Len Shackleton: Cameron is wrong to pressurise firms into putting more women on company boards

Professor Len Shackleton is Economics Fellow at the Institute of Economic Affairs.

David Cameron’s trip to the Nordic-Baltic conference seems to have reinforced his view that companies should be pressurised into putting women on their boards. At present he favours Lord Davies’s “target” of 25% female board membership for FTSE-100 companies, but is hinting that insufficiently rapid progress may lead to the imposition of formal quotas on the lines pioneered in Norway. He should think carefully before going down this road.

Today just 15% of board members in top UK companies are female. Why so few? It is unlikely simply to be sexism and discrimination. Few people at the top of companies, who are all pretty bright, are likely to be that daft, given the legal sanctions against discrimination.

More likely, it has much to do with the demands of the job. Today’s top executives are very unusual, slightly scary people. Unlike first generation entrepreneurs, they are highly educated, with MBAs from the top international universities together with accountancy, financial or other professional qualifications; they have typically held major operational roles within companies, often running key divisions in other countries, and they work stupefyingly long hours and travel constantly. Many are foreign-born. They are wildly atypical of even the male population. Most of us UK males are just as unlikely to be top executives as women are.

Female career paths are known to be different from those of males. Even high achievers who put their careers first are unlikely to have the same profiles. Despite being more highly qualified than men on average, they study very different subjects at university. They do not enter key industries such as construction and engineering and the financial sector in anything remotely like the numbers which males do. Within companies they are less likely to run operations, or to want to work abroad. They are likely to be in functional roles such as law or HR rather than in finance or accounting. Many more prefer to work in the public or voluntary sector than do males. And, importantly, in surveys they consistently rate pay less highly than other aspects of the job.

All this suggests why women are underrepresented in top executive roles. But why exactly should we want to change this outcome? Mr Cameron seems to think this is one of the increasingly large number of alleged market failures which his supposedly pro-business government has spotted.

The arguments most often put forward are twofold. One is that the culture needs to change if our companies are to be competitive in a changing society where women increasingly make major spending decisions. Women, it may be suggested, have insights into female consumers which men do not possess. Maybe, although we would expect the argument to be stronger in consumer industries such as retailing rather than in production industries such as chemical engineering or power generation.

The other argument applies in all industries: it is said that women are more constructive and less confrontational, and enable debates within boards to be more effective. The evidence for this is anecdotal and unconvincing. Arguably it stereotypes women and men in a way which is difficult to justify these days.

And it is worth bearing in mind that our major competitors – the USA, China, Japan, Germany – seem to be making the same mistake. All have a proportion of female top executives around the same, or less, than Britain. By contrast, the Norwegians have had a 40% female quota since January 2008 and now have the highest proportion of women on listed company boards in the world.

But has this been a good thing? The increase in women board members has been primarily in non-executive roles. In fact recently published figures suggest that the UK has a slightly higher proportion of female top board executive members than Norway, though far less non-executives.

Because of the shortage of female candidates for boards in Norway, many women hold several of these non-executive roles – they have been described pejoratively (not admiringly, as Mr Cameron is said to believe) as “golden skirts”. They are disproportionately drawn from politics and the public sector. This would likely happen in the UK as well.

Do people with this sort of background – women or men – bring anything much to the boardroom of top companies, engaged in fierce international competition? Not a lot, I would argue.

We shouldn’t mix business and politics. It is reasonable that official enquiries, commissions and quangos should try to achieve as high a level of diversity as possible. Politics is about representation. But business is different. It exists to maximise shareholder returns, subject to keeping within the law and necessary regulation. As Adam Smith pointed out many years ago, the public interest is nearly always best served by the pursuit of private interest. We as consumers, savers and taxpayers all benefit.

Forcing changes in board membership on companies creates a diversion of effort from core business, risks damaging performance and is likely to benefit nobody but the newly-appointed individuals. It also demeans the increasing number of genuinely successful businesswomen.

And where can such tokenism logically stop? If underrepresentation and the benefits of diversity in the boardroom are held to justify targets and quotas for females, they might also plausibly be proposed for minority ethnic groups and for the disabled as well. Why not? But the problems of implementing such quotas surely ring alarm bells for all but the most fanatic company reformers.