Board Diversity Strategies Transform Markets

Board Diversity Strategies Transform Markets
26th November 2018 Bateman Collins

The recently published ‘Board Diversity Report’ by the Financial Reporting Council provides a review of progress by FTSE 350 companies on diversity at board and senior management levels.

Following the Davies report which examined diversity of UK boards in 2011, some good progress has been made. In 2011 when Lord Davies published the report, women accounted for only 12.5% of FTSE 100 boards. In 2017 women accounted for 27.7%.

In 2016 the Hampton-Alexander Review set a new target of 33% to be achieved by 2020. As of July 2018, 29% of Board posts are held by women. This is a significant improvement, but we argue that more must be done.

One challenge to progress is the number of women who hold executive management roles. It is interesting that a very similar ratio of 12% of executive positions within FTSE100 firms were held by women in 2011, however by 2017 this figure had only increased to 19%.

If one of the challenges to be overcome in appointing women to boards is the lack of executive diversity in the pipeline, this should be a significant focus point if a similar rate of progress is to be achieved in future.

Given this lack of executive diversity, we are increasingly asked by CEO’s and board members how to attract diverse talent to the board and into executive leadership positions. Through our own experience and in conversations with board members and executive leadership teams, we can share some highlights.

Multi-year Pipelining
Organisations that are most successful at attracting diverse and top performing candidates to board positions use a multiyear strategy. In a recent conversation with a non-executive director, he highlighted that they had just appointed a female non-executive director, a relationship which had taken over five years to cultivate and another two before appointing. Bateman Collins recommend and are increasingly engaged on pipelining projects which identify and track top performing diverse talent, not just for board level appointments but for executive leadership roles. This requires a strategic multi-year partnership with customers, built on strong principals of collaboration, communication and clear understanding.

Prioritisation & Progressive Networking
Whilst seven years is clearly much longer than most, more and more firms are continuously thinking and planning how they appoint their next female board member and activating the entire board to help achieve this goal. The CEO’s, chairman and non-executive directors all play a critical role in identifying the next generation of non-executive talent. One CEO for a Financial Services company shared that they wanted to appoint a female non-executive director to be the chairman of their Board Risk Committee. At every event or networking opportunity he would speak to senior risk executives and ask them to suggest the best female chief risk officer they knew. The result was that the CEO was able to establish a target list of potential board members and gave a good frame of reference for when the time came to make this appointment. In essence they had a clear understanding of what good looked like, the must have’s, and where they could flex.

Board Competency & Responsibility Mapping
The same organisation went further and analysed board competency with a view to determining the board’s blind spots, so they could seek to redress any gaps with future appointments. As a Financial Services firm, they did this in collaboration with their commitment to the Senior Managers and Certification Regime (SM&CR) which increases accountability and governance for board members. The firm completed a management responsibilities map which provided a detailed map of the banks management and governance processes, including lines of reporting and committee accountability. Each board member also completed a statement of responsibility outlining the areas of the bank for which they would have specific responsibility.

Development and Mentoring
Progressive organisations recognise that the best way to achieve board diversity is also to demonstrate a firm wide commitment to diversity by developing and promoting women into executive leadership positions. Many firms are committed to growing talent internally but fewer have a clear strategy to grow their executive talent to board level. The most progressive firms mentor their executive talent and promote opportunities to gain board experience, so long as no conflict exists between their executive leadership role and a non-executive role. We would encourage aspiring female non-executive directors to seek a board level mentor, network extensively to develop a board network and gain board level governance experience for a smaller firm, as a trustee of a charity or another not for profit organisation.

Board Culture & Cultural Ambition
Another critical dimension for firms to consider is culture. There are several elements of culture which the board must consider, from the cultural dynamics on the board through to how that translates to the wider organisational culture; from risk culture to the effective challenge and oversight which the board provides through specific committees, policies and procedures. We have written extensively on the importance of culture in creating a shared purpose and the positive environment which helps define future success (http://www.batemancollins.com/why-culture-matters/). For Financial Services firms, culture is aligned with conduct, ultimately overseen by the board. The current tripartite regulatory framework, with the Bank of England, Prudential Regulation Authority and Financial Conduct Authority (FCA) was created following the failures experiences during the financial crisis. The FCA holds direct accountability for conduct of firms and expects firms to have appropriate governance procedures in place to protect customers.

Accountability for Innovation
Most firms now agree that diversity also promotes innovation. The question for many is, ‘how should innovation be led and represented at board level?’ This can pose difficulties due to the speed that markets are being transformed by rapidly developing innovations in technology, data and analytics. Typically, these innovations are driven by a younger demographic and start up firms. FTSE firms should be open to considering board talent from these early stage companies if they want to remain innovative and demonstrate that commitment to innovation to the wider business. Boards should also ask, ‘which are the leading innovators in and outside of our markets?’ and ‘How can we harness their strengths to transform?’ This will help shape the board’s thinking whilst ensuring that innovation is well-represented at board level.

Bateman Collins are helping firms shape their diversity strategy to transform their markets. If you are interested in knowing more, please contact Barney Collins on 07584 575454.

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