Do We Need More Women Running The FTSE 100?

There are changes afoot in the boardrooms of the FTSE 100. Once the sole preserve of men, women now account for a little over a fifth of directors at these top companies.

An official review in 2011 showed that just 12.5% of board members were women, but that figure now stands at 20.7%. That’s edging closer to the target of 25% by 2015, which was set by former trade minister Lord Davies of Abersoch when he headed the review.

One company that’s aiming to exceed that target is Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US), which recently pledged that 40% of its top 5,000 jobs will be held by women within six years. Currently, that figure is 28%.

It was the first FTSE 100 company to set a formal gender target for its most senior management positions. But a 40% goal isn’t just paying lip service to equality, it’s a major change. It seems unlikely that a group as large as Lloyds would make any decisions that weren’t supported by a strong business case, no matter how good the PR.

So what is the argument for having more women at the top?

GenderBacked by stats

Shareholders need to know that there are good business reasons to get more women into the boardroom; it goes beyond questions of equality.

Research among European companies has shown that strong stock market growth is more likely to occur in companies where there are a higher proportion of women in senior management teams.

In fact, companies with more women on their boards considerably outperform their more masculine rivals, with an average 42% higher return in sales, 66% greater return on invested capital and 53% higher return on equity, according to the government’s review.

Some people have even suggested that more balanced boardrooms could have averted some of the catastrophic decision-making that led to the financial crisis. Jayne-Anne Gadhia, the head of Virgin Money, recently suggested that a higher number of women at the top could have made a difference.

She told one newspaper that some of the worst-affected banks had succumbed to an “alpha male environment”, where they were “motivated by the thrill of the chase”.

Gadhia added she wasn’t criticising men, but believed that having more balanced boards helped companies adopt more balanced strategies.

Gentlemen’s club

The UK has come a long way from 2011 when one in five of the FTSE 100 had no women at all at the top table.

Just one top company still has an all-male board: Glencore Xstrata. Vince Cable recently attacked the company for failing to break the male dominance at the top, saying it was “simply not credible” the company had been unable to find any suitably qualified women.

The business secretary argues that greater diversity is good for growth, saying: “This is not about political correctness; this is about good and profitable business sense.”

Principles and profitability

Many experts believe that shareholders should be interested in the ethics of their companies, because a lack of corporate responsibility can lead to risk-taking and reputation damage. But corporate responsibility is no guarantee of growth, particularly when the wider economic recovery is still tentative.

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Felicity owns no shares in any company mentioned here.