UK: Secrecy Weakens Society

Last Updated: 22 December 2015
Article by ICSA  

Information transparency has led to progress in FTSE boardroom diversity

The five-year summary of Lord Davies' women on boards review, 'Improving the gender balance on British boards', was published in October 2015 – it reported success in meeting the voluntary target set in 2011 of 25% female representation on boards. FTSE 100 board diversity improved from 12.5% in February 2011 to exceed the target at 26.1% in October 2015. Companies in the FTSE 250 made similarly remarkable progress from 7.8% to 19.6% women.

This progress, which has moved the UK to sixth place in the international ranking, was achieved through:

  • Targets, to motivate and raise aspirations
  • Ongoing peer and public pressure, led by high profile individuals on boards, chairmen (there are almost no chairwomen in the FTSE) and nominations committees 
  • Full transparency of information on current board composition and new appointments.

This progress in FTSE boardroom diversity has illustrated the power of information transparency, coupled with stakeholder pressure, to generate significant change in a surprisingly short time.

Transparency

For the FTSE, the availability of data on boardroom composition is part of the market listing regulations which require a company to list its directors in the annual report. As this information is publicly available, it was possible for the team at the Cranfield University School of Management, who produced the annual Female FTSE Board Reports, to create the rankings and analysis which underpinned the progress of the Davies review.

In contrast, the UK public sector has no single place where the full picture of government departments can be accessed, and leaders and laggards identified. There ought to be readily available data on the composition of boards of non-departmental public bodies and executive agencies, which in most cases only exists separately on the websites of the individual agency or body.

This is in contrast to Australia where a simple webpage, AusGovBoards, brings together the gender diversity split on all government boards in Australia (around 450). This owes its origins to the Workplace Gender Equality Act of 2012.

Women on Boards (WOB) UK has been advocating for a similar website in the UK for the past 12 months. It also believes that the public sector should commit to a 40% target for both genders on all boards; referred to as the 40:40:20 rule. The final 20% is not important as long as there are 40% men and 40% women on the board. Disappointingly, despite all the pressure of the Davies review on private sector companies to set and meet targets, the Government has not been prepared to implement a similar target for public sector bodies. The less demanding goal that '50% of new appointments to the board be women' is preferred; a target that the public sector has consistently failed to reach over the past three years.

Stakeholder pressure

Part of the winning formula of the Davies review was the work done by the '30% Club' – a group of CEOs and chairmen committed to better gender balance – and certain ministers and peers to put pressure on individual chairs, recruitment firms and nominations committees. As more companies reached the 25% target, the peer pressure to avoid being the last dinosaur created a competitive stimulus that maintained the momentum of change. No longer claiming that 'we cannot find any suitable women', boards cast their recruitment nets across a much broader pool of candidates. The WOB UK network contains over 14,000 women who have identified themselves as being interested in board roles and 60% of this network has more than 20 years' experience.

It is also no surprise to learn that boards are reporting a more productive dynamic in the boardroom. New research 'Do Women Make Groups Smarter? Understanding the Effects of Gender and Status Competition on Collective Intelligence', shows that although more women raise the collective IQ of a group, competition for status undermines group effectiveness, regardless of gender composition.

The executive pipeline

Despite celebrating success in the boardroom, it is important to highlight that it is only the non-executive ranks that have become more diverse. The total number of female executive directors remains at less than 10%, which is a reflection of the dearth of women in senior executive roles. Change in this area will inevitably be slower as the pipeline continues to be affected by organisational cultures and promotion processes that work well for members of the dominant culture, but not for others. Although independent non-executive directors can be brought in from outside an organisation to improve board diversity, the female executive pipelines must be nurtured over many years.

Here more transparency will be critical in unlocking progress. Although extensive data is held in corporate HR systems, few provide the board with clear analysis of how talent breaks down by gender and which parts of the organisation are trouble spots. Too many men and women at the top have historically assumed that the lack of women being promoted into the C-suite is a result of either a lack of capability or a lack of ambition on the part of women. An analysis which acknowledges that both merit and ambition are distributed equally between genders, will help uncover the people and processes that form the blockages to gender-neutral promotion and to the ability of minorities to succeed on an equal footing. Technology and software exist to provide this analysis; the next challenge is to generate demand within the boardroom.

Broadening the impact

Once data is disclosed, the competitive dynamic that encouraged FTSE boards to improve their diversity can be brought into play. This is why it is important to move towards transparency in other areas of governance, including the gender pay gap and levels of executive pay. Harnessing transparency to create peer-group competition can then drive improvement among the willing and any 'naming and shaming', hugely unpopular but very effective, can be reserved for those resistant to change.

The visibility and impact of women at the top of the corporate world will hopefully act as a stimulus for change beyond the private company sector. From academia to politics, the need for greater gender balance in senior leadership roles and for true equality in pay and opportunity is still limiting the aspirations of young women. As the technology revolution advances and data proliferates in all areas of life, boards and politicians will need to adjust to a better informed group of stakeholders. Trying to keep unfavourable data hidden, whether it be on diversity, pay differentials or even a cyber security breach, will no longer be a sustainable strategy. This is good news, as secrecy weakens organisations and society in the long run.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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