Tackling Boardroom Diversity ‘Beyond The FTSE’
Yesterday, major newsrooms across the UK reported on the government’s call for executive pay to be justified and reporting on diversity in unlisted companies. The planned review of corporate governance is led by Prime Minister Theresa May who is said to have made addressing “corporate excess” a priority during her premiership. The Head of Corporate Governance at the Institute of Directors Oliver Parry is quoted as saying that: “The government is right to bring a new focus to the corporate governance of unlisted companies, which at the moment is a bit of black box – we don’t know what’s going on in there until something goes wrong…” with reports also intimating that there will also be an expectation for private firms to report on diversity.
Mrs May has also alluded to this review focusing on “unlisted” companies causing us to look ‘Beyond The FTSE’ which is the theme I launched earlier this month with the Diversity in the Boardroom Campaigns latest publication.
I launched the Diversity in the Boardroom Campaign two years ago alongside a group of leading figures from all sectors to encourage, inspire and motivate organisations to consider the diversity of their boards, report on their progress in tackling the issues, particularly where boards did not represent those they serve and improve the talent pipeline. While progress has been made demonstrated by an increase in the number of organisations who have taken the Pledge and their work to recruit more diversely to their boards, the recent publication of the ‘Review of Diversity on Boards’ led by Sir John Parker implies that there is still some way to go stating that: “As a general matter, the Boardrooms of Britain’s leading public companies do not reflect the ethnic diversity of either the UK or the stakeholders that they seek to engage and represent.” The ‘Beyond One by ‘21’ campaign was launched as part of the report to ensure that by 2021, there is at least one person from an ethnic minority background represented on the board of each FTSE 100 company. The report states that: “… directors of colour represent about 8% of the total [number of directors in the FTSE 100] (compared to 14% of the UK population).”
The Davies Review of the representation of women on boards has helped to move the FTSE 100 from having 12.5% of women on boards to 26.1% in 2015. Much effort, energy and profile has been given to this endeavor and rightly so, however, pursuing better representation in one area leaves a vacuum for questions to be raised about the representation of other protected characteristics such as ethnicity and age.
We should see a causal relationship between diverse boards and better boardroom behaviour. Diversity should be reflected in skills, age, gender, background and ethnicity. Recent research commissioned by the governance forum asked governance practitioners which board behaviour had the most negative impact on boards. The results show that over 50% of those surveyed view groupthink as the behaviour that has the most negative impact. A lack of challenge, conformity and dysfunctional decision-making are more likely to occur where diversity is lacking.
Diversity in the Boardroom, the concept, the Campaign and the Pledge all lead to a more horizontal approach to making the stereotypical rhetoric about board composition a thing of the past by improving boards with the appointment of women, those from BAME groups and younger people simultaneously to bring together a homogenous culture of inclusion, perspective and expertise that the current landscape is void of. Make no mistake, I am a firm believer that appointments to improve diversity should all be made based on competence and skill but this comes with investment in training and development and a recognition that talent is there – it merely needs to be unearthed.
The Parker and Davies Reviews and their recommendations are seeking to address this, but my challenge to us all is what happens beyond the FTSE 100 where companies across all sectors have boards that are still not representative of the communities, customers and stakeholders they serve. The Diversity in the Boardroom Campaign is an integral part of making sure that beyond the FTSE, boards are diverse helping to avoid disaster in the “black box”.
Diverse boards are not just morally and ethically imperative – there is a business imperative to ensure dysfunctional boardroom behavior is tackled. This can only be achieved when boards are diverse. To this end, I offer ‘TACKLE – The Six Business Imperatives’ that illustrate the business case for diversity.
Tone at the Top – There is a body of research that links diverse boards with better decision-making and better corporate performance.
Access to Talent – Tapping into the best people from all backgrounds will deliver the best boards.
Customer Integrity – Being aware that our customers are becoming increasingly attentive to the demographics of the leadership of organisations that they choose to patronise.
Knowledge Base – Diverse boards provide a broad knowledge base and therefore diversity of thought, debate, discussion and decision-making.
Leadership Challenge – Organisations that invest in their talent pipeline and consider succession are better prepared and able to respond to the ever-changing VUCA environment.
Engagement Criteria – Understanding the cultural sensitivities of stakeholders leads to better engagement across all business functions and can even impact procurement and tendering opportunities.
In the same way that the Cadbury Code has influenced governance codes in the housing, sport and third sectors, the call to have diverse boards should extend beyond the FTSE and recommendations in the Davies and Parker Reports should become the mantra with which we tackle board diversity regardless of turnover, shareholdings, size and complexity of the organisation.
What will you do to make a difference?
Until next time…
To find out more about the Diversity in the Boardroom Campaign or to take the Pledge, you can contact my team on 0845 505 1875 or get involved on Twitter @TheDiverseBoard using #BeyondTheFTSE.
