Gender diversity on boards – the fight continues

20 November 2015

Lord Davies’ five year review into improving the gender balance on British boards has now reached completion, with his end of year summary published on 29 October 2015. The results are in, and in the words of the report itself “Reaching the 25% target for the FTSE 100 is a significant achievement and major milestone in our longer journey to improving the gender balance at the top of British business”.

As it stands, there are now 26.1% women on FTSE 100 boards and 19.6% on FTSE 250 boards. Additionally, there are no all-male boards in the FTSE 100 and only 15 in the FTSE 250. This is an accomplishment indeed, especially given the fact that this was voluntarily-driven. That being said, it has been noted that most of the ‘new recruits’ are non-executive directors rather than highly paid statutory board directors with real decision-making power and authority. As a result, what kind of results can we really expect, and what next in the fight for equality and diversity in the workplace?

As highlighted by Lord Davies’ report, the key to succeeding in reaching the target was recognising that the lack of gender diversity on British boards is a business issue, not just an equality/diversity one. Numerous studies have been published concluding that a diverse board correlates with improved economic performance. As an example, the McKinsey report entitled “Diversity Matters”  and rereleased in February 2015 found that companies in the top quartile for racial and ethnic diversity were 35% more likely to have financial returns above their respective national industry medians. While correlation does not mean causation, these results should make for a compelling case and be sufficient to encourage companies to take a closer look at the make-up of its higher ranks.

Where does the future lie? Currently, the UK stands sixth in international rankings, with many of the countries ahead of it having introduced legislative quota regimes. European countries with quota regimes at the moment comprise: Norway (40%), France (40%), Belgium (33%), Italy (33%) and Germany (30%). In 2011, only 11% of consultation responses here in the UK were in favour of a legislative quota. While that sentiment remains unchanged for now, it must be a possibility for the future if more stringent requirements are deemed necessary to meet rising targets. The next target to be reached in terms of gender diversity on boards is 33% and Lord Davies highlighted in his report that there should be additional focus on the ‘executive layer’, where gender imbalance remains more severe.

What can companies do to improve their gender balance?

Lord Davies’ report concludes with five items, deemed ‘The Checklist’:

  1. Know Your Starting Point. Companies should consider collecting and analysing relevant data.
  2. Feedback and Targets and Monitoring. Companies should gain the opinions of the workforce itself, create internal targets and monitor the progression of those targets.
  3. Unconscious Bias. Companies should be aware of the existence of unconscious bias and the ways in which it could affect which opportunities are given and to whom.
  4. Processes. Companies should analyse their talent management processes to ensure equality and diversity are indeed promoted through the company’s own practices.
  5. Talent Management and Development. Companies should consider establishing or bolstering their talent management and mentoring programmes to provide aspiring workers with the support they need to succeed.

The fight is not, and should not, be limited to boardroom diversity. A government-commissioned review is currently in place to review gender diversity in the City, led by the chief executive of Virgin Money Jayne-Anne Gadhia. Suggestions that may be fielded include making financial firms report on gender diversity and linking bonuses for City executives with progress on appointing women to senior roles. The full report is due in time for next year’s Budget.

Of course, diversity is not solely limited to gender, and calls have also been made in more recent years to enact similar initiatives to deal with the lack of ethnic diversity in boardrooms. In 2014, the 2020 Campaign was launched in the private sector, led by high-profile figures such as Lenny Henry and Trevor Phillips. Their goal is a target of no all-white boards in the FTSE 100 by 2020. How this may be effected remains to be seen, but Labour MP for Streatham Chuka Umunna has suggested amending the 2006 Companies Act to require companies to include a breakdown of the number of ethnic minority employees on boards, in senior management positions and in the company as a whole.

Whether this call is heeded places us firmly in the realms of speculation, but it is clear that championing diversity remains, rightly, a priority for the future. With increasing globalisation and competitiveness in the economy, companies are searching for various methods to increase market share. With both statistical reports and political momentum firmly swinging in one direction, companies who ignore the increasing importance of diversity may be at risk of losing out in the future.

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