Archive for January, 2011|Monthly archive page

Diversity in the Boardroom

Recent years have seen an increase in emphasis on board diversity and, in particular, on women in the boardroom.  Some argue that it is only equitable that the gender balance on the board be addressed and, moreover, redressed given that, broadly speaking, half of the population are women and half men whereas a typical board has a majority of male directors.  Nor is it ‘just’ a case of boards being generally male-dominated, a natural consequence of this is that women are under-represented on the key board committees such as the audit, remuneration and nomination committees, as well.

Others argue that, in addition to the gender balance aspect, female directors bring their own strengths to the boardroom in terms of their life experience, their mode of thinking and their ways of dealing with both people and situations.  Some argue that there are positive financial benefits to have more women on the board, whereas others state that the benefits are more to do with the way that the board operates with women more inclined to discuss matters in depth and to try to reach a consensual solution.

The UK Corporate Governance Code (2010) encourages the board to consider the benefits of diversity, including gender, to try to ensure a well-balanced board and avoid ‘group think’.  Similarly the German Corporate Governance Code (2009) states ‘The Supervisory Board appoints and dismisses the members of the Management Board. When appointing the Management Board, the Supervisory Board shall also respect diversity’ (5.1.2) and the Dutch Code of Corporate Governance (2008) advocates ‘The supervisory board shall aim for a diverse composition in terms of such factors as gender and age (111.3).

An early exponent of women’s representation in the boardroom was Norway which, since 2008, has enforced a quota of 40% female directors on boards of all publicly listed companies.  Similarly Spain introduced an equality law in 2007 requiring companies with 250+ employees to develop gender equality plans with clear implications for female appointments to the board. Moreover in 2015, legislation will become effective in Spain which requires Spanish companies to ensure that 40 per cent of board members are female.

However as Emiliya Mychasuk (FT page 12, 8th Dec 2010) ‘The quandary of quotas’ points out, there are doubts over the effectiveness of quotas in helping women climb the corporate ladder as whilst the number of women on the board may increase over time , there is not a corresponding improvement in the number of women in senior line management positions.

In the UK, Brian Groom (FT, Page 4, 2nd December 2010) ‘Drive for more women on the board levels off’ points out that ‘the proportion of women on FTSE100 boards seems to have plateaued at 12.5%, prompting demands for a “wind of change” to prevent the UK from falling behind other countries in which the female share of top jobs is rising”.

Nonetheless there are some encouraging signs and, as Cherie Blair, (FT Weekend Magazine ‘Women of the Decade’, portrait by Richard Nicholson, Page 28, 11th/12th Dec 2010) states ‘The glass ceiling absolutely still exists, but it’s splintering each year’.

Whilst it is fair to say that the number of females with experience at board level in large UK companies is relatively limited, non-executive directors can be drawn from a much wider pool including the public sector and voluntary organisations.  In this regard headhunters and recruitment agencies have a role to play by widening the pool of potential candidates which they look at and thereby, hopefully, increasing the number of women candidates put forward to companies.  Companies themselves can have a fundamental impact by advocating and supporting appropriate mentoring schemes.

Diversity should not be for diversity’s sake, it should be for the benefit of the company, its shareholders and other stakeholders.  Women can bring new insights to the board, looking at things from a different point of view and maybe challenging long-accepted opinions, and potentially adding value.

Chris Mallin 5th January 2011