Briefing Notes in Economics – Issue No

Briefing Notes in Economics ‘Helping to de-mystify economics since 1992’ Issue No. 64, March/April 2005 http://www.richmond.ac.uk/bne ISSN 0968-7017 The Glass Ceiling and Directors of Large UK Quoted ▼ Companies * ** Carmen A. Li and Bob Wearing ,1 Respectively: Department of Economics and the Department of Accounting, Finance & Management, University of Essex, Colchester, Essex CO4 3SQ, UK We examine the position of female directors in the top 100 UK quoted companies in the context of occupational gender differences and corporate governance. Less than 2% of the executive directors in our sample are females and just fewer than 9% of the non-executive directors are females. Female (executive and non-executive) directors receive lower remuneration than their male counterparts. We also find some evidence that female non-executive directors are particularly underrepresented in some “traditional” industries such as mining, chemicals, aerospace and defence, but have better prospects (although still limited) of reaching board level in industries such as food and drug retailing, telecommunication services, banking and insurance. Clearly the progress of women in breaking the glass ceiling has not been helped by the absence of gender issues in the corporate governance debate. JEL: J700, M120 1. Introduction their aspirations – it allows them to see where they might go, but stops them getting there. In any given occupation The “glass ceiling” is a transparent and in any given public position, the barrier which women face as they higher the rank, prestige or power, the attempt to achieve promotion to the smaller the proportion of women” higher levels of organisations. The (Nicolson, 1996, p. 101). Moreover, Hansard Society Commission in the UK evidence from the US (Fryxell and referred to the fact that “for too many Lerner, 1989; Wirth, 1998) and from (women) there is a glass ceiling over Canada (Burke, 2000) shows that 1 We are grateful for the constructive comments of an anonymous referee. The usual disclaimer applies. Briefing Notes in Economics – Issue No. 64, March/April 2005 Carmen A. Li and Bob Wearing 2 females are more likely to be located on The paper is structured as follows. boards of companies whose products Section 2 reviews recent developments involve women as the primary in UK corporate governance. Section 3 purchaser and in industries traditionally describes the hypotheses to be tested, dominated by women, such as finance data and empirical results. Section 4 and banking, food and clothing concludes. retailing. Possible explanations for the occupational gender differential include work-family conflict (Lyness and 2. Recent Developments in UK Thompson, 1997; Liff and Ward, 2001; Corporate Governance Wirth, 1998); tokenism and networking (Lyness and Thompson, 2000; Davies- Over the last decade, four committees, a Netzley, 1998; Burke, 1997); and working party and a review have barriers in acquiring addressed corporate governance issues competence/experience (Oakley, 2000; in the UK. The first of these was the Forster, 1999). Committee on the Financial Aspects of Corporate Governance which was set up In recent years, women have been in 1991 under the chairmanship of Sir increasingly successful in gaining Adrian Cadbury. The committee was promotion to high ranking professional formed in response to a number of UK careers. For example, last year in the financial scandals in the 1980s such as UK, 35% of hospital consultants and frauds connected with the Bank of 24% of law partners were female while Credit and Commerce International 21% of females occupied high-ranking (BCCI) and Robert Maxwell. posts in the civil service (Simms, 2003). Can we say the same about female The Cadbury Report included a code of representation at the highest levels of best practice focused on four areas (the business? For those few women who do board of directors, non-executive break through the glass ceiling, do they directors, executive directors, reporting still face discrimination in terms of and controls) and a number of remuneration? And are there any recommendations like a minimum of specific industries in which they are three non-executive directors who particularly under represented? These should be “independent” of the are the questions this paper seeks to company and selected with the same address. Researchers like Benito and impartiality and care as senior Conyon (1999) and Young (2000) have executives. It also recommended that investigated matters related to UK quoted companies should have an audit directors’ pay but not with a gender committee, a nomination committee (to perspective. Holton (2000), based on recommend board appointments) and a the Ashridge Survey of the UK Times remuneration committee (to recommend Top 200 companies, observed that the the remuneration of executive increase in women directors from 1989 directors). The membership of these to 1997 has been disappointingly slow, committees should be wholly or mainly and that women directors are more non-executive directors. But the report likely to be found among banks, made no reference to the balance of building societies and retailers. By board members in terms of matters such contrast this paper not only investigate as gender and minority representation. the recent numbers of female directors The closest it comes to addressing such but also examines their remuneration issues is when it states “companies have with respect to company size and to be able to bring about changes in the industry type, compares their position composition of their boards to maintain with their male counterparts and their vitality. Non-executive directors discusses corporate governance related may lose something of their aspects. independent edge, if they remain on a board too long. Furthermore, the make up of a board needs to change in line Briefing Notes in Economics – Issue No. 64, March/April 2005 Carmen A. Li and Bob Wearing 3 with new challenges” (Cadbury Report, companies and encourages boards to 1992, p. 23). “draw more actively from areas … where women tend to be more strongly The Greenbury Committee was formed represented” (p. 93) but made no after widespread public concern over specific recommendation to change the what were seen as excessive amounts Combined Code in this respect. paid to directors of quoted companies. The Greenbury Report (1995) dealt In sum, authorities appear to take specifically with the question of corporate governance seriously only directors’ remuneration and provided a when crises arise, such as well- code of best practice. Many of its publicised corporate scandals or recommendations were developed from excessive remuneration taken by boards the earlier Cadbury Report but did not of directors of quoted companies. But consider gender aspects. little or no attention is paid to gender differences at work. In 1995 the Hampel Committee was formed to review the implementation of 3. The Hypotheses, Data the findings of the Cadbury and and Results Greenbury Committees. The Hampel Committee published its report in 1998. Most of the recommendations in the Hypotheses earlier reports were then published as a final document, the Combined Code: Our first hypothesis is an implication of Principles of Good Governance and the gender wage inequality literature Code of Best Practice (London Stock whilst the second links gender Exchange, 1998). Despite the inequality with type of occupation. apparently wide-ranging title of the Combined Code, it is unlikely that It is well documented that inequality of substantial progress can be expected in opportunity offends against natural terms of gender and minority issues justice (Rawls, 1963; Anker, 1997) and since the Hampel Committee states that allows labour market inefficiencies to “there is, therefore, in our view no need persist (Burke, 1997; Forster, 1999). for a permanent Committee on Studies have reported not only the lack Corporate Governance. The London of participation of women in the labour Stock Exchange can in future make market but also a substantial gender minor changes to the principles and wage differential (see Department of code” (Hampel Report, 1998, p. 15). Trade and Industry, 2002). In Again, the Hampel Committee made no particular, Lyness and Thompson reference to gender. (1997) found that female executives had less authority than men, and Oakley In 1999 the Turnbull Report, Internal (2000) found a preponderance of female Control: Guidance for Directors on the executives in staff support areas such as Combined Code was published and human resources or public relations. provided guidance to directors on the This suggests that female directors are internal control procedures seen as not given the most authoritative and necessary to manage risk in responsible executive positions, which organisations, but made no reference to is likely to be reflected in their issues arising from occupational gender remuneration. Furthermore, Fryxell and differences. Lerner (1989), Wirth (1998), Holton (2000) and Burke (2000) have Corporate scandals such as Enron in the suggested a relationship between US have prompted publication in 2003 numbers of females on boards and type of the Higgs Review and the Smith of industry. Therefore, our hypotheses Report. Only the Higgs Review are: acknowledges the low number of women directors in UK quoted Briefing Notes in Economics – Issue No. 64, March/April 2005 Carmen A. Li and Bob Wearing 4 Hypothesis 1: Female board with the firm. Although not reported, participation is very low. Also,

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