Improving the gender balance on British Boards

More must be done to improve the gender balance on British Boards: Lord Davies Women on Boards Five Year Post Mortem

Towards the end of last year, we saw the culmination of the five-year Lord Davies Review of Women on UK FTSE Boards. Lord Davies led the review strongly, bringing together distinct stakeholders, ensuring broad media coverage and support to shine a light on gender inequality at a Board level. The review achieved its headline 25% target. Women on FTSE 100 boards more than doubled from 12.5% (135) in 2010 to 26.1% (286) by the fourth quarter of 2015. The reins of the Davies Review will be taken by a new Chair and a new committee (names are still yet to be announced). However, the Davies Review did not deliver on three major aspects. Firstly, there had been little headway in female representation among the all-important Executive Director level; secondly the types of women breaking through does not reflect the broad population of women and still, like all most senior roles in many industries, is driven by privilege; thirdly the review failed to address absolute disclosure to support a level playing field so women are judged on merit from application through short-listing and to selection. These three areas must be addressed by the new Chair and committee.

1) The need for an absolute focus on increasing female Executive Directors

The 25% target was met primarily through the appointment of Non Executive Directors (NEDs) and the mix effect of fewer and ‘less senior’ Executive Board positions.

This is clear when we look at the data and poor progress from the end of the last millennium. In 1999 there were 79 female directors on the FTSE 100 made up of 66 NEDs and 13 Executive Directors (EDs). This had increased at the start of the Davies Review to 117 NEDs and 18 EDs. Now, post the Davies Review, the number of female NEDs has soared to 260; while the number of female EDs has only increased to 26.

It is also worth nothing the mix effect of NEDs/EDs: over the period of the new millennium the total number of EDs in the FTSE 100 has more than halved from 645 (51.4% of board directors in 1999) to 279 (24.9% today). It is extremely disappointing that the dial has not been substantially turned, especially with the scrutiny by the Davies Review, on the level of EDs and the health of the pipeline leading to main Board EDs. This disappointing story is even more apparent when we consider that the number of female FTSE 100 CEOs has remained the same over the course of Lord Davies’ review at a woefully meagre 5.

Significantly more must be done to build the ED pipeline of senior women and provide the role models that everyday folk in the workplace can see and aspire to. All stakeholders must ensure that women are part of the application/nominations/shortlist process (which must be open, fair, transparent and based on merit not preference). It is an opportunity lost that the Davies Review did not specify targets for female EDs or push for firms to publish their own targets for female executive/senior management talent to develop the pipeline (such as what Lloyds did voluntarily two years ago on 1 February 2014).

2) Recognising ‘intersectionality’ and the challenges for different population segments

We may not all be equal, but we must strive for equal opportunity and a level-playing field for all. This leads us to ‘intersectionality’ within the female working population - different sub-groups face differing levels of challenge. Lord Davies highlighted the need for a rich talent pool but it is clear that if you are privileged, white, attended an elite university and worked in finance then you are more likely to make it to the top. No surprise there and it would be fair to note that a disproportionate number come from well-connected/wealthy backgrounds and having attended private schools (their family being able to afford full fees). Whilst many progress as a result of their ability, are we really saying that they have a monopoly on talent?

Education is obviously valued and a major ‘enabler’. Of the current female FTSE directors, 86% have an undergraduate degree, approximately a quarter have an MBA and 9% have a PhD – way above the general population. I would guess, as well, above men? However, as regards social mobility it is clear that there are still challenges, but we will park that for another day! Almost a third of the female directors went to an elite academic institution (Oxbridge, Ivy League, etc) and, of course, there are correlations with family circumstance and the opportunities’ these institutions offer.

I challenge the Review’s finding that functional roles are considered to be of equal value as a training ground for board membership. The evidence would seem to say that finance and operations are pre-eminent. However, I would expect if the ‘functional role’ area was broken down into its many constituent parts we would see vast differences (especially for the likes of marketing, sales, HR, research & development) with few from those disciplines attaining main board status.

It is clear that significant challenges remain for those women from a different cultural or social background. In addition, to realise the benefits of true diversity and better decision making we must do more to embrace diversity of thought and background. I expect and hope that the next stage of the Davies Review will consider this especially as the cultural make up of our boards continues to come into question and then more so given the changing markets and population demographics.

3) Stronger recommendations on data reporting and practical solutions

The five next steps/recommendations from the Davies Review could have been stronger and more precise. Yes, it was good that the overall target is being extended to 33% within a further 5 years but there should be a precise target for EDs as well.

The 10 initial recommendations for the first Davies Review could be roughly split 60/40 with the first six covering targets, disclosure and transparency and the last four covering practical solutions with a focus on building the pipeline. Given the two areas outlined above (EDs and ‘intersectionality’), I also would have liked to have seen a call for organisations to be more transparent and disclose data showing the ratio of ‘applicant to short-listing/nominations to accepted offers’ for all internal and external appointments split by gender, ethnicity, etc. This will help to highlight and then address the concerns of bias, prejudice or discrimination (regardless of whether we dress it up as unconscious or otherwise).

In addition, there should have been examples of more practical solutions and some strong advocacy for their adoption in order to effect a step change in the pipeline, develop top talent and plan for succession. I highlight a programme that I am involved with, Board Apprentice, to identify, broaden and develop the talent pool from outside of traditional and privileged circles.

Investors can also push for action for organisations to embrace diversity and realise the benefits

The Davies Review helped, alongside the plethora of available empirical research, to demonstrate the economic, social and financial benefits of diversity. This firmly places diversity as a business imperative and not just a corporate social responsibility project.

There needs to be continued pressure from the investor community on companies to ensure diversity is, as a business imperative, at the top of the corporate agenda. Investors should challenge Boards to publish greater data on diversity and proactively embrace it. I recall a provocative headline last year from Bloomberg Business that stated ‘Gray Alpha Male Boards Damaging UK Companies Sequoia Says'. This highlighted some of the differences between UK and US corporate governance codes and cultures. However, the findings are valid regarding diversity and business results. I particularly liked the insight that: "That helps explain why the FTSE 100 Index has lagged the Standard & Poor’s 500 Index over the past five-, 10- and 30-year periods, Goldfarb and Poppe wrote. Over five years, the S&P 500 is up 15 percent annually compared with 7.8 percent for the U.K. benchmark, including reinvested dividends. The S&P 500 has surpassed the FTSE 100 over 30 years, returning 11 percent versus 5.9 percent at its U.K. counterpart, according to data compiled by Bloomberg."

To recap, diversity results in better decision making, reflects our increasingly competitive and changing markets (more so that 79% of revenue from FTSE 100 firms comes from overseas’ markets now) and grows profitable organisations. It is imperative that we extend diversity beyond gender (and not just to the obvious areas of ethnicity, age, disability – but equally so to areas such social background and thought/perspective).

There are significant factors in the dearth of women, minorities and those from a more challenged social or family background on UK Boards. For many, their talent and potential to contribute are not deemed enough to enable them to negotiate the barriers to entry – convention, connections and the lack of confidence that can be the inevitable consequence of being in a minority. Couple this with evidence that inadequate mentoring results in minorities being marginalised, at best, or set up to fail, at worst, and it is clear that, mentoring and education are key.

The Board Apprentice programme works as an effective bridge between established board directors and a fresh cadre of diversifying talent which might otherwise remain overlooked and lost to business. It is a win/win for all stakeholders. We urge Government and companies to embrace the programme to help develop and deepen the pool of board-ready talent and to revolutionise access to the boardroom.

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