Board appointments and equality law
Market reCap September 2014 edition
- AIM Notice 39 – update on directors participating in a fundraising
- Investor guidelines on share capital management
- Investor guidelines on transactions
- UKLA and AIM require sanctions confirmation
- Primary Market Bulletin No.8
- Board appointments and equality law
- The end of quarterly reporting requirements
- Proposed changes to the Takeover Code
- Engagement letters
- "Blocking" a company's shares: How to respond to a notice under s 793 Companies Act 2006
Since Lord Davies issued his first report on Women on Boards in February 2011, real progress has been made in increasing the gender balance in Britain's boardrooms. In his third annual progress report in March 2014, Lord Davies reported that women accounted for 20.7% of FTSE 100 and 15.6% of FTSE 250 board positions, an increase from 12.5% and 7.8% respectively in February 2011.
However, in seeking to address this acknowledged problem, companies must tread carefully to avoid falling foul of the law against discrimination. The Equality and Human Rights Commission has now issued guidance on the equality law framework within which board appointments (both executive and non-executive) must be made. It considers both the UK Equality Act 2010 and relevant European Union law.
Although specifically addressing the issue of women on boards, much of the guidance is also relevant to the consideration of wider objectives to increase the diversity of boards.
The key points are summarised in the guidance as follows:
- Appointments to boards must be made on merit, demonstrated through fair and transparent criteria and procedures.
- In general, it constitutes unlawful sex discrimination to select a person for a role because of their gender. The law does not permit positive discrimination when making an appointment or a promotion.
- However, the law provides scope for companies to address any disadvantage or disproportionately low participation on boards by enabling or encouraging applications from a particular gender, provided selection is made on merit.
- Individuals responsible for appointments to board positions must avoid making unwarranted assumptions based on gender which result in one gender being favoured over another for appointment. Selection criteria and procedures that are likely to present barriers to the appointment of either gender will constitute unlawful indirect discrimination unless they can be justified.
- Selecting a candidate for appointment to a board on the basis of gender is only lawful when the individual is objectively assessed as being equally qualified as a candidate of the opposite gender, when the individual’s gender is under-represented on the board and when certain other conditions have been satisfied.
In addition to liability for their own actions, companies which use an executive search or recruitment agency should note that they will be liable for any unlawful discrimination by that agency in the recruitment process.
Danielle Harris is a Senior Associate and Professional Support Lawyer in Fieldfisher's Corporate Group in London.