Hailing the Independent Review into Women on Boards as a chance for a "step-change" in getting seats on the board for more talented women, Davies said UK listed companies in the FTSE 100 should be aiming for a minimum of 25% female board member representation by 2015.
"Currently 18 FTSE 100 companies have no female directors at all and nearly half of all FTSE 250 companies do not have a woman in the boardroom. Radical change is needed in the mindset of the business community if we are to implement the scale of change that is needed," Davies said.
He recommended in his report for government that FTSE 350 companies should be setting their own, challenging targets and expects that many will achieve a much higher figure than this minimum.
Davies also called on chairmen to announce these goals in the next six months and chief executives to review the percentage of women they aim to have on their executive committees in 2013 and 2015.
Companies should fully disclose the number of women sitting on their boards and working in their organisations as a whole, to drive up the numbers of women with top jobs in business, Davies said.
"Over the past 25 years the number of women in full-time employment has increased by more than a third and there have been many steps towards gender equality in the workplace, with flexible working and the Equal Pay Act, however, there is still a long way to go," Davies said.
"This is not about aiming for a specific figure and is not just about promoting equal opportunities but it is about improving business performance. There is growing evidence to show that diverse boards are better boards, delivering financial out-performance and stock market growth."
Business secretary Vince Cable said: "I strongly welcome Lord Davies’ report and am committed to promoting gender equality on the boards of UK listed companies. We will therefore seriously consider its recommendations.
"The report is clear that a business-led approach is the best way to increase the number of women on company boards, and we will therefore engage with business in considering his recommendations. Likewise we encourage regulators, investors and executive search firms to take forward those recommendations that fall to them."
Home secretary and minister for women and equality Theresa May added: "Inclusive and diverse boards benefit from fresh perspectives, new ideas and broad experience. A company with a board that reflects the people it serves is better able to understand its customers, and there is growing evidence that companies with more women on their boards outperform their male-dominated rivals. Lord Davies’ report is an important step forward in understanding why this is and what can be done about it, and I shall be considering his findings very carefully."
The HR sector has broadly welcomed the recommendations. Laura Whyte, personnel director at John Lewis, said: "I strongly support the setting of targets rather than the introduction of quotas for women in boardroom positions to address this balance. Business leaders must take responsibility for building an effective talent pipeline, and make it a commercial priority to identify, invest in and train potential leaders from its entire workforce. It is also vital that women in senior positions act as role models and mentors to other women who aspire to work at this level."
Jackie Orme, chief executive at the Chartered Institute of Personnel and Development (CIPD), said meeting Davies’ objectives should be about "more than skirts on seats".
"It needs to be about a concerted challenge, led by chairs of boards and headhunters themselves, to the established views of the skillset, background and range of experiences that make great board members. That board members should be appointed on merit is a truism – but the definitions of what constitutes ‘merit’ have been allowed to become too comfortable and too static – to the detriment of corporate performance."
However, Kingsley Napley employment law partner, Michelle Chance, believes that the issue of mothers has been overlooked.
"Of those women who do make it, only a very small percentage of them will be mothers. Fewer women mid-career aspire to ‘lead’ because of family commitments and employers could still do much more to encourage women to be ambitious post-maternity leave, for example by giving working mother mentors and continued promotions. Not only is this important for diversity but it has been shown more family friendly businesses have happier workforces and are more productive."
Chance added that she has come across several senior women recently who have been made redundant on returning to work after children and who feel cuts have been used as a cloak for weeding out women who want flexible working arrangements.
"The fact such practice is clearly still not supported in many roles/organisations will surely not help able women ‘get to the top’. Also the stigma still attached to women who bring discrimination cases (very often it is a career limiting move to address such workplace injustice) means many organisations, particularly in the City, can get away with un-family friendly practices and have no incentive to change."
The Davies report also recommends:
- Investors should pay close attention to the recommendations from the report when considering re-appointments to a company board.
- Companies should periodically advertise non-executive board positions to encourage greater diversity in applications.
- Headhunting firms should draw up a voluntary code of practice addressing gender diversity in relation to board level appointments to FTSE 350 companies.
- The Financial Reporting Council to amend the UK Corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity. This should include how they would implement such a policy, and disclose annually a summary the progress made.