The corporate scandal that plagued the financial sector’s reputation mean that transparency, accountability and good governance need to be addressed, and that includes effective management of diversity, which remains one of the biggest challenges facing UK companies. Reports Liz Field, CEO, Financial Skills Partnership.
The financial crisis has dramatically highlighted that poor corporate governance can affect us all and the resulting coverage of diversity issues in the financial and business press has meant that people are now taking the subject seriously. While it’s important to think of diversity in broad terms such as race, age, disability etc. the persistent lack of gender diversity in our corporate boardrooms is an issue that the EU is continuing to focus on until our boardrooms better reflect and engage with the diverse society in which we live. Earlier this year, the EU Justice Commissioner Viviane Reding challenged publically listed companies in Europe to sign a “women on the Board Pledge for Europe”, pledging voluntary commitment to increase women’s presence on corporate boards to 30 percent by 2015 and 40 percent by 2020.
Overall, at present, the UK’s corporate boardrooms do not represent well the stakeholders of the business and the environment in which they are operating and thus are not able to engage their marketplace as effectively as they could if they were more representative of their marketplace. With the six month review of Lord Davies’ report now upon us, it is clear that there remains a lot of work to be done towards reaching anything close to those targets. Women have made up 30 percent of all new appointments in FTSE 100 boards since the report but they continue to make up just 13.9 percent of FTSE 100 boards – an increase of 1.4 percent in six months – and if we widen the net further to include FTSE 350 companies the figure is much smaller (7.8 percent).
The issue of mandatory quotas and whether their introduction would be a positive step forward has initiated an important and necessary conversation. Effective management of diversity remains one of the biggest challenges facing UK companies. But what is the right way forward? The issue here is as much about improving business performance and corporate governance as it is about promoting better gender representation at board level.
The argument for quotas
The UK is a service-based economy where companies are constantly looking for ways to sharpen and maximise their market segmentation yet there are still a lot of London-listed companies that are exposed to gender inequalities, there are currently 14 FTSE 100 companies with no female directorships on their boards. In this difficult economic climate, can companies still afford not to incorporate women on to their boards? There are plenty of excellent female candidates ready to be on boards, but they are not being developed and brought forward. The argument for the introduction of quotas is therefore about forcing organisations to cast a wider net and looking outside of the usual list of candidates, to think more broadly about who should sit on their boards and whether they are taking the right measures to search for people who bring a different mentality to the decision making process so as to avoid the company ‘group think’ that has widely been blamed for the ongoing financial crisis.
Getting the balance right between quotas and meritocracy is crucial. The purpose is to find the best, most capable, dynamic and committed board members who can help bring companies to greater heights. Diversity is thus about doing what is right for business. If quotas are a way to reassure society that companies are doing all they can to seek the best possible candidates from the broadest talent pool and have their best interests at hand, then it could be argued that quotas do represent a possible means to ensure a better business culture is built and create the foundations of stronger economy. Indeed there is a strong business case for women in corporate governance but mandatory quotas are not the answer and will only harm the cause for greater board diversity. Companies need to first change their mentalities and approach the topic of diversity as a move to improve their businesses – not simply because they have been told to. Lack of diversity will damage business and this needs to change if companies do not want to be arm-locked into enforced quotas of their boardrooms.
From a business perspective, the boardroom provides the cultural lead for an organisation and the case for women on boards is about ensuring that our businesses are pushing themselves to be the best they possibly can. You can only achieve this by picking from the broadest possible population of qualified candidates who collectively offer a diverse mix of skills and experience. If businesses want to be the best they can be, then this must come from the top down as well as from the grass roots up. A key argument for greater board diversity is that it increases a company’s competitive edge when compared to those with less diversity in their boardrooms (Women Matter, McKinsey & Co). Diverse boards are more effective at being able to understand their customers and stakeholders whilst also benefiting from fresh perspectives, debate and better governance.
The US-based management consultancy Catalyst reported that “companies with a significant participation of women in top management achieved 34 percent higher returns”. Studies have also shown that women tend to be more risk aware than men and are also the primary decision makers for consumer goods in 85 percent of households. Thus, targeting women at boardroom levels – who in many cases represent the users and customers of financial services and products offered by companies – can bring real value to a business’s profit margin and governance whilst also sending a positive message to stakeholders as it demonstrates proactive steps towards a better understanding of customers and workforces, leading to better decision making. An insufficiently diverse board risks a weakness in at least one of these respects. The journal of business published an article on ‘the impact of Board Diversity and Gender composition on Corporate Social Responsibility (CSR) and Firm Reputation’, which found that women had a positive impact on CSR by providing alternative perspectives in addressing risk issues. Further research by Heirdrick & Struggles, also revealed that women were more assertive on corporate governance issues such as evaluating the board’s own performance. The real question remains centred around transparency sustainability – where will the pipeline of talent come from? One of the barriers to the supply of women candidates in the long term is that there are not enough coming through.
Corporate attitudes and rules towards talent selection need to change. Regardless of talk about equality, there are companies that continue to stick to out of date archaic hiring patterns and prefer to hire within their own image. The fact that since Lord Davies’ initial findings, 30 percent of all new FTSE 100 board appointments have been women blows apart the current ‘lack of supply’ arguments which claim that there are insufficient women who have the right experience and skill set. If that were true, then logically it would be even more difficult for larger companies to make female board appointments and the figures would be reversed. The traditional image of the corporate boardroom is one that is male dominated – although the reality may be different in some cases and we know that diversity programmes, women’s networks and flexible working have been widely introduced in the industry. Therefore building practical networks between employers and candidates, strengthening their aspirations from as versatile talent pool as possible is a critical part to restoring trust and talent attraction.
The Directions Portal is a practical example of a free online resource tool for young people that acts much like an employer-candidate dating site – providing young people with access to work experience opportunities, develops their professional understanding of the skills and behaviours that firms want, and builds crucial professional networks with their future employers. At the heart of it, the site enables young people to move from exploring career options to using information in an innovative way to help them make decisions and then find relevant work placement and employment opportunities. At a time when the careers and education landscape is ever changing, it is essential that young people are identified and inspired to challenge themselves and aim high.
At the same time, for female candidates already in businesses, more efforts need to be made to develop a ‘pull through’ up in the ranks ranging from middle management, department heads and non executive director levels, for it is predominantly around these levels that top female talent is lost due to a ‘glass ceiling’ within companies. If businesses can stop, retain and mentor these candidates, the void of talent can be retained. In this ever more challenging business environment, the ability to draw on a range of viewpoints, backgrounds, skills and experience is critical to a company’s success.
The debate around diversity is not just about gender equality or doing the basic minimum to meet diversity targets. It is about executing sound business practice by selecting the best possible staff from the broadest possible talent pool. As it stands women represent a massive but under-developed channel. It is therefore imperative that boards are made up of competent high calibre individuals who together offer a mix of skills, backgrounds and experiences to break up the homogeneity amongst directors that is likely to produce group think. It is imperative to have processes in place to be able to identify diverse candidates from all stages of development including new talent at a young age. In today’s environment, diversity in the boardroom is a business necessity that companies need to take seriously. Those businesses that fail to do so run the risk of being seen as irresponsible, out of touch and risk their business competitiveness by falling behind changing times.
