Company boards and equality laws

July 23rd, 2014

The Equality and Human Rights Commission has today released guidance entitled Appointments to Boards and Equality Law, written to help companies and others understand what steps are permitted in order to increase the representation of women at board level.

The most important points to note:

  • Companies may select on grounds of sex if two candidates for a position are assessed to be of equal merit and where only one has a protected characteristics (e.g. gender) which is underrepresented in the company: section 159 of the Equality Act 2010.  Otherwise, positive discrimination is unlawful.
  • Companies may also take positive action to promote participation by women (and persons with other protected characteristics) if the (a) participation in a particular activity (such as holding a directorship in a particular company) is particularly low amongst persons sharing a certain protected characteristic, and (b) the aim of the positive action is to enable or encourage persons with that protected characteristic to take up that activity.

Examples of lawful positive action provided by the EHRC are (page 8 of the guidance):

  • reserving places for women on training courses in board leadership
  • targeting networking opportunities for women
  • providing mentoring and sponsor programmes, which assist in the development of female talent.
  • offering opportunities to women to shadow existing board members and/or observe board proceedings
  • placing advertisements where women are likely to read them and encouraging a pipeline of applicants, and
  • setting aspirational targets for increasing the number of women on boards within a particular timescale.

Finally, the guidance notes the provisions of the proposed EU Directive on improving the gender balance amongst non-executive directors of companies listed on stock exchanges (Directive 2012/0299).  It is a time-limited directive, ceasing to operate in 2028, that includes provision for Member States to impose financial penalties on firms for breach of its provisions.   The following measures are required by the Directive:

  • Unsuccessful candidates would be able to request information on the selection criteria relating to non-executive board positions, on the company’s comparative assessment of the candidates for the job, and on the company’s reasons for selecting candidates.
  • Companies would be required to publish information on the gender composition of their boards, and submit yearly progress reports describing the measures used and proposed in order to reach the 40 per cent target. Those failing to meet the target would be required to explain the reasons for their failure, the measures taken thus far and those planned for the future.

Note that the Companies Act 2006 (Strategic Report and Directors Report) Regulations 2013 already imposes a requirement on certain companies to publish an annual report containing information about the gender composition of their boards.

The guidance does not have the status of a Code of Practice issued under section 14 of the Equality Act 2006 (possibly for political reasons).  Courts and tribunals must, under section 15(4) of the 2006 Act, take into account any part of a Code of Practice that appears relevant to them to any questions that arise in proceedings.  However, although only guidance and not a Code of Practice, the fact that it is issued by the EHRC will usually be enough to ensure that a court seized of a matter to which the guidance is relevant will almost take it into account.

The guidance should therefore be helpful to companies and other bodies who worry about falling foul of equalities legislation, which is easily done.  See, for example, the prominent political blogger Guido Fawkes, who it appears was diligent enough to read page 10 of the guidance, which notes that all-women shortlists are unlawful under equalities legislation – and excitedly wrote a post on the guidance.  He failed, however, to reach page 11 of the EHRC guidance, which outlines the special provisions for political parties (until 2030) which permit the use of all-women shortlists by registered political parties in relation to elections to government (see sections 104 and 105 of the Equality Act 2010).

Thomas Ogg

UPDATE:

Guido Fawkes has gamely updated his blog post to reflect the legal position set out above.  This blog was referred to as being written by  “people who seem to know what they are talking about“, which is as good an epithet for this blog as we could hope for.

 

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