenism and patronising.

I hope that we can achieve all that we want and that the noble Lord, Lord Pearson, will come round to our way of thinking. I support absolutely what my noble friend has said.

Photo of Baroness Bottomley of Nettlestone Baroness Bottomley of Nettlestone Conservative

My Lords, I strongly support my noble friend Lord Boswell for his sanity and good judgment. I want to speak about the gap between the last two speakers because this proposed directive is an example of the most irritating and frustrating way in which the European Commission sometimes behaves. It is alienating and irritating and it maddens individuals who are more open-minded than some might think about the whole European endeavour.

A quota is alien to the British way of thinking. We believe in voluntary principles, in persuasion, in best practice and a bit of naming and shaming. Our approach is a voluntary one wherever possible and quotas offend. A target, a goal, an objective, but not a quota.

In any event, why a quota for non-executives? I want a quota for the number of male teachers in primary schools because a great number of primary schools do not have a male teacher. That is a much more serious problem for disadvantaged children growing up with no male model at all. To introduce a quota for non-executive directors is ludicrous when we all know that the serious issue is what happens to female executive talent as women go up through an organisation.

Seeing the noble Baroness, Lady Howe, in her place reminds me that my experience goes back 20 or 30 years to the issues in the health service. It was overwhelmingly a female workforce, overwhelmingly used by women, taxpayer funded, and yet somehow it was led by stale, pale males. In that case, introducing targets and goals, particularly in a taxpayer-funded service, seemed extremely sensible. I think that we managed to get non-executive appointments up to where something like a third were women.

The reason that business invests and flourishes in this country is precisely that our corporate governance structures are principles-based, not rules-based. How many realise that in the top 15 companies in this country 23 different nationalities are represented? I challenge anyone to find any other member of the European Union which has 23 different nationalities represented on its top 15 companies. In other words, diversity in its true sense is a goal which is celebrated in Britain and we have a great deal to be proud of.

I turn now to the report of my splendid colleague, the noble Baroness, Lady O'Cathain, who was a pioneer for women on some of the most senior boards. I celebrate this report and believe that it is excellent reading for a great number of people interested in the cause. The only minor area of dispute is that I am sympathetic to her point that there are not demonstrable results from having a gender-diverse board, but I want her to lock horns with McKinsey, because it is verboten to disagree with McKinsey in this day and age. However, it asserts that gender-diverse boards achieve superior financial returns, both in their net profit margins as well as the higher returns on equity each year.

Photo of Baroness O'Cathain Baroness O'Cathain Chair, EU Sub Committee B - Internal Market, Infrastructure and Employment

The fact is that we were determined that it had to be absolutely evidence-based. Do not worry-we went to McKinsey. We do not have firm evidence for that; in fact, figures were floating around which were withdrawn when we started to pursue that assertion.

Photo of Baroness Bottomley of Nettlestone Baroness Bottomley of Nettlestone Conservative

I am more sympathetic to the noble Baroness's argument than I am to people who go excessively far in arguing for the financial returns. Frankly, enlightened businesses have gender-diverse boards, so it is very hard to tell what the variable is. However, there is evidence that where governance is weak, female directors exercise strong oversight. They are very good at managing and controlling risk. When you talk about women and cost control, there is not a household in the country where family members will not immediately nod their heads and say "Yes, it's the women who are in charge of cost control".

I am absolutely certain that the evidence about female directors enhancing board independence is valid. Females are more resilient and resistant to groupthink, and that has so often been the case in discussions and debate, whether in politics, in business or in many other enterprises. If part of the causes of our corporate disasters has been groupthink, then I have no doubt that women, with the competence and necessary skill, make a great addition. Their management style tends to be much more appropriate to the modern forms of management than the more didactic, autocratic patterns of the past.

The real issue, of course, is that he who pays the piper calls the tune-and by 2025 there will be more female than male millionaires in this country, and 60% of the private wealth will be managed by women. It is enlightened self-interest to take this topic seriously. Nobody doubts the Government's commitment in this area. Since the report of the noble Lord, Lord Davies, 49% of non-executive appointments have been women. As I have said, the noble Lord has done a great job and we are all indebted to him, but there are so many architects and investors in this policy, and no one person can be thought to have achieved that change. However, being led by a man-regrettably-has probably been a factor in achieving the necessary results. We are now on target for women to comprise 40% of board membership by 2020.

This is, therefore, a success story, but it is important that it is not a passing fad. It needs the tenacity, the long-term approach and the monitoring. I congratulate my noble colleagues on determinedly resisting the idea that this is an area of EU competence. It will simply be counterproductive in our context. We endorse the importance of this principle and congratulate the Government on the progress to date, and I support my noble friend in his Motion.

Photo of Baroness Scott of Needham Market Baroness Scott of Needham Market Liberal Democrat

My Lords, my support this evening for the Motion does not in any way detract from my absolute commitment to the need to have more women on boards, for a whole range of reasons which have already been given, but not least because not to have women on boards is an absolute waste of the talent and education in which the country has invested.

The question before us this evening is not about the merits of women on boards, and it is not even about the Commission's proposals. This evening's debate is about the question of subsidiarity, and I will focus my remarks on that. This is the second time in a month that the House has been asked for a reasoned opinion. Both requests have come from Sub-Committee B, and as a Member of both that Committee and the EU Select Committee, I can tell the House that we have spent a lot of time not only discussing the specific issues but the general nature of subsidiarity.

I thought that I had a pretty good idea about what was meant by subsidiarity. Indeed, the paper that we are looking at today defines it as acting at EU level where it genuinely adds value to do so and where objectives cannot be met without action at EU level. I think we would all understand, even if we do not agree with it, that there are times when the pursuit of EU objectives such as the single market or the free movement of people clearly requires legislation. However, I do not believe that the Commission's proposals for gender quotas on boards have met these tests. No one, during the evidence that we took in our inquiry, argued that it was a single-market issue. It was portrayed as, and indeed is, a matter of gender equality, but we already have EU legislation that outlaws gender discrimination, and it seems that we should be looking to the Commission and to member states to take action on that front before bringing in new legislation. I even wonder, although I am not a lawyer, whether a statutory 40% quota would comply with the EU's own gender equality legislation, since it would enshrine an imbalance.

In parenthesis, I would add that the Commission itself has a very poor record of gender balance at its highest levels, but perhaps we should gloss over that.

The evidence that has been quoted by the Commission is very much at odds with the evidence that we took in our recent inquiry. Even the strong supporters of improved gender diversity on boards told us that there was no evidence of improved financial performance. The one report which had shown that there was had subsequently been withdrawn by the writers because it had been discredited and its methodology was flawed. The rumour machine seems to have gathered pace and it seems impossible to stop, but there was no evidence.

The Commission asserts that:

"Self-regulatory initiatives in a number of Member States have not yielded any similarly noticeable changes".

That is simply not true. It misses the point that in countries like the UK, where we have become much more engaged with the matter in recent years, changes are happening as a result. The Commission has argued that this is a single-market issue and that the current state-by-state approach,

"poses barriers to the internal market by imposing divergent corporate governance requirements on European listed companies".

Not a single large company or the representative organisations that we spoke to saw this as a problem. From subsidiarity's perspective, I am very concerned that what the Commission appears to be saying here is in essence that member states are not permitted to have separate regimes but, in pursuance of a theoretical single-market principle, member states must lose all power of autonomous action. This issue today goes much further than the issue itself, and it is for that reason that I support the Motion for a reasoned opinion. I hope that the House agrees.

Photo of Lord Kakkar Lord Kakkar Crossbench 6:45 pm, 10th January 2013

My Lords, I, too, support the Motion in the name of the noble Lord, Lord Boswell of Aynho, and declare my interest as a member of your Lordships' European Union Sub-Committee B, which has considered this issue.

This is a particularly important and sensitive political issue at this time. Across Europe there are real concerns about the future role of the EU, and indeed recognition that there will be a need for renegotiation of European treaties to deal with the Europe that has resulted from the recent financial crisis. It is therefore vital that both national Governments and the Union itself respect the principles and concepts already enshrined in existing treaties, if the respect of the citizens of European nations is not to be lost because there is a disregard by either party for what is already recognised, appreciated and enshrined in those treaties.

The question of competence and subsidiarity, as we have heard from the noble Baroness, Lady Scott of Needham Market, has been reviewed in some detail in the work of Sub-Committee B in considering the issue of women on boards. There is no doubt that, as we have heard, the sub-committee and the European Union Committee have arrived at the same conclusion, as has the other place, with regard to recognising that gender equality on boards is vital on boards and should be respected. However, on the question of competence and subsidiarity, it is also recognised that there are certain areas in the work of the European Commission where the Commission alone is able to act, and therefore competence is reserved to the European Union solely. There are other areas where there is definitely no need for the European Union to act and where competence is retained solely with national Governments. There is a middle area, such as in matters dealing with the internal market, where competence lies both in the hands of national Governments and at the level of the European Union. Here it is important that the principle of subsidiarity is applied with absolute clarity.

On the question of the internal market and gender equality on boards, we can ask-and indeed the sub-committee did ask-a number of simple and straightforward questions. The issues and the answers to those questions were rehearsed during its debate on its main report in November of last year.

With regard to the simple question, "Are national Governments able to act to secure greater gender equality on the boards of publicly listed companies?", the answer is clearly yes. In this debate we have heard that since 2010 our own country has acted in a most definite and precise manner to encourage the appointment of more women to boards of publicly listed companies and is on target to achieve a 40% figure by 2020.

The second question is: will action at European Union level add value to what national Governments are currently doing? No argument has been made by the Commission in this area. If a single, coherent argument had been made in the directive, it would be right for this national Parliament to consider it and then potentially not be in the position where it had to offer a reasoned amendment. However, no such coherent argument has been made by the Commission and so that particular test and question fail.

The third question is: would the internal market function more effectively if the European Union, the Commission, were to act rather than national Governments? Again, the answer is no. No argument has been made by the Commission that suggests, in any way whatever, that the internal market would function better if the European Union were to legislate with regard to membership of boards, rather than national Governments.

I come back to the very sensitive time in which this question of subsidiarity must be considered. As we know, Her Majesty's Government will return to Europe and the institutions of Europe shortly to start describing their negotiating position with regard to future treaty amendments. So it is important that the people of our country feel confident in the treaties that currently exist and that the European Commission will respect the principles and bases that form our national understanding with regard to our continued participation in Europe.

I believe that this reasoned amendment is vital. As we have heard from the noble Lord, Lord Boswell, the matter was discussed in the other place on Monday of this week and the other place took a very clear and definite view on it-a view shared by your Lordships' European Union Committee. I hope that this House will endorse this important Motion.

Photo of Lord Wilson of Tillyorn Lord Wilson of Tillyorn Crossbench

My Lords, I, too, will speak very briefly and not delay the House too long, partly because I am a relatively new member of Sub-Committee B, at least in its present incarnation; I was a member of a previous incarnation some time ago.

The inquiry into women on boards was the first one that I attended as a member of the present Sub-Committee B and it was a very impressive process. The evidence, witnesses and written submissions that came before us were all very thorough, and everything pointed very clearly in the direction in which the committee itself reported. In other words, it is highly desirable to have more women on boards. It is an underutilised resource. Efforts must be made to increase the number of women on boards. In the UK this is happening steadily. There is no sustainable case for doing anything further by legislation rather than by encouragement. Indeed, most of the female proponents of more women on boards very strongly did not want that to happen. For me, it was a very interesting learning process.

With regard to this directive, the Commission is surely right in saying that it is desirable to have more women on boards. It is an underutilised resource, which is putting it rather mechanically, but it is absolutely true. But it is very strange indeed that the Commission goes on to say two contradictory things. First, it argues-although the arguments against have been quite strong-that there is a direct and positive advantage simply to having more women on boards, rather than the more subtle version that a good company gets women on boards and it is successful because it is a good and open-minded company. At the same time the Commission argues that we need a European-wide directive because there will be some countries that do not want to put themselves at a disadvantage by having more women on boards. It is a bit difficult to square that particular circle.

I do not think that the Commission's proposals really stand up. Of course, what we are discussing this evening is whether they offend against the rule of subsidiarity. The points have all been made by others so I will not labour them. It seems absolutely clear that European-wide legislation does not add an advantage and that such is the diversity within Europe, with different types and structures of boards, that one size fits all simply does not meet the need of the moment. Therefore, I, too, support the recommendation of the noble Lord, Lord Boswell, that we should put in a reasoned opinion saying that what the Commission proposes offends against the procedures for subsidiarity.

Photo of Baroness Thornton Baroness Thornton Shadow Spokesperson (Equalities and Women's Issues)

My Lords, this is the second debate we have had about this issue. I realise that this is the second report, which deals with a different matter, but it is important that we recognise that as we debate the need for gender balance in positions of leadership in business, this Parliament and this Government should acknowledge their own failings in this area. We have no room to be self-satisfied. With just 22% of our current MPs being women, and just four women-that is, 18%-in the Cabinet, we are on a long road.

Photo of Baroness O'Cathain Baroness O'Cathain Chair, EU Sub Committee B - Internal Market, Infrastructure and Employment

I thank the noble Baroness for giving way. This same argument came up before. This has nothing whatever to do with the place of women as non-executive directors on boards of listed companies. The opposition spokesperson in the other place went that way in his opening statement as well but then came firmly down against quotas and for the reasoned opinion.

Photo of Baroness Thornton Baroness Thornton Shadow Spokesperson (Equalities and Women's Issues) 7:00 pm, 10th January 2013

If the noble Baroness would let me continue, she may find that I will do the same, but there should be no complacency about this matter. That was the only point I was making; and I am sure that she would agree with that. I was about to pay her a great compliment, so perhaps she would like to wait for that, too. It is late, and I do not intend to speak for very long. My honourable friend in the other place was right to raise the issue. The subject of gender balance is important, but we have an underrepresentation on company boards in other respects, which we also need to address. The fact that only 5.7% of FTSE 100 directors are drawn from ethnic minorities is, I think, a problem. That is not the first time that that has been mentioned.

As I have said in the House before, we welcome the report of my noble friend Lord Davies on women's representation on boards. My noble friend has made it clear that there is a moral imperative to change the state of affairs. There is a very strong case for that. We on these Benches also believe that we should regulate or legislate only as a last resort, but we should not rule out the need to take further action if we do not reach the target set by my noble friend, which we all seriously support-25% of female representation on boards by 2015. I acknowledge that we are on the right trajectory to get there, but more action will be needed.

I congratulate the noble Baroness, Lady O'Cathain, on two things. The first is the excellent report that we discussed in November; and the second is her personal role in encouraging women to come forward to positions of responsibility, not just on boards but in other places. In all my time in your Lordships' House since 1998, I have seen her as a very good example of what women can and should aspire to and could achieve. Whether we reach those aspirations through the Davies report will become clearer during the next year. We will probably need to return to the subject towards the end of this year, to see where we are and what further needs to be done.

I will not rehearse what action has been taken by the Commission at European level, but a point that I have raised with the noble Lord, Lord Boswell, is that the problem that I have with these Motions is not to do with the arguments about the draft directive and the committee's reasoned opinion, it is to do with how we in the UK should work constructively in other ways to advance the cause of equality in company boardrooms along with our European partners. We must be very careful not to send the message through this action today that it is in any doubt that we should be doing that.

The Under-Secretary of State for Women and Equalities, in her response to the House of Lords European Union Committee, said that she agrees that the European Union has an important role to play in improving the representation of women on boards. If that is the case, I hope that the Government will say how that should happen, how we should give a lead and what our involvement should be. That debate presents a golden opportunity-although Viviane Reding has raised the issue in the way that she has, we should not get drawn down the road of European protocol and subsidiarity. We have to say what we need to say, but we should also make it clear that the UK wishes to be in the forefront of debate in achieving greater equality in this matter.

Photo of Baroness Stowell of Beeston Baroness Stowell of Beeston Lords Spokesperson (Department for Work and Pensions), Lords Spokesperson (Women & Equalities), Baroness in Waiting (HM Household) (Whip) 7:04 pm, 10th January 2013

My Lords, as this is a debate on a Motion from a Committee of this House, my contribution is purely to set out the Government's position, not to respond to the debate; I will leave that to the noble Lord, Lord Boswell. As other noble Lords have described what the Commission is proposing and explained eloquently the general principles of subsidiarity, I will not take any time on that but get straight to the matter, which is the Government's position on the directive.

We set that out in the Explanatory Memorandum, which was sent to the European Scrutiny Committee by my honourable friend the Minister for Employment Relations, Consumer Affairs, Women and Equalities. We gave the Government's assessment of whether the Commission's proposal meets the principle of subsidiarity. Since submitting that memorandum, the Government have had an opportunity to further analyse the directive from the Commission and we have concluded that its proposals do not meet the test of subsidiarity. We believe that there is no reason why member states cannot achieve these objectives acting alone, and there is no evidence of any value added by the involvement of the EU in the way put forward in that directive.

However, the Government are committed to increasing the number of women on boards; and, as the noble Baroness, Lady Thornton, and other noble Lords have said, it is very important that we, as a Government, make it absolutely clear that the fact that we do not believe that the Commission's proposals meet the test of subsidiarity in no way dilutes that commitment. We believe that increasing the number of women on boards is the right thing to do because it is the right thing for women, for business and for our country's wider economic success.

We pledged to promote gender equality on the boards of listed companies in the coalition agreement. An independent review in 2011, led by the noble Lord, Lord Davies of Abersoch, identified the barriers preventing women from reaching senior roles in business and recommended to the Government a business-led strategy to bring about the necessary change. We have been working with business to implement this strategy and we believe that the results already demonstrate that national-level solutions are working.

The Government believe that this voluntary business-led approach is right for the UK. We need to see a real culture change taking place at the heart of business if progress is going to be sustainable and long-term. Companies need to understand and believe that diverse boards are better boards. We want a business environment where women can and do take their seats at the boardroom table on merit and without the spectre of tokenism. I have always believed that, to attract not just more women but the best women with a wide range of experience, businesses need to show that they want them to join the team for what they bring, not because of who they are, and certainly not just because they have been told they have to.

The Government believe that member states must retain the flexibility to respond to their own individual circumstances. Likewise, businesses need to be able to respond to the varying needs of the sector, size and type of business. None the less, the Government agree that the EU has an important role to play in improving the representation of women on boards, which is the point made by the noble Baroness, Lady Thornton, my noble friend Lady O'Cathain and others. We share the Commission's view that in the member states and throughout Europe, fair chances and opportunities for women in executive posts should and must be promoted. The EU has done a good job of highlighting the issue and raising member states' awareness of its importance. As a result, many countries are developing their own individual programmes of initiatives. The Government agree that the EU should continue to show leadership on this issue, shining a light on and disseminating good practice across member states.

However, in line with the subsidiarity principle, it is first and foremost up to member states to find their own national approach to achieving this goal. Many member states are considering, or have implemented, various differing national measures on a voluntary basis to facilitate raising the proportion of women in boardrooms. Some have decided that domestic legal action is appropriate for their own circumstances. It is our view that these efforts must be granted more time in order to establish whether they can achieve fair female participation in economic decision-making on Europe's company boards.

In the case of the UK, the Commission has projected that only 17% of UK listed companies would have at least 40% women directors by 2020. The Commission's analysis is based on extrapolating the increase in the number of women on boards between 2003 and 2011 forward to 2020 using a linear progression. Of course, 2011 is when the noble Lord, Lord Davies of Abersoch, published his report on increasing the number of women in British boardrooms. Since his work started, we have seen nearly a 50% increase in the number of female non-executives in the FTSE 350. While we have therefore not forecast the number of individual companies that might have 40% female directors by 2020, we would expect it to be significantly in excess of the 17% projected by the Commission. Indeed, research by the Cranfield School of Management shows that should the current pace of change be maintained, we are on a trajectory to achieve 27% on FTSE 100 boards by 2015 and 37% by 2020.

As I have said, we believe that we need to see a real culture change taking place at the heart of business if progress is to be sustainable and long term. Companies need to understand and believe that diverse boards are better boards. Voluntary measures that businesses can truly buy into, such as the business-led approach that the UK is taking, can help to bring about this change in a way that blunt legal measures never can. We believe that prescriptive measures such as quotas or binding targets run the very real risk of undermining women and their contribution at the most senior levels in our economy. They will more than likely be counterproductive to our overall aim of seeing more women reach the boardroom. We do not want to see the spectre of tokenism.

We agree with the Committee that all parties need to work together to achieve gender-balanced boards via measures that focus on bringing about real, lasting change for the benefit of women, business and the economy in a way that is sustainable and achievable. The negotiations in Brussels on the Commission's proposals have not yet started but we are already discussing them with a number of stakeholders. Clearly, today it is a matter for the House to decide whether to send a reasoned opinion to the Commission but the Government welcome this debate and the support expressed for our approach to addressing the very important matter of women's reputation on corporate boards. This is clearly something on which we will continue to focus and seek to make good and strong progress.

Photo of Lord Boswell of Aynho Lord Boswell of Aynho Chair, European Union Committee, Principal Deputy Chairman of Committees

My Lords, I am very grateful to all noble Lords who participated in this debate and for the general message of support for this reasoned opinion. I am also grateful to the Minister for reiterating the Government's support. The support has not of course been unqualified and it is right that the reasoned opinion be questioned but, if nothing else, it at least provides a mechanism for sending a message to the Commission to reconsider where it is and to look at the difficulties within its own proposals.

Perhaps I may take two points of substance from the report and the debate. One, which is in the substantive report prepared by Sub-Committee B, is on how there can be a distinction between executive and non-executive directors. There is none in English law, as I understand it. To meet the obligations being suggested by the Commission, it would be necessary to introduce one. The other, which I think did not get considered by the committee-although I am prepared to stand corrected on that-would be on the relations between subsidiary companies and the main company. The proposals from the Commission bear on the main quoted company, so one could have a situation where it was entirely compliant but where every single subsidiary had a ridiculously skewed structure without apparently breaching the proposed obligations. I mention those only as points of example on the substance of the matter.

Given that there has been strong support on what might be termed the constitutional or procedural issue about the reasoned opinion, I think I can turn my remarks to those of the noble Lord, Lord Pearson of Rannoch. His views on the European Union are perhaps well known to the House; he is, shall we say, not too keen on it. By extension he may therefore be, and is reasonably entitled to be, sceptical as to the use of a reasoned opinion procedure. He asked me first a specific question, which I will do my best to answer, on the progress of this proposal. As I understand it, as of yesterday the score among national Parliaments was 7:7. If we were to accept this Motion, those wishing a reasoned opinion would take a short-head lead on the matter. Whether the magic number of 14 would be reached in time to trigger the formal yellow card is of course still open to speculation and by no means certain.

I should perhaps explain to the House for completeness that it is complicated by the fact that roughly half the Chambers or the Parliaments of the member states are unicameral and the other half are bicameral. In fact, one requires to produce a third of 14 votes, one of which will come from the other place and one of which will come from our House, whichever way we choose to cast our decision or to abstain from doing so, which amounts to not playing a reasoned opinion. That is the state of play on this particular matter.

There is one case so far in what is still a relatively untried procedure-and the noble Lord, Lord Pearson, referred to this-in relation to the Monti issue and the right to strike, which has resulted in the Commission withdrawing its proposal on the presentation of a reasoned opinion. I just say to the House and to the noble Lord by way of advice that, whatever view he may take on the merits of this procedure, it is the best weapon we have. To borrow a motto from another context, we should either use it or lose it. I think it is right that where the circumstances so well set out in the report and by the noble Baroness, Lady O'Cathain, demonstrate the argument, we should say so. It is our constitutional duty to say so; that is what tonight's debate is about.

As far as I am concerned, I am relaxed and very much support the committee's approach for the issuing of reasoned opinions as and where they are appropriate. If passed tonight by the House, this would be the fifth reasoned opinion which this House has issued. I claim no credit for the fact that two of those would have been in the past three weeks. Equally, I do not wish to speculate that we are likely to produce a strike rate of anything like that amount. It very much depends on what comes forward from the Commission, but it is important.

I also point out to the noble Lord that when he suggests that the Commission might, in some cynical way, retire from this and come back with the same thing in a different form, in my view the formulation of policy within Europe is not a binary exercise; it is either one thing or another. It is very much a matter of influencing opinion. The fact that, if this Motion is carried tonight, eight Parliaments within the European Union have said, "Hang on a minute-we are not happy about this", is a very important political factor in the circumstances.

Finally, from the meetings I have had with colleagues in other countries, I think that there is a growing interest and appetite among national Parliaments to rebalance the policy debate, both within the remit of the Lisbon treaty and anyway because of the size of the European Union and the complexity of the issues it deals with. Picking up the points that the noble Lord, Lord Elton, made, we need to look very seriously at irredentism by the centre. We need to make sure that things that do not have to be decided by the centre-even if they are desirable as objectives-can be dealt with by the member states and by a process of dialogue and iteration rather than by the imposition of a centralised solution. It is on that-the constitutional issue, rather than the merits of women on boards or greater diversity generally, where I think there is a unanimous view across the House-that we should concentrate tonight.

Motion agreed.