The leader of Britain's biggest employers' group said many executives were ill-equipped to compete in the modern business world and set a bad example to the next generation of bosses.
'We have been operating with a large amateur sector in the upper reaches of our companies, and it shows,' Mr Davies told a London conference organised by the Secondary Heads Association.
He said Britain risked slipping down the international competitiveness league because of the poor quality of its workforce - but the problem started at the top.
With modern businesses free to locate wherever skills were highest, Britain needed a 'sharp increase in high-level qualifications if our skill shortage is not to be a constraint on economic growth'.
Pointing to qualification levels among managers and technicians, he added: 'We are starting from an unfavourable base.' At the end of the 1980s, fewer than one-third of managers were graduates and only 45 per cent of technicians had higher education qualifications.
Mr Davies cited international business comparisons that ranked Britain 21st in the skill level of its workforce - just ahead of Malaysia and Thailand.
He applauded the Government's new targets, under which 50 per cent of all young people should achieve two A-levels or the equivalent by the end of the century.
Asked what skills employers wanted to see in pupils leaving the education system, he stressed communications, problem-solving, literacy, numeracy and understanding of information technology.
He called for the introduction of 'Core Skill Competencies', now common in vocational qualifications, into all courses, including A-levels. 'Employers are taking the view that there should be a core element in all qualifications,' Mr Davies said.
They were persuaded of this by examples of very clever people coming to them for jobs who 'could not string words together' and qualified engineers who could not write a 'simple memo'.