The diversity of boards has been one of the key areas of focus in corporate governance over the past few years due to changing social attitudes, increased government focus and legal/regulatory disclosure requirements.
In addition to the moral argument for boards to be more diverse, the McKinsey Global Institute report, Women in the Workplace 2017, revealed that there is a business case that a more diverse board will bring diversity to the decision-making process and provide a different social, cultural and stakeholder perspective, leading to effective and improved decision-making.
In the updated report published last year on the subject, the Hampton-Alexander Review in November 2017 reported there should be a voluntary target of a minimum of 33 percent female representation on FTSE 100, 250 and 350 boards by 2020, and note that this includes executive committees and direct reports to the executive committee.
In order to implement the European Union’s Non-Financial Reporting Directive, the Financial Conduct Authority made changes to its Disclosure Guidance and Transparency Rules and introduced mandatory board diversity disclosure for listed companies, the implementation of a diversity policy and annual reporting in corporate governance statements.
How can increased diversity be implemented by businesses?
There has been an increase in the commitment by companies to address board diversity. Additionally, companies are already taking steps to embed cultural values around diversity within their organisations by introducing a number of measures, including:
- Ongoing assessment of the skills and experience each director brings to the board
- Developing and implementing mechanisms to identify and develop a diverse pipeline of ‘board capable candidates’
- Improving the quality of their reporting on gender, age, ethnic and other forms of diversity
- Set targets and measurements for success, and develop networking and mentoring opportunities
- Embedding culture and values into strategies in order to help combat unconscious bias
- Good governance − have a clear process for decision making and implementation of policies
Key developments
Following the previous recommendations set out in the earlier Hampton-Alexander Review in 2016, some progress has been made. In 2016, on average 26.6 percent of FTSE 100 board members were women. However, in the updated report from 2017 that figure rose to 27.7 percent.
The top FTSE 100 companies leading the initiative to improve diversity are Diageo, Kingfisher, Merlin Entertainments, Next, Severn Trent, and Whitbread. All of their boards are each comprised of 44.4 percent women. According to the Cranfield FTSE Board Report 2017, at the time of publication, 28 FTSE 100 companies had already reached the 33 percent women on their boards.
However, despite such initiatives and recommendations, there is still a lot of work to be done around improving board level ethnic diversity. According to the Parker Review Committee (A Report into the Ethnic Diversity of Boards, October 2017), of the 1,087 directors in the FTSE 100, 51 companies do not have any directors of colour. More significantly, seven companies account for over 40 percent of the directors of colour.
In an encouraging move, BlackRock, State Street Global Advisors, Royal London and other institutional investors have indicated that they plan to use their proxy voting power to influence change by voting against the chair of a board’s nominating and/or governance committee if a company fails to take action to increase its board diversity.
How can the Company Secretary contribute to the enhancement of diversity within an organisation?
There are many ways a company secretary can support the enhancement of diversity within their organisation. One can directly engage on the topic with the head of human resources, the CEO, chairmen of the Nomination Committee and Board, and gauge their appetite for diversity in terms of preparing a paper for the Nomination Committee and Board. Another practical step is to raise awareness of the need for diversity by highlighting the moral, legal and business case – including increasing focus on greater stakeholder engagement. Also, during the annual review of policies and procedures, make suggestions for a diverse and inclusive culture. For more practical tips on ways to contribute to the diversity of your organisation, refer to the guide published by the Equality and Human Rights Commission, ‘How to improve board diversity: a six-step guide to good practice’.
