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Business Comment

David Prosser: Legislation is the only hope for fairer pay and better balance on boards

Outlook So will the Government have the guts to implement the recommendations made today by Will Hutton's Fair Pay Review? Since this is only an interim report, we won't find out for a while yet but, in the meantime, note one of the arguments Mr Hutton puts forward for a cap on the pay of public sector executives as a multiple of that of junior staff. It is that rather than importing the worst excesses of the private sector, in the name of competing for talent, the public sector ought to set an example in the hope that its opposite number follows.

This message is equally relevant to a similar inquiry being conducted on behalf of the government by Lord Davies. The former minister and bank boss is looking into how Britain might boost the number of women on the boards of our biggest companies, where they are chronically under-represented.

One of the things he will have spotted is that women are almost as badly represented on the boards of public bodies – and that the Coalition Government's "aspiration" is now that by 2015, at least 50 per cent of these organisations' board appointments are female.

The problem with aspiration is that it does not focus minds in quite the same way as compulsion. The private sector has aspired for many years now to boost the number of women board members, yet progress has been, at best, incremental. Women today account for 13 per cent of FTSE 100 company board members, up from 11 per cent two years ago. At that rate it will take the best part of two more decades before parity is achieved.

Opponents of sex-based quotas, such as the Institute of Directors, which published its submission to Lord Davies's review on yesterday's final day of consultation, contend that merit should be the only criterion considered when companies make board appointments.

It is difficult to argue with the spirit of that submission but there's a flaw in the argument. Unless we believe that women aren't up to the job – not what the IoD says at all – we are already failing to select purely on the basis of merit. If we were doing that properly, the number of women directors would be much higher.

This is why countries including Norway, Spain, the Netherlands and France have already legislated for quotas, typically requiring companies to ensure at least 40 per cent of their directors are women. Such legislation might not need to remain in place forever: just long enough to help us get past the status quo, which sees women continually overlooked in a self-fulfilling cycle of male domination.

Other countries are embracing compulsion because aspiration has not been enough to snap companies out of their complacency on board diversity. If Lord Davies recommends Britain follows their lead, so much the better.

So too, in that case, should the public sector, with the new rules imposed on all public bodies at the same time. And if we are prepared to legislate for board diversity, then laws on fairer pay also seemwithin our grasp.