Implicating public companies in the equal pay debate

Abstract

The pay gap between men and women remains high and most acute in the private sector, in which large public companies dominate. Following the recent fortieth anniversary of the enactment of the UK’s Equal Pay Act, there have been renewed efforts to solve the pay gap. Some have highlighted the ‘business case’ for equal pay. This article makes the case for equal pay to be treated as a corporate concern but argues that reforms appealing to the ‘business case’ are unlikely to lead to sincere progress. It analyses the UK’s corporate foundation of ‘enlightened shareholder value’ captured in section 172 of the Companies Act 2006, and key aspects of the internal governance structures of UK public companies. The central argument introduced is that contradictions between the causes of the pay gap and corporate aims and structures undermine the genuine pursuit of pay equality. The article concludes by arguing that a more secure platform for reform may be found by exploiting the flaws in the shareholder value paradigm and arguing for a revised model based on principles of feminist legal theory, rather than appealing to the business case for equal pay.

Keywords

Equal law pay gap company business gender

Introduction

The recent fortieth anniversary of the enactment of the UK’s Equal Pay Act has led to renewed debate about how the persistent gender pay gap might be resolved (Fawcett Society, 2010; Gow and Middlemiss, 2011). Despite a narrowing of the pay gap over previous decades (Perfect, 2011: 9), women continue to earn less than men. The median hourly pay gap for full-time employees across all occupations is 9.1%, which increases dramatically to 36.6% when the hourly pay of full-time male employees is contrasted with that of part-time female employees. The pay gap is particularly acute in the private sector (26.8%) compared with the public sector (18%) (Office for National Statistics, 2011), and especially so in the corporate worlds of law (25.4%) (Perfect, 2011: 13) and financial services (39%) (Equality and Human Rights Commission, 2009: 10), in which masculine, ‘gladiatorial’ behaviours are evident (O’Connor, 2006).

Although employees are ‘as a class in a more vulnerable position than employers’ (Gisda Cyf v Barratt [2010] IRLR 1073 per Lord Kerr at paragraph 35), women face particular dilemmas at work. Women’s increased presence in the workforce is suggestive of progress (Gow and Middlemiss, 2011: 165–166) but there persists a clearly gendered division of labour (Gottfried, 2006). Wajcman (2000: 196) explains that ‘the very nature of jobs and the organization of the labour market are intimately tied to … gender relations within the family’. This echoes Pateman’s thesis (1988: 131) that ‘the construction of the “worker” presupposes that he is a man who has a woman, a (house)wife, to take care of his daily needs’. Such radical separation of public and private life has arguably resulted in women having more limited work choices than men (Olsen, 1983).

The legacy of the male ‘ideal worker’ with domestic support continues to shape today’s paid labour market. Women remain primary care-givers (Breitenbach and Wasoff, 2007: 102–113), for whom the only viable paid work is often part-time and poorly paid. Occupational segregation is noticeable, with around two-thirds of women condensed into 12 job groups (Women and Work Commission, 2006: 9). Of the 16 occupations in which employees earn on average less than £8 per hour, 11 are dominated by women (Perfect, 2011: 14–15), perhaps reflecting the fact that many low-paid jobs such as caring and cleaning resemble the unpaid work of many women within the home. Within corporations women are also segregated horizontally. The Equality and Human Rights Commission (EHRC) inquiry into gender inequality within the financial services sector found that women were concentrated into non-revenue-generating administrative and cashiering roles, innately less valuable in a sector built on wealth creation (Equality and Human Rights Commission, 2009). Limited opportunity to work flexibly in senior, well-paid roles also clusters women at the bottom of companies (Fredman, 2004). Moreover, gender stereotypes about the rightful place of men and women inform ‘organisational structures that perpetuate the inequalities arising from … biased evaluations’ (Villiers, 2010: 538). These complex factors all contribute to the pay gap.

Recent interventions to the equal pay debate have acknowledged the multi-causal nature of the problem (Gow and Middlemiss, 2011) and the need for co-ordinated action from ‘a wide range of players’ (Fawcett Society, 2010: 2). This has included ‘establishing an effective business case for uniformly implementing equal pay practices’ (Fawcett Society, 2010: 5–6). This article argues that, although companies must be engaged if genuine progress towards pay equality is to be made, the ‘business case’ for equal pay is a flawed foundation for doing so. It analyses section 172 of the UK Companies Act 2006, which directs management to prioritise shareholders; and key aspects of the internal governance structures of public companies which reinforce this pursuit of ‘enlightened shareholder value’. Large public companies (those that can offer shares to the public, require a minimum share capital of £50,000 and have a turnover of more than £25.9 million and at least 250 employees) are the focus of this article, given their political and economic might. The central argument introduced is that the narrow pursuit of shareholder value undermines other interests and excludes women. The article suggests that equal pay advocates might find a more secure basis for reform by exploiting the flaws in the shareholder value paradigm and arguing for a revised model based on principles of feminist legal theory, rather than appealing to the business case for equal pay.

The relevance of companies to the equal pay debate

People have come to think that eliminating discrimination and promoting equality is a matter of detailed rules imposed by external agencies, rather than on the responsibility of organisations and individuals to change themselves.

(Hepple et al., 2000: xiv)

The seminal Hepple Report on the enforcement of the UK’s anti-discrimination legislation highlighted the inadequacy of relying on legislation alone to resolve gender pay inequality. The limitations of the Equal Pay Act 1970 and its successor Equality Act 2010 have been well noted (Fredman, 2008; Gow and Middlemiss, 2011). Their narrow conception of equality fails to address adequately ‘a world in which the distribution of goods is structured along gendered lines’ (Lacey, 1987: 415); the segregated nature of work is ignored by insisting in most cases on an actual comparator of the opposite sex within the same employment; and, in the relatively unlikely event of an individual employee winning her claim (of the equal pay claims disposed of in 2010–2011 only 1% were successful; 7% were unsuccessful; the remainder were withdrawn (around 60%), conciliated (12%) or struck out (21%); HMCTS, 2011), the employer must only provide backdated pay or contractual damages. This framework does little to tackle the systemic nature of group disadvantage. Legislation may also be particularly ineffective in the corporate context where companies have manipulated the public/private dichotomy to resist regulation. As Fineman notes:

Markets are constructed as public (and therefore under a different, competitive set of norms) when contrasted with the family, but as private (and therefore not easily susceptible to public regulation) when paired with the state. The market reaps the best of both spheres.

(Fineman, 2005: 22)

Other equality- and labour-based initiatives to tackle the pay gap, notably collective bargaining and the public sector equality duty, also have limitations within the corporate context. While the public duty applies also to private bodies with public functions, the courts have interpreted ‘public function’ narrowly (Fredman, 2011: 415). The duty, contained in section 149 of the Equality Act, requires only that ‘due regard’ be given to eliminating discrimination and advancing other equality goals. Collective bargaining has arguably had more success, although the relationship between the trades unions and their women members has often been a conflicted one (Fredman, 1997: 113). Union efforts over the past decade to bargain for equal pay have yielded some significant gains but have also resulted in protracted litigation and, at times, a bias towards preserving historically discriminatory pay structures (Allen and others v GMB [2008] EWCA Civ 810). Moreover, low levels of union density in the private sector and the apparent willingness of the courts to allow collectively agreed terms to be unpicked in the employer’s favour (Russell, 2011) mean that collective bargaining alone is unlikely to achieve equal pay in the corporate sector.

These barriers suggest that consideration should be given to reforms located within companies. There are compelling reasons for doing so. As significant employers, public companies are instrumental in determining remuneration and exert a powerful influence over societal and cultural norms. These ‘cultural consequences of the market-based culture of corporate capitalism – alienation, the devaluation of women’s non-waged and waged work, the role of the family … and the appropriation of women’s reproductive labour’ – particularly disadvantage women (Lahey and Salter, 1985: 545).

Although numerically small, the economic power of public companies is vast. Increasing convergence of fewer yet larger companies has resulted in the turnover of some being more than the gross domestic product of nation states (Parkinson, 1993: 5–8). Globalisation and the growth of multi-national companies have extended their influence beyond economics to politics (Scherer and Palazzo, 2011). Moreover, increasing dependence in a service economy on productive employees also confers a responsibility to distribute economic gains equally amongst them (Blair, 1995: 249–259).

The relevance of companies to the equal pay debate is evident in recent appeals to the ‘business case’ for gender equality in both domestic and international contexts (Fawcett Society, 2010; United Nations Women, 2012; Wild, 2010). Arguments have been made that improving women’s labour market participation would contribute more to the economy and generate increased taxation revenue (Wild, 2010: 2). The resulting increase in women’s income would reduce the sums paid in benefits and thus help wider society. David Cameron, the UK Prime Minister, has argued that improved gender equality in the form of more women directors could curtail excessive boardroom pay (Wintour, 2011). At the level of the individual company, business case arguments have centred on improved recruitment and retention, and utilising the entire workforce effectively (Wild, 2010: 3).

It is understandable that attempts to engage business in the equal pay debate will use the language of commerce that most appeals. However, in doing so, there is a risk that attention is diverted from more foundational inhibitors of equal pay, such as the myopic pursuit of short-term profit or corporate values of ‘competition, hierarchy, aggression and strict classifications of roles’ (Cohen, 1994: 11). The business case takes as its starting point the corporate status quo and attempts to fit appeals for equal pay within that paradigm. Indeed, the business case for equal pay risks (albeit inadvertently) bolstering the narrow focus on profit in its instrumental use of women. This point has been made forcefully by McCann and Wheeler (2011: 544), who argue that business case arguments in the context of women directorships are ‘demeaning’.

The EHRC, while supporting the business case, has noted its limited impact on persuading companies to take action to resolve the pay gap. This has led it to call for a change of emphasis by strengthening the business case and for equal pay to be treated as a core corporate objective (Wild, 2010: 4–5). Although recasting unequal pay as a corporate concern is to be welcomed, doing so by strengthening promises of a more loyal and happy workforce risks lending support to the dominant corporate purpose, which may inhibit substantive reform. In the United Kingdom, this accepted corporate purpose is ‘enlightened shareholder value’.

Enlightened shareholder value

Whose interests should a company serve? On one view, the company should be managed for the benefit of its shareholders (Berle, 1932). Known variously as shareholder primacy, shareholder value or shareholder wealth maximisation, this model views share price as the optimal barometer of efficient corporate management (Johnston, 2009: 21). Indirectly, other stakeholders such as employees are said to gain as wealth is distributed throughout society.

Others view the corporation as a social enterprise, whose responsibilities extend to a far broader body of participants (Dodd, 1932). The normative claim of this ‘stakeholder theory’ recognises that corporate success is dependent on wider contributions than those of shareholders (Donaldson and Preston, 1995) but is difficult to reconcile with the operation of public companies, characterised by powerful directors acting only in the interests of shareholders (or themselves). Moreover, critics argue that a pluralist approach ‘risks … a free-for-all among stakeholders’ with the ‘already powerful’ prevailing (Testy, 2002: 1237) and, at worst, a lack of accountability to anyone.

Although numerous manifestations of the corporate purpose debate have emerged over time (Attenborough, 2012), they typically centre on the extent to which, if at all, shareholder primacy should be ameliorated in favour of other interests. The relatively recent reform of UK company law adopted the principle of enlightened shareholder value (ESV) as a compromise between shareholder primacy and pluralism. ESV finds expression in section 172(1) of the Companies Act 2006, which provides that:

A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—

(a) the likely consequences of any decision in the long term,

(b) the interests of the company’s employees,

(d) the impact of the company’s operations on the community and the environment,

(e) the desirability of the company maintaining a reputation for high standards of business conduct, and

(f) the need to act fairly as between members of the company.

At first glance this section suggests a more communitarian vision of the corporation. However, corporate success is defined as that which is beneficial to shareholders. Although ‘success’ is arguably a far broader concept than ‘profit’ (Davies, 2008: 510–512), the nature of the public company shareholder (typically an institution investing for financial gain) means that these terms are generally regarded as synonymous. Much of company law is shaped by practitioners (Rock, 1997), who are also sceptical about whether section 172 will lead to more egalitarian decision-making (Loughrey et al., 2008: 90). The Institute of Chartered Secretaries and Administrators (ICSA, 2007) reminded directors when section 172 came into force that:

‘traditional considerations’ such as profitability, the financial effects on shareholders etc are still of critical importance as they are central to the duty to ‘promote the success of the company for the benefit of the members as a whole’.

Despite the transformative potential afforded by section 172 for companies to take into account a wider body of stakeholders, directors need only ‘have regard to’ these other interests in so far as they benefit shareholders. Employees are ‘consigned to an external category’ (Wedderburn of Charlton, 2002: 109) and left to compete for attention with other, non-exhaustive considerations. Furthermore, the narrow scope for enforcement of section 172 by shareholders alone means that only those members ‘with a social conscience’ are likely to take action (Keay, 2007: 110). It is against this background that appeals based on the business case for equal pay are being made, which explains both their lack of success and why such appeals are problematic. Internal corporate governance structures reflect the shareholder value paradigm and compound the exclusion of employees generally and women particularly from public companies.

Structural barriers

The board of directors

Corporate governance, traditionally defined as ‘the system by which companies are directed and controlled’ (Cadbury, 1992), has centred on the binary relationship between directors and shareholders to ensure accountability of the former to the latter when their interests potentially diverge. This is particularly so in a public company, where a large and disparate body of shareholders cannot be responsible for running its affairs. Significant discretion is therefore given to the board through ‘light touch’ articles (a company’s rulebook), while the dispersion of institutional investors means that shareholders’ residual voting power is difficult to mobilise. Such powerful boards can, however, ‘change organizational structures and … set the operating rules that influence behaviour and build constituencies for further change’ (Cockburn, 1991: 232). For this reason, their composition matters.

In the UK, women hold only 15% of directorships on FTSE 100 boards and 9.4% of directorships on FTSE 250 boards (Sealy and Vinnicombe, 2012: 6). The recent report by Lord Davies on women directors made the business case for more gender-balanced boards by suggesting that greater board diversity can positively affect performance (Davies of Abersoch, 2011: 3). He rejected the suggestion that formal legislative quotas, such as those adopted in Norway (Villiers, 2010: 550–554), are required, and advocated voluntary action to achieve 25% female representation in FTSE 100 boards by 2015. Indeed, positive discrimination in the form of quotas is not permitted under section 159 of the UK Equality Act. It remains to be seen whether these suggested voluntary reforms will have any effect, although the call for a doubling of female directorships over a 4-year period may, on one view, be considered ambitious given the otherwise slow predicted rate of change (Equality and Human Rights Commission, 2011: 3). The Financial Reporting Council will also amend the UK Corporate Governance Code (which provides guidelines for the governance of public companies whose shares are listed on a stock exchange) to state that listed companies must set out their policy on diversity and that evaluation of board composition must also consider diversity (Financial Reporting Council, 2011).

Although a narrow pay gap provides positive environmental conditions in which ‘women are more likely to gain board positions’ (Terjesen and Singh, 2008: 60), can more women directors tackle engrained obstacles to gender pay equality? Villiers has pointed to the inability of women to ‘fit the mould’ as a barrier to promotion (2010: 539). Such gravitation towards those who reflect our own values suggests that women directors may be chosen because they resemble (in views and conduct) those already in power. Moreover, more diversity at boardroom level alone may, at least initially, have insufficient impact to challenge widespread discriminatory culture within the ranks of the corporation (Fairfax, 2006: 593).

Conceptual difficulties are also notable in the boardroom diversity debate. At its most reductive, arguments veer confusingly between different conceptions of equality (McCann and Wheeler, 2011: 549–550). Women are told that they are as good as men. This assumes a liberal model of equality, limited by its dependency on a male norm. Arguments premised on the perils of ‘groupthink’, however, highlight gender differences and risk over-essentialising a woman’s experience. Despite the lack of specificity about its aims and underlying rationale in much of the women directors debate, it has highlighted the concentration of executive power in the hands of a small, male (and often mono-cultural) group. This unrepresentative power sits uncomfortably with the increasing political influence of companies. Although it would be naive to assume that simply increasing the number of women directorships will lead to a more representative board, alongside other structural changes it may mark the start of a transformative process in which the barriers to pay equality might be broken down. As Munro argues:

redressing patriarchy requires more than including female experiences in order to challenge the law’s partiality; it requires a deep-seated restructuring of social power relations to empower women vis-à-vis men.

(Munro, 2007: 42)

Transparency

If corporate accountability is intrinsically linked to transparency of decision-making – ‘[m]ake corporations tell the world what they are doing, and the world will penalize them for bad deeds’ (Testy, 2002: 1235) – it follows that enhanced disclosure of pay might lead to more equitable treatment of employee reward. However, there is no compulsion on an employer in the United Kingdom to disclose voluntarily the pay of staff. Section 78 of the Equality Act allows regulations to be made to compel employers with at least 250 employees to publish information annually showing the differences in pay of male and female employees. This is unlikely to be brought into force by the present government given its recent ‘Think, Act, Report’ initiative, which encourages only voluntary reporting (Government Equalities Office, 2011). The United Kingdom’s recent Modern Workplaces consultation (BIS, 2011a) offered a more positive way forward by suggesting that, where an employer has lost a claim for unequal pay, it must audit the pay of all employees to examine whether that instance of unequal pay was an aberration or deep-rooted pay disparities between male and female employees exist. Compelling employers to audit pay between men and women only when a successful claim has been brought will, however, do little to promote systemic change.

Company law, too, presents barriers to disclosing the full extent of the pay gap. Although section 417(5) of the Companies Act requires that annual reports of public companies contain an assessment by directors of how they performed against their section 172 duty, the ‘tick box’ and increasingly homogeneous response by the City to compliance statements suggests a passive approach to transparency (Moore, 2009). Ironically however, the requirement in sections 420–422 of the Companies Act for public listed companies to disclose their directors’ remuneration has had a significant impact. A ‘race to the top’ appears to have been created in which the pay of FTSE 100 chief executives is around 145 times that of the average worker (High Pay Commission, 2011: 63), prompting proposals for reform of the United Kingdom’s system of directors’ remuneration (BIS, 2011b). The focus on improving transparency of executive pay is welcome but somewhat at odds with the more voluntary approach adopted by the government regarding potentially unequal pay.¹ If compulsory pay audits are politically unpalatable and reporting on gender pay inequality is to remain voluntary, a compromise might be to amend section 417 to specify that the pay gap between men and women is a matter which ought to be disclosed in annual reports, or that a full explanation must be given for a company’s reluctance to do so.

The employee voice

In an environment of political and economic dominance of public companies, it is invariably difficult for the voice of an individual worker to be heard and for equal pay to be demanded. Shareholder voice is paramount despite employees sharing the risks of business failure, particularly where they have ‘firm-specific’ skills which are not easily transferable (Blair, 1995: 225). Moreover, the political influence of public companies suggests that they should be subjected ‘to a form of democratic control not by subsuming them within the machinery of the state, but instead through internal democratization, by way of employee participation or control’ (Parkinson, 1993: 401).

Collective bargaining attempts to redress the subordinate position of employees by providing a counter-balance to corporate power. The United Kingdom’s corporate governance regime is not, however, a particularly participative one and there is no place for employee representatives on the board of public companies. Labour law affords some opportunity for worker involvement, but an employer’s formal obligations to consult with staff representatives are generally restricted to situations where a large number of employees are facing dismissal because of a business restructure. Moreover, with only 18% of private sector employees covered by collective bargaining (TUC, 2011), it is highly probable that many women in public companies will not have their terms and conditions collectively agreed. When pay is left to the discretion of individual managers, systemic prejudices may go unchallenged. Indeed, this was a core contention of the numerous claimants who attempted to bring a class action in the high-profile US Dukes v Wal-Mart litigation (Bhatnagar, 2004).

As trade unions have not always acted in the best interests of women members, some might hesitate to suggest an increased role for collective bargaining as a panacea to unequal pay. Nevertheless, there is clear evidence that ‘[u]nionised workplaces are more likely to pay according to the job and less likely to use performance appraisal and merit pay’ (Metcalf et al., 2001: 66). This leads to lower dispersion in pay. In the absence of unionised workforces in the corporate sector, however, there may be no choice but to look for other ways in which employee voice might be given a more central place in decision-making. The United Kingdom’s Information and Consultation of Employees Regulations 2004 (SI 2004/3426) provide for information to be given to employees (or their representatives) in respect of significant workplace changes. Information about an employer’s economic situation (regulation 20(1)(a)) could be enhanced to include details of salary costs and a breakdown of these by gender. Through this route, concerns about the lack of transparency may be further addressed while simultaneously providing a forum in which the data can be discussed.

Shareholder activism

Commentators remain divided about whether shareholders provide an effective balance to directors’ decision-making. Ireland (2010: 848) has, for example, argued that the ‘no-obligation, no-responsibility, no-liability nature of corporate shares’ in the public company has resulted in a ‘shareholder’s paradise … the ruthless pursuit of “shareholder value” without any corresponding responsibility on the part of shareholders’. Might it be possible, however, to exploit shareholders’ power on behalf of unequally paid employees? This might seem an incongruous pairing, and the flaws in the shareholder value model (discussed below) sit uneasily with allocating more power to shareholders. It is possible, however, to reconcile these seemingly conflicting ideas. That reconciliation comes from acknowledging the institutional investors’ role as stewards of public money.

The vast majority of shareholdings in UK public companies are held by institutions such as pension funds (Birds et al., 2011: 365). Pensions, of course, represent the contributions of working men and women who, it may be said, indirectly have an ownership stake in public companies (TUC, 2009). The legitimacy which comes from such a shareholding allows institutional investors to challenge companies on social issues including that of gender pay inequality. Increasing activism in the ethical pensions arena offers a promising blueprint for how shareholder ownership might be exploited for a wider variety of interests including employees. The Fair Pensions group, for example, includes many trades unions, thus giving employees collectively another avenue through which to raise their voice. The UK Financial Reporting Council’s Stewardship Code, which sets out best practice for institutional investor engagement, similarly offers a model for shareholder activism (Financial Reporting Council, 2010). It tells institutions to disclose both their policy on how they have discharged their stewardship responsibilities and their voting records, or explain why they have not done so (Financial Reporting Council, 2010).

The United Kingdom’s ‘shareholder spring’ of 2012, in which institutions voted against the remuneration of public company directors, sometimes leading to executive resignations (Guthrie, 2012), shows that concentrated shareholder activism can alter corporate behaviour. However, before equal pay advocates could feel confident about agitating for greater shareholder involvement, careful consideration must be given to an institution’s voting policy. The shareholder spring was driven not by benevolence towards other stakeholders but by the relatively poor dividends paid to shareholders despite directors’ pay increasing. Measuring managerial behaviour on profit and dividends alone sits uneasily with rectifying historic pay anomalies, at least in the short term. However, if the institutional shareholder’s role is recast as a genuine steward of employee savings, voting in a manner which prioritises short-term gain over more egalitarian behaviour becomes difficult to justify.

For equal pay advocates, the image presented of public company structure is somewhat pessimistic: a largely apathetic group of shareholders; significant discretion given to unrepresentative directors; little opportunity for employee engagement; and limited disclosure of employee pay. These are complex issues to address but they highlight why the implication of public companies in the equal pay debate must be made at a more foundational level than appealing to the business case. Without reforming how public companies operate and the theoretical foundation upon which they are based, any reforms are likely to be limited to those which do not conflict with the overriding objective of shareholder value. Ideologically this model of shareholder value prefers the masculinist ideal worker who is untroubled by domestic responsibilities and can devote himself to profit maximisation (Williams, 2002: 922). This, in turn, entrenches the causes of the pay gap. The following section suggests how we might break out from such circular and self-reinforcing thinking by acknowledging the flaws in the arguments used to support shareholder value, before concluding by suggesting a revised corporate model in its place.

Problems with justifying the status quo

The prioritisation of shareholders’ interests has traditionally been justified by claims that they own the company (Grantham, 1998). Company law developed from partnership law. The influence of partnership law, with collective asset ownership, explains why no distinction was made historically between the ownership of a company’s shares and assets. For over a century, however, it has been clear that a share is not a right to a stake in the company’s assets but merely ‘the interest of a shareholder in the company measured by a sum of money, for the purposes of liability in the first place, and of interest in the second’ (Borland’s Trustee v Steel Brothers & Co Limited [1901] 1 Ch. 279 per Farwell, J at 288). Proprietary rights can, however, extend beyond ownership in a traditional, physical sense (Njoya, 2007: 86). For Hansmann, ownership in the corporate context is synonymous with ‘the right to control the firm’ (Hansmann, 1988: 269). Quite apart from the descriptive inadequacy of suggesting that shareholders control directors to any meaningful extent, arguments of ownership based on control appear circular. Shareholders have been granted voting rights by reason of their classification as owners: a classification that has derived from and is supported by those same voting rights.

Stout argues (2002: 1200) that shareholder primacy remains dominant because it ‘is a second-best solution that is good for all the stakeholders in the firm’ by holding ‘directors … to a clear and easily observed metric of good corporate governance’ (i.e. profit). As the group deemed to be most at risk should a company fail, shareholders are most incentivised to monitor director behaviour and should have their rights preferred ahead of others while the company is trading (Attenborough, 2012: 8). However, even this economic justification of shareholder value is flawed. Increasing dependency of public companies on human capital suggests that the idea that shareholders assume most risk is outdated. Moreover, the link between shareholder wealth maximisation and societal wealth has been strongly contested (Ireland, 2005). Indeed the growing gap between rich and poor suggests that overall economic growth masks distribution in favour of a minority (OECD, 2008).

Towards a revised corporate model

The intransigence of the pay gap in the private, corporate sector reveals a tension between business values and more egalitarian principles. However, once the justifications for those corporate values are revealed as flawed, other normative claims may be made in their place. The growth of the corporate social responsibility (CSR) movement, in which companies are increasingly considering gender equality as part of their CSR agenda (Grosser, 2009), is evidence of the willingness to explore alternatives to the corporate status quo. Indeed, the Fawcett Society has suggested that CSR may be a hook upon which a case for equal pay could be built (2010: 10). Still, accusations about the CSR movement’s lack of sincerity and suggestions that it has ‘been hijacked by corporate interests’ (Banerjee, 2008: 64) urge us to be cautious. Without tackling the underlying corporate purpose, CSR ‘becomes an ideological movement designed to consolidate the power of large corporations’ (Banerjee, 2008: 59). In the same way that the business case for equal pay risks treating women instrumentally to further corporate gain, genuine CSR can easily become confused with simple philanthropy. Although there is undoubtedly value to corporate giving, sincere corporate responsibility is suggestive of more fundamental change in how companies operate.

Critics of the progressive corporate law project, which seeks a more egalitarian corporate purpose, argue that, while it is easy to point to flaws in the status quo, no compelling alternative has been put in place of shareholder value (Hansmann and Kraakman, 2001). Testy, however, suggests that feminist theory might provide a normative focus ‘to describe what corporate law should become, and thus strengthens the progressive project precisely at its weakest link’ (2004: 89). If ‘corporate law is at its core about power and its deployment: who has it, where does it come from, and to what ends may it be put?’ (Testy, 2000: 1031), feminist theory may indeed be helpful in reshaping corporate law to tackle the pay gap, given its explorations of the dichotomies of power and dependence, and public and private life.

Feminist analyses will differ depending on the type of feminism engaged. Liberal feminism affords women equal opportunities to participate in public companies on the same basis as men but:

puts most of the responsibility on women to change themselves in order to fit into pre-existing modes of organization, while paying very little attention to whether those types of changes are good for women, whether the so-called executive role is good for people in general, and whether the institutional features that supposedly call for those kinds of initiatives are optimally designed.

(Lahey and Salter, 1985: 546–547) Difference feminism acknowledges the different experiences of women and men, most notably in the female capacity to bear children and the ethic of care that has developed from this experience. Domination feminists insist that gender differences are established only after the construction of societal institutions to reinforce the patriarchal power that has developed (Munro, 2007: 28), whereas post-structuralists argue that whether equality or difference is emphasised will be dependent on the context of the political struggle in question (McDowell and Pringle, 1992: 247). What all feminisms have in common, however, is their highlighting of women’s exclusion, and the critique of the ideological and structural barriers that create or continue power differentials (Munro, 2007: 11). Viewing companies from a woman’s position of exclusion (Bartlett, 1990) allows their presumed gender-neutrality to be questioned. In turn, this reveals those sites of particular conflict between women’s experiences and corporate aims that equal pay advocates might target in their engagement of business. There is, however, a relatively scant literature on feminist perspectives of corporate law upon which we can draw to begin this task. That which exists, however, suggests an entirely altered corporate foundation and structure.

Companies enjoy the ‘privilege of incorporation’ as a separate legal person (Wedderburn of Charlton, 1965: 21) and their shareholders’ liability is capped at whatever sum remains unpaid on the shares held by them. In modern corporate practice, whereby the full share price is normally paid at the time of purchase, shareholders can invest securely knowing that the risks to their initial investment are quantifiable and limited. While this security stimulates investment, it transfers the risks associated with corporate behaviour to other stakeholders such as employees. For a feminist ‘emphasis on relationships rather than the individual’ (Machold et al., 2008: 670), this separation of risk from investment sits uncomfortably with an ethic of care. To redress this, Gabaldon suggests that companies should at least hold sufficient insurance to properly cover the risks to which other stakeholders are put by a focus on short-term profit, and that shareholders become more active in the monitoring of their investments (1992: 1447–1449). As was discussed above, this is something of a double-edged sword. However, if institutional shareholders are obliged to vote as responsible stewards of others’ money, those votes would necessarily be curtailed by what is required in the ‘advancement of the social good’ (Cohen, 1994: 23).

Using gender as an analytical category also reveals the structural barriers presented by what Williams has described as ‘the family-hostile’ company’s treatment of employees as a short-term profit centre (2002: 930). Hierarchical corporate structures shaped around a masculinist vision of the ideal worker cluster women at the bottom of organisations or segregate them from more mainstream corporate roles. Thus, a common plea from feminists engaged in the study of the dichotomy of work and family life is the need to revise how we define an employee. Fraser argues for a starting point which assumes that workers are caregivers (1994: 612), with working practices shaped accordingly. In Cockburn’s view, this would entail a standard 30-hour week for both men and women (1991: 228). Williams similarly argues that:

a key project to ending the family-hostile corporation involves inventing new understandings of manliness that incorporate more of the family man and less of the corporate cowboy.

(2002: 929) This does not mean that we only bolster existing family-friendly practices modelled around a standard working norm from which an individual is asking to deviate (Williams, 2002: 929), but that we shape our corporations from the premise that paid labour is only one aspect of a worker’s life. The advantages of this model are that it should allow women to participate in good-quality paid work (because there would be no assumption that any job is incompatible with caring demands), while the undervaluing of certain occupations because of their similarities with unpaid domestic work could be tackled if caring responsibilities are placed on an even footing with corporate life.

Perhaps the most transformative aspect of a feminist analysis of the company is its potential to offer a new set of values upon which public corporations may be built. Lahey and Salter have suggested that these would include ‘contextuality, continuity and holistic participation’ (1985: 570). This would involve shifting the emphasis from shareholder benefit being the ‘only legitimate corporate goal’ to being ‘one of your corporate goals’ (Williams, 2002: 930). Whereas pluralist stakeholder theories have been criticised for their inevitable debate over whose interests should be taken into account and to what extent, feminism’s emphasis on contextuality removes those debates from the realm of the abstract and prioritises those stakeholders with whom concrete relationships already exist (Machold et al., 2008: 670). This would include both men and women employees.

This revised normative focus would also radically alter current board dynamics. The dichotomous practice of having a small (unrepresentative) board separated from its decisions through a lack of transparency would be replaced by flatter, more representative corporate structures and greater participation of stakeholder groups such as employees in decision-making. If companies are shaped around relational values with a long-term focus, decision-making would be more nuanced than simple considerations of what is in a shareholder’s short-term interests.

The operation of public companies has significant social consequences (Gulati, 2002: 886). Their engagement is vital to resolve the gender pay gap, yet divergence between the goals of shareholder value and gender pay equality suggests that appeals to the business case premised on a largely unaltered corporate status quo may not lead to the necessary change. However, when flaws in the traditional justifications of shareholder value are exposed, equal pay advocates may assert with confidence the need for fundamental business reform. The suggestion outlined here considers how a feminist analysis might differ from the status quo, and it will be developed more fully in future work. What even a brief review reveals, however, is that equal pay advocates might be better to argue for foundational reform of the public company rather than strengthening the business case for equal pay.

Conclusion

The scale and persistency of the pay gap require urgent and meaningful consideration. The economic and political influence of public companies means that their inclusion in the debate is vital, yet this must extend beyond instrumental appeals that equal pay is good for business. This involves changing the focus of directors on shareholders to the exclusion of other stakeholders including women employees; reforming entrenched views of the relative positions of women and men; tackling the exclusion of one’s private life from the marketplace; and, ultimately, a reappraisal of the theoretical foundations upon which companies are built. The growth of the CSR movement and the ethical investment lobby suggest growing unease with the corporate status quo. Equal pay advocates might embrace this to argue for a genuinely alternative business model rather than strengthening the business case for equal pay. It is only then that pay equality might sincerely be achieved.

Footnotes

Acknowledgement

I am grateful to Charlotte Villiers (University of Bristol) for her comments on an earlier draft of this article. All errors are the sole responsibility of the author.

Funding

This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.

Notes

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