Gender diversity is proving to be a controversial topic in the marketplace as businesses and investors debate the issues raised by the recent review by Lord Davies on gender diversity in the corporate world.
Following the publication of ‘Women on Boards’ and in anticipation of the FRC’s consultation on the same, UKSIF held an useful analyst seminar to talk around the issues with the investment community.
We began with an overview of the Davies’ Review from Denise Wilson, a member of the Steering Group behind the review. What was clear from the report and the discussion following was that there would be no one fix to the problem that UK boards are insufficiently diverse, especially with regard to gender. The steering group received over 2,000 contributions to its consultation and considered global case studies, which identified the interwoven issues behind the lack of diversity but so far, no solution seems to be a perfect fit for the UK market. Starting from the business premise of supply and demand, the Steering Group studied the pipeline of suitable female candidates and the reasons for the disproportionate attrition from which the female workforce suffers. Key themes centred on attitude in the workplace and the general work environment as well as a perceived lack of career development opportunities. Addressing the demand for female board members, it seems that there is an unconscious bias in the process of identifying candidates, whether undertaken solely by the company or alongside recruitment firms. That’s perhaps not surprising in light of a recent Higgs & Tyson survey which found that only 4% of new appointees to boards had a formal interview and only 1% found the position through an advert.
It was recognised that change should be business-led to be effective and sustainable and so the main focus of the Davies recommendations was on what businesses can or should be doing to improve diversity on their boards. Essentially boards should put more thought into their policies, set goals and disclose them to shareholders. Aspirational targets are seen as less restrictive than formal quotas, especially if companies have the ability to develop the targets themselves, based on their unique situation.
Helena Morrissey spoke as a founding member of the 30% Club and the CEO of Newton. The 30% Club believes that Chairmen need to be supportive of change and have sought to convince UK plc Chairs to sign up and aspire to a 30% target. Ms Morrissey has previously reported that she does not agree with strict quotas for companies, considering them to be a ‘short-term fix’, and would rather see companies set their own targets based on sounds business sense. Evidence is cited that having a board comprising 30% women or more improves performance and the Club seeks to provide this evidence to corporate Chairmen and motivate them to make changes within their own organisations. The support of investors is considered paramount and there was much comment on whether investors really felt that diversity would improve corporate performance or was more of a social issue. It seems that whatever the reasoning, there was a general consensus that diversity should be improved and that now was the right time.
Giuseppe van der Helm, the President of Eurosif, spoke on his experience within Europe. Eurosif are tracking views and actions across Europe where some countries are favouring establishing formal quotas and others are avoiding regulation. Norway has established and met a 40% quota, however it was questioned whether there really has been a cultural change since the percentage of female executive directors is still only around 10% and many of the new female non-executive directors hold many board seats. The ‘third way’ is considered to be a ‘comply or explain’ basis, traditionally favoured in the UK. There was a general expectation that doing nothing wasn’t an option and that if the EU didn’t see a sufficient level of change in the short term, quotas would be imposed. Importantly, Eurosif are not just looking at gender diversity but diversity in other areas, such as experience. The concentration on gender diversity in particular is considered too narrow a focus by some groups. The Institute of Directors and some FTSE 350 companies have commented in recent weeks that gender is not the only area to be considered; differences in age, background, nationality and experience can also avoid the ‘group think’ problem. It could be argued that looking outside of the traditional corporate field would not only yield diversity of thinking and approach but also further increase the pipeline of women.
In the absence of best practice guidelines, what is the role of research? The prevailing feeling was that transparency and engagement were going to be key in the coming months as both companies and investors develop their views. The Government is certainly backing the recommendations in the Davies’ Review and has written to FTSE 350 Chairmen to encourage them to set their goals and publish their statements in good time.
Manifest has been monitoring board diversity for some time and we report on gender, nationality and experience in our research. It is difficult for investors to put the information reported into context at present. However, a “one-size-fits-all” approach is not ideal for companies or investors, as it leads to box-ticking and has little effect on the underlying issues. UK companies are being given a chance to develop their own policies so that their boards can reflect the diversity within their company as a whole. It’s possible that the threat of imposed quotas from the EU will convince companies to take this seriously enough that we will see some meaningful disclosures in the next 12 months.
We would hope that in the spirit of comply or explain, company-defined targets will be given a chance to prevail before regulation is imposed.
More Background
http://www.30percentclub.org.uk/
Click to access FRC%20Consultation%20Document%20-%20Gender%20Diversity%20on%20Boards3.pdf
Click to access 11-745-women-on-boards.pdf
Last Updated: 7 August 2011
Thanks for an interesting blog and not making a complex debate simplistic. One thing we can hopefully all agree on is that the voluntary approach has failed dismally – the UK’s “progress” over the years is clear evidence. I completely understand why people like Helena Morrisey cannot be seen to be calling for regulation of any kind. But the reality is that if people who favour diversity think it’s as important as they say (and certainly there’s more than evidence in favour of it) then a quota or a comply or explain target (which I favour for the next few years at least) is what they should be supporting, at least in private. Given the number of women in the CG/SRI world, it would be interesting to have a PRIVATE poll to see what they really believe and how this compares with their male colleagues. I fully agree that gender diversity is not the “be all and end all” of the debate but I do also think it’s the right place to start, not least because it’s a good proxy indicator for entrenched culture. Actually, I was surprised to first hear this view from a leading corporate advocate of greater ethnic diversity in France.
Two questions which I think we do need to address are as follows. First, it is evident that some chairmen/male dominated boards would be threatened and become less efficient (but perhaps not less effective?) if the cosy culture were to disrupted. And there is evidence that a “little bit of diversity” can harm team performance at least temporarily. The options here would seem to be tolerate the status quo or push for greater change in the board so there is better balance and hence the culture becomes effective again. Bringing in a token female who is actually one of the boys (Mrs Thatcher like) is rather pointless.
Second, the idea of investors engaging to persuade companies about diversity might cause a few people to chuckle. Is the gender mix of boards of investment firms very different from the gender mix of boards of UK plc?