Corporate boards: Sex in the city

Names matter. Lord Mervyn Davies knew this when his 2011 report on women on boards set a "target" for gender diversity - not a quota. The target had teeth, though. A quota loomed if the 2015 target was missed. Four years on, FTSE 100 boards comprise 24 per cent women, up from 13 per cent in 2010, on track to meet the 25 per cent quota (sorry, target) by year-end.

This is good news for UK business. Fairness is not the issue, so much as clubby, inflexible boards. Those with gender diversity had fewer governance scandals between 2011 and 2014, according to an MSCI study of 6,500 global companies in its indices. Boards with three or more female directors had higher returns on equity and capital (5 and 4 percentage points higher, respectively) than those with less, research on Fortune 500 companies between 2001 and 2004 shows. Board performance surely needs more study, but it makes sense that less groupthink and a better understanding of customers and workers would help diverse boards to achieve better results. With a shortage of key talent identified as a critical business issue, women and minorities are an untapped talent pool that should not be ignored - and the change might as well start at the top.

All of this will make doctrinaire free marketeers shudder. But Lord Davies' target has brought substantial change to the UK, as have quotas in Italy and France. Critics worry about tokenism, a lack of qualifications, and a small cadre of qualified women taking on multiple roles (hardly real diversification). While recent experience in India has been marred by nepotism, critics' fears have not been realised in recent French and British board appointments.

Voluntary targets do not lead to substantial change. The UK success shows that a big stick is needed to create meaningful change. In the USA, soft targets have increased gender diversity by just 1 percentage point since 2009. Spain, with no penalty for non-compliance, is far behind on its 40 per cent target.

Call them quotas, targets or whatever else - then give them teeth and bring them on.

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