House of Commons Treasury Committee Women in the City Tenth Report of Session 2009–10 Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be published 22 March 2010 HC 482 [Incorporating HC 967 i-ii, Session 2008–09] Published on 3 April 2010 by authority of the House of Commons London: The Stationery Office Limited £17.50 The Treasury Committee The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of HM Treasury, HM Revenue & Customs and associated public bodies. Current membership Rt Hon John McFall MP (Labour, West Dunbartonshire) (Chairman) Nick Ainger MP (Labour, Carmarthen West & South Pembrokeshire) Mr Graham Brady MP (Conservative, Altrincham and Sale West) Mr Colin Breed MP (Liberal Democrat, South East Cornwall) Jim Cousins MP (Labour, Newcastle upon Tyne Central) Mr Michael Fallon MP (Conservative, Sevenoaks) (Chairman, Sub-Committee) Ms Sally Keeble MP (Labour, Northampton North) Mr Andrew Love MP (Labour, Edmonton) John Mann MP (Labour, Bassetlaw) Mr James Plaskitt MP (Labour, Warwick and Leamington) John Thurso MP (Liberal Democrat, Caithness, Sutherland and Easter Ross) Mr Mark Todd MP (Labour, South Derbyshire) Mr Andrew Tyrie MP (Conservative, Chichester) Sir Peter Viggers MP (Conservative, Gosport) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No. 152. These are available on the Internet via www.parliament.uk. Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/treascom. A list of Reports of the Committee in the current Parliament is at the back of this volume. Committee staff The current staff of the Committee are Eve Samson (Clerk), Andrew Griffiths (Second Clerk and Clerk of the Sub-Committee), Adam Wales, Jay Sheth, and Aliya Saied (Committee Specialists), Phil Jones (Senior Committee Assistant), Caroline McElwee (Committee Assistant), Gabrielle Henderson (Committee Support Assistant) and Laura Humble (Media Officer). Contacts All correspondence should be addressed to the Clerks of the Treasury Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5769; the Committee’s email address is [email protected]. Women in the City 1 Contents Report Page Summary 3 1 Introduction 5 Current Equality Legislation 7 2 Women on boards 9 Diversity 10 A demand or supply problem? 12 Tipping point 13 Progression to Board level 15 3 Gender pay gaps 17 Occupational segregation vs. in-grade gender pay gap 17 Monitoring the pay gap 18 4 The Working Environment 22 Flexible working 22 The long hours culture 22 Parental leave 25 Information on tribunal cases 26 5 The Future 28 The role of the regulators 29 The Equalities and Human Rights Commission 29 The FSA 32 Conclusion 32 Conclusions and recommendations 33 Formal Minutes of the Treasury Committee 37 Witnesses 38 List of written evidence 38 Reports from the Treasury Committee during the current Parliament 39 Women in the City 3 Summary The recent financial crisis has shone the spotlight upon the City of London and the need for reform to increase financial stability. Whilst most of the discussion has inevitably focussed on issues such as the structure of the banking sector, changes to the regulatory regime for banks and the bail–out of the banking system, there has also been a lively debate about changes to corporate governance to improve governance and oversight within large financial institutions. Part of the debate on corporate governance in the City of London has been around diversity and the need for challenge. In general women are in the minority at senior levels in financial institutions—especially at the top. The boards of FTSE 100 banks are only 9% female and the proportion of women executive directors is even lower at 1-2%. We believe the lack of diversity on the boards of many, if not most, of our major financial institutions, may have heightened the problems of ‘group-think’ and made effective challenge and scrutiny of executive decisions less effective. Professor Charles Goodhart even suggested that greater female representation at senior levels would have made the banking crisis less likely. Whilst this may be going too far, a sector which is failing to properly utilise the talents of over half the population clearly has substantial room for improvement. This entails looking more widely at the industry structure, to ensure that able women who wish to progress are not held back, which is why this Report also examines matters such as the long hours culture, the working environment and access to flexible working and family–friendly practices. Much of the legal framework that should support women has already been put in place; there are areas that may need to be strengthened, but steps are being taken to do this. The challenge is not so much to change the legal framework, but to change practice and, where necessary, culture. The onus is on the City to demonstrate that it is committed to improving the representation of women at senior levels within the industry. Whilst we do not believe this should be achieved through the introduction of a quota system, it is clear that such pressure will intensify should the industry fail to act. When she gave evidence, the Minister for Women and Equality told us she was working with the CBI “to develop a pledge, so each company will pledge to increase the number of women it has at the top level and ensure that there is more equality of opportunity within their company”. Since she gave evidence, we have been told that “the CBI felt the time was not right to pursue objectives of formal mechanism.” However, on 26 February, Lord Davies of Abersoch, the Minister for Trade, Investment and Small Business, wrote to the Financial Reporting Council proposing that listed companies should be required to explain • what the current position is with regard to director posts occupied by women and other underrepresented groups; • how this meets the needs of the company, its governance and business; and • what their policies are for achieving greater diversity in the boardroom. 4 Women in the City In addition, the Government Equalities Office called for the provisions relating to the appointments of new directors to the board to be strengthened to ensure there was no implicit bias against underrepresented candidates. It is disappointing that the CBI no longer appears to be working on a voluntary pledge to encourage its members to increase the number of women employed at senior levels. We note that the changes proposed to the Corporate Governance Code would, of course, involve compulsory reporting rather than the voluntary action a pledge would entail. We recommend the FRC should respond rapidly to these suggestions. Women in the City 5 1 Introduction 1. This Report is published in the aftermath of the worst financial crisis for 80 years. The collapse of financial systems in this country and around the world has prompted much study on how to make the financial system more resilient. This Committee has played an active role in the debate about reform through our reports and evidence sessions. Before the current crisis, the financial services sector contributed substantially to the economy with high levels of productivity, employment and value added. While it is clear that the crisis should radically change the way the sector operates, and that a return to business as usual would be retrograde, the UK economy needs to build on its comparative advantage in financial services, not jettison it entirely. 2. If it is to prosper again, the financial sector will need to draw on the best talent available, and to strengthen its corporate governance. We began this inquiry because of concerns that the City1 was failing to use the talents of its female workers, and complaints of widespread discrimination. It is a fact that on average women, across the economy, earn less than men, and that men dominate top management in almost every occupation. Nonetheless, the disparities between male and female pay, and male and female career prospects appear wider in the City than in many other sectors. While female board members are far rarer in the private sector than in the public, only 9% of the boards of FTSE 100 banks are female, compared with 12.2% across the FTSE 100 as a whole. 2 Gender pay gaps also appear to be wider in the financial sector than elsewhere in the economy.3 Research conducted for the Equalities and Human Rights Commission (EHRC) found that the gender pay gap in the finance sector was greater than for the economy as a whole, on two different measures: The gender pay gap for annual gross earnings (i.e. all earnings, irrespective of hours) is 60 per cent, much higher than the economy-wide gender pay gap of 42 per cent. The gap at the other extreme, for hourly pay excluding overtime (i.e. adjusting for differences in hours and excluding many additional payments) is 41 per cent for finance and 21 per cent for the economy.4 3. We recognise that gender pay gaps and an under representation of women on boards exist in many sectors of the UK economy. However, it appeared the disparities were greater in the City than elsewhere. We accordingly decided to hold two evidence sessions to explore the topic directly, and to attempt to establish the effect that these disparities had on the city’s effectiveness, and its ability to access talent.