Vince Cable's attempt to use positive discrimination to get more women into the boardrooms of major companies has been thwarted by the Equalities and Human Rights Commission (EHRC), which has ruled out the use of all-female shortlists.
The business secretary had asked the equalities body to advise him on the legality of excluding men when trying to fill top City jobs as part of an effort to improve the gender balance in boardrooms.
Laura Carstensen, an EHRC commissioner, has issued new guidance which makes clear that using women-only shortlists is unlawful under equality law.
"It constitutes unlawful sex discrimination to select a person for a role because of their gender. The law does not permit positive discrimination when making an appointment or a promotion," the guidance said.
"However, the law provides scope for companies to address any disadvantage or disproportionately low participation on boards by enabling or encouraging applications from a particular gender, provided selection is made on merit."
Cable had sought the advice after receiving a report into the headhunting industry commissioned from Charlotte Sweeney, a former head of diversity at banks including HSBC and Nomura. She had suggested putting at least one woman on the shortlist for all board positions.
The EHRC guidance points out that "positive action is permitted when people of one gender are under-represented in a sector or company, provided that the measures which are adopted pursue the legitimate aim of addressing the causes of under-representation and that they are proportionate".
EU law permits women-only shortlists for political parties because it falls outside the scope of employment and occupation.
Cable said the guidance provided details on what lawful measures can be taken to help deliver greater boardroom diversity while the Institute of Directors (IoD) supported the rejection of women-only lists.
"This will really help our top businesses in what has been in the past a bit of a legal grey area. It confirms it is good and accepted practice for companies to set ambitious aspirational targets to increase the number of women on their board," Cable said.
"We completely agree with the commission that board appointments must be made on merit, demonstrated through fair and transparent criteria and procedures. No woman or man wants to be on a board of a company simply because of their gender."
Oliver Parry, the IoD's corporate governance adviser, said: "We hope that the guidance issued today will help boards to appoint more women through measures including aspirational targets, wider advertising for posts and mentoring and shadowing programmes."
The voluntary target recommended by Lord Davies in 2011 was for 25% boardroom representation at all FTSE 100 companies by 2015. There are no longer any all-male boards after the mining company Glencore appointed a female non-executive director last month. Women now make up 22% of FTSE 100 board positions, largely in non-executive roles.
