The 2014 report tracks progress by FTSE 350 companies in improving gender balance in the boardroom since publication of the Davies report in 2011 (see News brief "Women on boards: targeting diversity") (see box "The Davies report").

The 2014 report notes that women now make up 20.7% of the boards of FTSE 100 companies and 15.6% of the boards of FTSE 250 companies. This is a significant increase from 12.5% and 7.5%, respectively, in 2011. If progress continues at the same rate as the last 12 months, the FTSE 100 should meet or exceed its 2015 target.

A significant improvement in reducing the number of all-male boards was also reported. Only two FTSE 100 and 48 FTSE 250 companies are reported to have all-male boards (against 21 and 131, respectively, reported in December 2010).

However, despite these improvements, the number of female executive directors and CEOs remains low. It was reported that women represent only 6.9% of executive directors on FTSE 100 boards and 5.3% on FTSE 250 boards, and that there are currently only four female CEOs in the FTSE 100 and eight in the FTSE 250.

The 2014 report reviewed each of the Davies report recommendations, and made further proposals for stakeholders to explore in the coming year:

Setting targets. The recommendation that companies set and disclose their own targets of women on boards (of at least 25% for FTSE 100 companies) has not been widely followed, particularly among the FTSE 250. The 2014 report, therefore, encourages FTSE 350 companies to set stretching targets for the coming year.

The 2014 report also recommends further action from those FTSE 350 companies with all-male boards to diversify, and encourages companies with less than 25% female board representation to look at what their peers have done to improve gender balance.

Disclosure and diversity policies. FTSE 350 companies are encouraged to report meaningful disclosure on gender diversity in their annual reports and on their websites. This recommendation ties in with provisions of the UK Corporate Governance Code (effective as of 1 October 2012) that require companies to make disclosures about the board's policy on diversity, including gender.

New narrative reporting legislation, which came into effect on 1 October 2013, also requires companies to disclose in their annual reports the gender make-up of the board, senior managers and employees (see feature article "Narrative reporting reform: just rearranging the deckchairs?").

As a result of these recent changes, UK companies no longer have a choice aboutmaking disclosures on diversity. However, the 2014 report notes that these disclosures have sometimes been found to be "compliance-based" and do not always reflect a buy-in to the disclosure process.

Nomination process. The 2014 report proposes that FTSE 350 companies have at least one female non-executive director (NED) on their nominations committee, and should ensure that gender balance is a core consideration in succession planning. The 2014 report also encourages chairmen and investors to consider gender balance when reviewing the re-election of NEDs, noting that there are over 90 male NEDs who have been on the same FTSE 100 board for over nine years.

Advertising and executive search firms. Companies are encouraged to periodically advertise NED positions with their executive search firms (ESFs). A voluntary code of conduct for ESFs (the code) was drawn up as recommended by the Davies report, and a report on the code's integrity was published in March 2014 (www.gov.uk/government/uploads/system/uploads/attachment_data/file/286342/bis-14-640-women-on-boards-voluntary-code-for-executive-search-firms-taking-the-next-step-march-2014.pdf). In line with the recommendation of the report on the code, the 2014 report proposes that ESFs and their FTSE 350 clients should ensure that there is at least one woman on shortlists for all executive searches for board positions.

Investors asserting influence. While some investors are already active in challenging company boards, the 2014 report notes that proactive engagement and agitation of the investor community is yet to be fully exploited on this issue. It suggests that investors should adopt a clear voting policy for companies that fail to adopt boardroom policies to increase gender diversity, and that they be prepared to vote against the re-election of chairmen and nominations committee members who have failed to take action against all-male boards.

It is worth noting that the Association of British Insurers, the National Association of Pension Funds (NAPF) and Pensions and Investment Research Consultants Ltd (PIRC) are among bodies that already review board diversity policies, with the NAPF and PIRC both addressing the issue in their voting policies.

The talent pipeline. The 2014 report considers the longer term objectives for gender diversity, and the pipeline of female talent in organisations. It is recommended that FTSE 350 companies use peer-to-peer networks to understand and share best practice, and to identify and support senior women in their organisations through coaching and internal sponsorship initiatives.

For the coming year, meeting the 25% target will be a focus and, if achieved, this will be an important milestone, for UK businesses and the government. Not only would the number of women on FTSE 100 boards have doubled since 2011, it would endorse the voluntary business-led approach adopted in place of legislative quotas. If the target is not met, the 2014 report recognises that there is a risk that compulsory measures may be introduced by the government or the EU; a move that would be controversial and unwelcome to many companies.

Whether or not the 25% target is met by 2015, gender imbalance on boards is likely to remain in the spotlight through 2015 and beyond. There is a clear message in the 2014 report that the 25% threshold for women on boards is a short-term goal only, and further targets can be expected. In particular, there is increasing focus on the pipeline of female talent in organisations, and putting in place initiatives to support that talent.

Disclosure requirements about gender and diversity are also here to stay. Reporting requirements are now codified in legislation and the UK Corporate Governance Code, and there are further measures to improve gender diversity on the EU legislative agenda. Since the Davies report, gender imbalance has also been perceived by the investor community as a matter affecting board effectiveness and it has, therefore, become an important corporate governance matter.