Boardrooms still close their doors to women

I read today that the Fortune 500, the annual ranking of America's largest 500 companies, currently features only 12 companies led by female CEOs. That same publication's recent '40 under 40' list featured only five women. Depressingly almost all of the most prominent companies that I interact with every day, including Facebook and Twitter, have no women board members.

The underrepresentation of females in the highest echelons of the corporate world permeates almost every industry and is particularly evident in white collar professions. In the United States, where women represent nearly a third of the legal industry, only about 19 percent of partners at the nation’s law firms are female, according to an August study by the Institute for Inclusion in the Legal Profession.

European boardrooms are only marginally more diverse. Recently released statistics from Europa show that on average only 33 percent of managerial positions in Europe are filled by women. Despite the fact that female students outnumber males in business, administration and law, the proportion of women directors in top quoted companies is only three per cent across the EU and only one in ten company board members is a women. There are no female governors of any national central banks in the EU.

In case you haven't have enough of statistics, I'll add that American women still earn eighty cents to the dollar compared to men, according Bureau of Labor Statistics' Women at Work report. In Europe there is still a 15 percent pay gap between women and men and just 30 percent of European entrepreneurs are female.

These figures are difficult to understand given that women earn almost 60 percent of university degrees in America and Europe and make up approximately half of the workforce in most developed nations, at 49 percent in the US in 2009. In addition, several studies have found that board diversity is linked to better financial performance. There is evidence that more diverse boards have better governance. Analysis by McKinsey and Deutsche Bank has opined that companies with more women on their boards make fewer errors because women do not favour unconsidered risk taking, resulting in better retention of money. Despite all of these truths, women are simply not ascending the career ladder in the same way that men do.

Given the strong female presence in the workforce and the highest leagues of education, and the gaining of almost universal equal rights protections, why does this underrepresentation of women at the highest corporate levels persist? Commentators provide a never ending list of suggestions. Most of these inevitably locate the root of the problem in motherhood.

Despite the clear trend for women to postpone having children until their thirties and later, having a family is often quoted as the single most detrimental factor for corporate women. Have you ever heard a man being asked how he juggles work and family? No? This is because having children is not recognised as particularly harmful to a man's career. Despite the two partners involved in childbirth and the fact that the only definite consequence of childbearing for a woman is to remove her very temporarily from the workforce, having children is considered to radically change only a woman's time constraints and values. The role of men as carers versus breadwinners is another argument, and though relevant it's too involved for me to focus on today, but it can't be denied that women take on a solely childrearing role far more readily than men do and in general do not give birth and then wish to hand over their children to focus solely on their careers.

Yet even if we recognise that women do for a period prioritise raising their children, in practice this means merely a five to ten year period where a woman is marginally less available for professional undertakings. Not wholly unavailable; just more constrained. Such constraints do not explain or justify the halting of a woman's career progression. Surely it is the rigid corporate culture that demand excessive hours and an all or nothing approach that rejects inflexible employees that is responsible.

Having children is not the only contributor to the underrepresentation of females in top corporate jobs. Senior corporate executives are often referred to as operating in an 'old boys club' environment. The consultation process for the Davies report (discussed in the next paragraph), which received 2,654 responses from mostly women, revealed two main barriers for women seeking corporate ascension. The first revolved around work-life balance, the second around 'the male cultural environment'. The influence of 'informal networks' on board appointments in addition to opaque selection criteria were a significant barrier to women, the report found. Discriminatory mentoring, an undervaluation of female skills both by women themselves as well as their peers and a lack of role models were also highlighted as contributing factors.

Women also face more indefinable hindrances relating to their value in terms of youth and beauty. Unlike men, women are judged not only on what they say and do but on how they look – perfectly evidenced by Silvio Berlusconi’s crass dismissal of Angela Merkel, Prime Minister of the biggest economy in Europe, as 'an unf**kable fat ass.' Women are also criticised for showing traditionally male traits, like aggression, when such behaviour is often necessary for success in a corporate environment.

What can be done to address this inequity? Positive regulatory action is the first step. Public policy in the Nordic countries, in particular, makes it easier for parents to reconcile employment with family care. In 2003 Norway introduced a quota for all listed companies requiring that 40 percent of their board seats be filled by women. Supporters of this measure claim that the quota has directly effected financial gains for these firms, although a study by the University of Michigan is not quite so glowing. It holds that the financial performance of Norwegian companies suffered at least in the short term because of the presence of younger, less experienced board members. Other concerns were raised within Norway and outside relating to the supply/demand inequality created by the quota system. The result, critics said, was that some of the more capable female directors were being asked to sit on a range of boards, far too many to have the time to be able to add real value to every company. Regardless of the results, the fact remains that this quota achieved what it set out to do; ensure equal representation of men and women in company leadership.

With discontent growing in the UK over what many see as excessive remuneration paid to largely male executives, the British government has been pushing itself as a supporter of women in business. Prime Minister David Cameron recently spoke of his desire to get rid of the 'usual sort of rotating list of men patting each other's backs and increasing the level of remuneration. I want to see more women in Britain's boardrooms, which I think would have a thoroughly good influence.' In practice his willingness to make the kind of decisions that would directly improve women's chances, as in Norway, is doubtful. The most progressive UK move taken so far has been Lord Davies' recommendation that UK companies listed in the FTSE 100 should aim for at least a third of their board to be female. However a progress report just published by Cranfield School of Management shows that during the review period only 21 women were appointed to board positions out of a possible 93. This represents 22.5 percent of all new appointments, some way short of the 33 percent recommended in the Davies report.

Government action is a must, not a maybe. 'If we persist with current rates of change, it would take about 70 years for women to achieve parity' on U.S. corporate boards, according to Stanford law professor Deborah Rhode. As long as the boardroom is still a male preserve, women will continue to earn less and male characteristics will dominate the way big corporations do business. Virginia Rometto took the helm at IBM on the 1^st of January, the same day that e-Bay founder Meg Whitman took over at Hewlett Packard. That these women are the first female CEOs of the largest technology companies in the world is at least a step in the right direction.

Do the Brits know why Cameron said no?

The angry student in me, the anti-United States of Europe part, is impressed with last week’s rejection by David Cameron of amendments to the EU Treaty that would move us towards tighter fiscal union. It had to be Britain, didn’t it, with a history steeped in sovereignty, colonialism and that first-to-the-pole attitude. It is hard not to admire Cameron’s decision; on the face of it he is putting the interests of his people first, refusing to be swayed by the collective criticisms of the world’s most powerful people. UK citizens appear to agree with him. The first poll conducted since the Brussels summit shows that 62 per cent of British people agreed with the Prime Minister’s stance, with just 19 per cent against. (http://www.dailymail.co.uk/news/article-2072616/David-Cameron-got-right-Most-voters-agree-PM-vetoing-EU-treaty-changes.html#ixzz1gKJijL76)

This public support is questionable given that Mr. Cameron rejected the treaty change in the interests of Britain’s financial services industry. He held that the pact lacked the safeguards to protect the City of London against future regulations that might not be in its best interests. This includes the financial transaction tax that I discussed in a previous post, a tax that George Osborne has been publicly and repeatedly critical of. Yet the latest Eurobarometer poll evidenced that two thirds of all British people surveyed were in support of the introduction of such a tax. UK citizens have consistently expressed a strong level of support for tighter regulation of the banking industry. Perhaps their support for the Prime Minister’s EU treaty veto is down to a lack of awareness about the reasons behind it. Or perhaps the British people have simply had enough of EU policy and continued integration, regardless of the actual reasons given for Cameron’s decision.

Financial transaction tax has merit but little support

At a meeting of European finance ministers in Brussels yesterday, attention was finally paid to the Commission’s proposal for an EU-wide financial transactions tax. Despite the backing of Merkel and Sarkozy it was met with a negative response from the majority of EU states, mostly on the grounds of a lack of planning for its practical implementation. Gordon Brown was heavily dismissive of the tax, quoting research on job losses and GDP reductions. Ireland followed suit with Michael Noonan claiming that any such tax, if not also implemented in the UK, would be disastrous for Ireland.

I continue to be surprised by the lack of consistent support for this type of levy, the proceeds of which could go some way towards reducing national deficits as well as providing finance for humanitarian concerns like foreign aid. There was a surge of interest in the tax in 2008 and 2009 at the height of the financial crisis but this has since receded despite the continued validity of the idea. Given that the recent global economic distress was partly attributable to the activities of banks it seems right and proper to tax financial transactions.

The capital that this tax could raise is impressive. The Bank for International Settlements reported in 2008 that the total value of the world’s annual derivatives trading was $1.14 quadrillion (a quadrillion is a thousand trillions). It is likely that in reality the figure is even higher, since over-the-counter trades are mostly unreported so their size is unknown. A mere 1% global tax on $1 quadrillion in trades would generate $10 trillion annually. We are looking here only at derivatives and not at the finance that could be raised by similarly taxing other types of trades.

The most common argument raised against this tax is that any such levy, by increasing the costs associated with trading, would have a dampening effect on transaction activity and thus would ultimately reduce profits and liquidity. Personally I remain unconvinced. There is huge money to be made in the derivatives market and a minor tax is unlikely to deter traders. The only real risk here would perhaps arise if the tax were applied only to a minority of banks or states; those groups would then be at a clear disadvantage in comparison to tax-free traders. The solution is obvious; it is imperative that the tax be applied to a sufficiently large catchment area to keep the playing field relatively level. An EU-wide tax or US tax would cover enough institutions to silence the argument that a select few have been put in an anti-competitive position. Obviously this will be difficult to implement but surely not impossible.

It should also be noted that the jobs losses and profit reductions that Gordon Brown referred to yesterday as a probable result of this tax will occur mostly within investment banks themselves. Implying limitations on a major industry that has an enormous turnover will naturally result in job losses and lowered profits within that sector. It has also been almost universally accepted that the banking industry is somewhat bloated and needs to be tempered in some way.

Critics also refer to the Swedish example. Sweden implemented a similar tax scheme in the 80s which saw its banks pass on the costs garnered by the tax to private individuals and investors. The answer here is strict regulation. The lax regulatory culture that permeated the financial world pre-2008 (particulalry on the issue credit but in many areas of bank activity)was in many ways the single largest contributor to the global recession and is thankfully coming to an end. We know now why vigilant supervision of the banking industry is in the public's interest. Strict regulation and monitoring of how a financial transaction tax is implemented will be necessary to ensure that banks absorb the associated costs themselves rather than passing them directly on to investors.

Taxing long-term investments that raise vital capital and provide sustainable returns is also a point of issue. It is important that a financial transactions tax primarily targets short-term speculative trading, the kind that was a major cog in the banking collapse. The tax structure must penalise short-term, high frequency activity, the type of trading  that provides no identifiable social benefit. Long-term investments should be subject to a very small levy but short-term movements – holdings for minutes or days – should be more heavily levied on an incremental scale.

Many of the finance ministers present yesterday felt that the biggest stumbling block standing in the way of a financial transaction tax is the practical difficulties involved in its implementation. Since it must be applied globally or at least at EU or US level, a requirement exists for cross-jurisdictional legislation and a practical plan that must cover thousands of institutions. However this is in no way an unattainable task; financial institutions communicate thousands of pieces of information every day through international networks, dealing electronically with complex and dynamic products. The creation of an instantaneous electronic method of taxation with an EU reach is not impossible. Similarly the tax will require a clear framework for the distribution of funds. Personally I favour a system that pays into the state coffers of the country where a trade takes place, with emphasis on sovereignty. However there is obvious merit in passing funds on to international schemes like UN healthcare and climate change programs.

Proposals for this tax were essentially sent back to the drawing board yesterday and a more detailed and practical plan must be formulated before EU finance ministers will debate this issue again. Hopefully the powers that be in Europe will not leave this concept to linger until public unrest at the activities of investment banks has receded.

'Pensions crisis for beginners' on Huffington Post

My article on the pensions crisis is now available on the Huffington Post, have a look:
http://www.huffingtonpost.co.uk/sarah-mccabe/the-pensions-crisis-for-b_b_1018261.html

Your pension should not be at the state's disposal

State expropriation of pension funds is not, despite what our newspapers represent, an exclusively Irish phenomenon. Pension grabs have been seen in a number of countries over the last four years, garnering surprisingly little international attention. ‘Expropriation’ is really just a nice word for confiscation. Pensions are another form of savings and thus these activities have effectively allowed the state to dip into the private saving of individuals.

Governments have managed to draw upon pension funds for finance through several different methods. In 2008 the Argentine Government nationalised the state’s private pensions, generating much of the capital it needed to meet its debt repayments and avoiding its second default of the decade. This nationalisation gave the state control of assets totalling $23 billion, which with new contributions has since risen by approximately $4.5 billion a year.

In November 2010 private pension holders in Hungary were forced to choose between handing their retirement savings back to state-managed funds or giving up their state pensions altogether. Workers who opted against returning to the state system stood to lose 70 percent of their pension claim. A similar scheme was implemented in Bulgaria, where the government forced the transfer of $300 million of private early retirement savings into state pension schemes.

In 2010 France withdrew €43 billion from the state’s reserve pension fund to tackle a short-term pension deficit. Retirement savings that were to be used in the years 2020 to 2040 will now be used between 2011 and 2024. In March of this year the Polish Government implemented sweeping pension reforms seeking savings totalling €48 billion. The new scheme slashed from 7.3% to 2.3% the proportion of an individual's salary that can be paid into private pension accounts. The 5% difference has been paid into Poland's national social security scheme.

Plenty of justifications are provided for these actions. In times of economic turbulence, national guilt over uncontrolled expenditure encourages citizens to readily accept these kinds of massive changes to financial policy. Others hold that pensions are safer in the hands of the state than in private funds. This argument, presented in favour of the actions of the Hungarian and Bulgarian governments, is rarely true in times when a Government is struggling to keep its own financial house in order.

In Ireland the Government has made an interesting move by taxing its citizens’ retirement savings. This year saw the introduction of a 0.6% levy on the capital saved in private sector pension funds. This tax will apply for four years. It levies not only future savings but also those funds put aside in the past; such a retrospective tax is arguably unconstitutional. The chunk of change held in our pension funds obviously proved too attractive for the Government to ignore. Economist David McWilliams estimates that at present the Irish people have €48 billion scurried away in defined benefit private pensions and €23.7 billion in defined contribution schemes.

On top of this levy the Government has introduced an additional mechanism to allow it to benefit from private pensions savings. Traditionally pension funds have only been permitted to invest in safe, relatively low-return financial products. However in 2010 a new scheme was established to allow the National Treasury Management Agency (NTMA) to issue new types of Government high-yield bonds, to be made available to Irish pension funds. These bonds have since allowed pension funds to buy into Irish sovereign debt paying out an impressively high 9.4% yield. On the face of it this is a rosy idea: in theory the scheme provides a high return on investment for struggling pension funds while also providing an additional source of finance for the state. Yet there is a reason that pension funds have traditionally been forced to avoid high-yield bonds; high yield means high risk. Many of us are now investors in pension funds that are betting on a state that has just required us to tax that very same fund just to ensure its survival. Though it may not look like it, this is further dubious use of private savings to fund a Government shore-up attempt.

We work away our daylight hours with the hope of progressing, achieving and ultimately earning. We earn to provide for our futures and our children’s futures. Retirement funds are not just mere savings accounts, they are idealogical in nature; we work hard now so that we can afford ourselves security in our old age, regardless of the fact that we may not live to enjoy it. Many of us faithfully put aside a portion of our earnings each month for our pension despite the fact that we are struggling to live on a low disposable income. It is a shame that this most treasured of financial assets has been targeted.

The pensions crisis for dummies

Online pension forums and advice websites often tend to be very specific. Pensions are quite a complicated subject and though I’ve repeatedly come across discussions of the current pensions crisis I haven’t been able to pinpoint exactly the sources of the problem. The following is an analysis of the pensions emergency from a beginner’s point of view.

Pension plans can generally be classified as either defined benefit or defined contribution schemes according to how benefits are determined, though hybrids of the two do exist. Defined benefit plans place most of the fiduciary responsibility on an employer. The employer guarantees that the employee will receive a certain payout at retirement according to a fixed formula, usually dependant on the individual’s salary and their number of years' of membership in the plan. So this type of pension might see a company guarantee a post-retirement annual payout of for example 60% of an employee’s salary averaged along their working life.

Defined contribution plans remove the responsibility from the employer and place it on the employee. This type of scheme provides a payout at retirement that is dependent upon the amount that the individual themselves has contributed into their pension fund over their working life and also on the performance of the investment choices that they have made. Contributions usually consist of employee salary deferrals. In most cases an employer will agree to match at least some percentage of these contributions, so the employer does still play at least some part in the accumulation of a pension (besides the obvious).

In the 50s, 60s and well into the 70s, benefit schemes were the most dominant form of pension fund. Employees could expect them as standard. Most of my friends’ parents, regardless of whether they worked in the private or public sector, are now drawing down this type of pension. Generally they provide a very adequate standard of living for the retired recipient.

Today these schemes are far less common. The majority of firms in the private sector have abandoned benefit plans in favour of contribution plans. There are a multitude of reasons for this shift, led both by employer and employee, including a desire for increased control over one’s pension investments and support for a less paternalistic type of company structure. However the most obvious reason for this change is that contribution schemes pose less cost to employers. The employer has less fiduciary responsibility and in some cases can avoid making any contribution to the employee’s pension fund altogether.

The problem is that left to its own devices, the average individual’s contribution pension fund is very vulnerable. Many of us (and unhappily I include myself at this point in my life) do not possess the financial savvy to choose the correct investment vehicles, or do not have the discipline to voluntarily contribute money to retirement accounts. An individual needs to save two hundred grand over the course of their working life and have their contributions matched every step of the way by their employer to ensure a meagre annual pension of just over €23,000. That means putting aside €8,000 every year for 25 years – very difficult if you are on the average industrial wage of €36,000 (that’s pre-tax). Granted, pension contributions are often tax-deductible, but we are still dealing with a big number that will be deducted from one’s discretionary income.

Both types of pensions took a massive hit as a result of the recent downturn but this hit was borne in crucially different ways. Employees covered by defined benefit plans suffered less, since regardless of investment fluctuations their retirement benefits were guaranteed. Their employer always bears the brunt of any falling investment values. On the downside, one unfortunate shortcoming of this type of scheme is that weighty pensions obligations can sometimes cripple struggling corporations. Aer Lingus, a company know to have trouble with cash flow, currently holds a worrying debt in pension responsibilities. But short of a company going bankrupt, workers with this type of pension are safe.

Contribution pension funds tell a different story. This type of pension was decimated by the recession. In the United States the nation's 100 largest corporate pension plans fell by $303bn in 2008, going from a $86bn surplus at the end of 2007 to a $217bn deficit at the end of 2008. The average Joe, who possesses neither financial training nor the time to devote to monitoring his investments, saw the value of his pension massively decline. Pensions fell even as some companies made big gains and expanded; employers were not responsible for the health of their employees’ pension.

Civil servants are by and large the only remaining recipients of defined benefit pensions. This has created even more discourse between workers in the public and private sectors. It is hardly fair that public sector pensions are safe while private sector pensions have taken such a hit. 

We now know how difficult it is to build up a contributions-based pension, and how those who have managed it have still seen their savings diminish. The end result of these factors is that the state will be forced to bear the burden of financing the old age of this generation. Our struggling public purse will have to fund the retirement of those who in many cases worked for employers who could have easily afforded to pay for their pensions. The state can not afford this. Life-spans are increasingly getting longer. This will cause particular problems in countries like the US that have adopted an anti-immigration stance, since flows of immigrants are not available to counteract an ageing population (thought the US’ high birth rate will stave this off in the medium-term). Countries with low birth rates, including most of Europe, will really struggle.

To conclude I must say that having grasped the roots of this problem, I can’t quite see a solution. As always comments are welcome from sources with a better grasp of this subject than I.

Forced to appeal to the High Court over incorrect bank charges

The number of complaints formally made by consumers against banking institutions has grown year on year since the inception of the Financial Services Ombudsman (FSO) in 1995. The FSO is the statutory office tasked with independently inspecting complaints made by the general public about their dealings with financial service providers that have not been resolved by the providers themselves. Between 2008 and 2009 the office saw an increase in complaints of 28%. There is no doubt that this increasing figure is not only a result of mounting consumer difficulties in making repayments on loans and mortgages, but also a result of the growth in anger at and thus scrutiny of the practices of Irish banks.

The procedure for successfully resolving a complaint through the Financial Service Ombudsman is, unsurprisingly, complicated. The consumer must first lodge a written application. On the basis of this the FSO will decide whether the issue falls within its remit; in 2010 it found that a whole 859 did not. We have no idea as to what happened to these claims as they are not tracked any further by the office. If a complaint is found to fall within its remit the FSO then notifies the financial institution in question and affords the institution twenty five days in which to resolve this complaint internally. If no solution is reached the FSO will offer a mediation service. How this works in practice remains a mystery as the office does not elaborate on what mediation involves. There are no clear guidelines provided as to what type of result will deem mediation a success. A mere token effort by a financial institution to placate an aggrieved consumer might be sufficient to halt the involvement of the FSO.

On to the investigatory stage. Only if the FSO itself declares that mediation has been unsuccessful will it begin an actual investigation into a complaint. There is currently a twenty week waiting time for the commencement of a new investigation following the ruling out of mediation; what happens to the aggrieved parties in the meantime we do not know. Investigations take on average six to eight weeks, involve an evidentiary assessment and potentially an oral hearing. Once a decision is reached it is legally binding on both parties, subject only to an appeal. In 2010, a year that saw a near-record 7230 complaints, only 2443 decisions were ever reached.

At this point we reach the most problematic aspect of the complaints procedure. The only way to appeal a decision of the FSO is to take an appeal to the High Court. The High Court, the second highest court in the state! At this level legal costs are prohibitive for the majority of the populace never mind those parties already in a disadvantaged position with their bank. The cost of taking on a solicitor and barrister to bring an appeal through the High Court would be well into the thousands and we can hardly expect applicants to represent themselves in an upper court where across the room will sit the type of well-paid and experienced counsel that banks can afford. As a direct result very few appeals are ever taken.As of 31st December 2010, there were only 32 High Court appeals pending against the FSO in a year where 2500 decisions were issued. We don’t even know how many of these appeals were brought by the consumer rather than by the financial institution involved.

In theory applicants could apply for legal aid to support their appeal. Unfortunately legal aid is very heavily means tested and the income bracket it accepts is extremely low. Anecdotally I know that even if an applicant meets the financial requirements to qualify for legal aid, the Legal Aid Board will generally turn them down on the merits test. A case must be likely to succeed before it will be taken on for legal aid and since the FSO complaints process is already so long-winded the Board are reluctant to bet on the success of an appeal. It would be interesting to see how many applications for legal aid in order to take such an appeal are dismissed every year but this kind of specific information is not provided by the Legal Aid Board.

I see the point of using non-judicial bodies like the Financial Services Ombudsman to make decisions on certain specific issues, since this reduces the costs to the taxpayer that would be incurred by full blown court cases. The Personal Injuries Assessment Board is a good example of this model working at its best. Yet the integrity of these non-judicial bodies is instantly cast in doubt when applicants are forced to go all the way to the High Court to appeal their decisions. As well as providing more clarity on its complaints procedures the Financial Services Ombudsman must set up a more realistic appeals process as a matter of urgency.