Diversity on UK boards – things may slowly be changing

In 2022, it is statistically still the case that you have a much greater chance of being appointed to a UK board if you are white, male, over 60 and currently sit on a board. So what does this say for diversity on UK Boards? Whilst there is a definite shift at board level to focus on issues of diversity, it is taking some time to see this transition to diverse representation on UK boards. 

UK board diversity statistics

Previously I discussed in detail the six strands that encompass the diversity spectrum and why it matters when applying for board opportunities. These six strands are :

1. Gender
2. Ethnicity
3. Religion
4. Age
5. Sexuality/Transgender
6. Disability

2021 UK Spencer Stuart Board Index reviewed the largest FTSE 150 companies. These are some of the findings from the report:

The Statistics

• • • 51% of non-executives are women
    • UK boards recorded an average of 3.6 female members
    • 61% of boards have at least one minority ethnic director, with 11% of board directors identifying as ethnic
    • 59 is the average age of non-executive directors

Positive Trends

• • • Women occupied 36% of the board seats compared to 24% in 2016
    • 51 % of new non-executives are first-time listed company directors
    • When looking only at newly appointed directors, 18% were women, and 6% were minority ethnic executives

What is contributing to diversity on UK boards?

Government Supported Reviews

The FTSE Women Leaders Review is an independent, business-led framework supported by the Government, which sets recommendations for Britain’s largest companies to improve women’s representation on Boards and leadership positions. The recommendation of this review is that by 2025 40% of board positions should be held by women. The FTSE 350 has increased from 23% in 2016 to 37.6% in 2021.

The Hampton-Alexander review called for a target of 33% representation of women on all FTSE 350 Boards by the end of 2020. Essentially, the FTSE 100, FTSE 250, and FTSE 350 organisations have all reached this target. Plus, there are no longer any all-male boards in the FTSE 350.

The Parker Review is an independent review that considers how to improve the ethnic and cultural diversity of UK boards, to better reflect their employee base and the communities they serve. The core recommendation was for UK organisations to commit to “One by 21” – at least one director from a minority ethnic background by December 2021. The good news is that the target has nearly been met. By the end of 2021, 89 FTSE 100 companies had at least one director from an ethnic minority group. In addition, the Parker Review set a target for FTSE 250 companies to have a minority ethnic group director on their boards by December 2024. Good progress has also been made here, particularly over the last two years, with 55% already meeting the target.

Recognition that a diverse board is a successful board

It is commonly regarded that board diversity has increased the performance of boards and the organisations they represent. Boards are the ultimate decision-makers for those organisations with boards, and competency is critical for their successful operation. This level of competency comes from experience, knowledge, skills, attitudes, values and beliefs. Diverse board members can categorically influence these factors.

Boards acknowledge that a focus on diversity is important for the board’s overall ability to provide strategic leadership and governance. More diverse boards operate more collaboratively with the ability to consider a greater range of solutions and provide access to broader social capital and resources. The Board Diversity and Effectiveness in the FTSE 350 Companies report found that diversity on UK boards has resulted in better financial performance, higher stock returns and less shareholder dissent. 

External stakeholders and consumers demanding change 

Organisations are increasingly being held to account by their stakeholders. It has never been more critical for them to take action to promote diversity, equality and inclusion. Customers and employees are paying attention, making decisions on where to spend their money and working hours based on these actions, principles or policies; or lack of.

A shift in skill sets requiring new (often diverse) board executives 

Boards are faced with new challenges. Gone are the days when only lawyers and accountants sit on boards. Every week as I look through the new board vacancies posted on the website, I notice the skill sets, experience and expertise of sort in new directors are changing. The search for finance and accounting skills is decreasing, seeing the rise for those with technology, healthcare, marketing, change management and property experience. 

Business acumen and the ability to understand business financials are still necessary. However, board members must bring with them the knowledge and experience to keep up with the digital, cultural and people challenges that their organisations face daily to provide strong governance outcomes and mitigate risk. To accommodate the need for these new skills and experience, organisations have to widen the search, which often encompasses diverse and/or first-time candidates.

New organisations tend to select diverse members

Organisations and boards in the earlier stages of their corporate journeys are likely to be more diverse in composition and culture. They are often established or driven by younger executives committed to understanding the diversity of the communities they serve and the employees they mentor.

What is holding us back from achieving diversity on UK boards?

Time and Tenure

Unlike executive positions, non-executive positions are fewer (the average board has 9.9 members) with lower turnover. The average non-executive director’s tenure in the UK has been stable for most of the last decade, at around 4.3 years. So unless boards expand, it will take time to see true diversity on UK boards. 

The Chair

In a previous article, I explained why the chair is the key to most board appointments. The chair will have substantial input into the board recruitment and often the final say in who is appointed. It is that these chairs have been in the position for more than 7 years, and unlikely that they would be considered as diverse (less than 10% would be women. 

The chair is also the key to driving diversity. This will only happen when a new diverse chair is appointed or the chair and board actively focus on changing the diversity on their board.

For a diverse board to be effective, it needs to be facilitated by an able Chair who is a good listener, open to collaborative mindsets and recognises the uniqueness that each individual brings.

Board recruitment practices do not favour diversity

If you have read my articles, you will know that 65% of all board appointments in the UK are made via a personal connection. Considering UK boards, it is safe to conclude that a very high proportion of board directors are graduates from one of the top 10 UK Universities, Alumni of an elite private school and started their careers with one of the big four accounting firms. Diverse candidates are likely to be outside of these people’s 1st and 2nd-degree connections, hence unlikely to be considered in the board appointment processes. 

Boards and organisations acknowledge that they need to do more to support, nurture and strengthen our diverse and inclusive culture. But when it comes to recruiting new board members, it is unlikely to be a driving factor. Many will be nervous about the potential impact a new appointment will have on the delicate dynamic of their board. They will still favour candidates that have successful executive careers and are familiar with governance practices. They also often favour independently wealthy individuals who will not be put off by lower levels of remuneration in comparison to what they can earn in executive roles. Boards with this mindset will continue to adopt old board appointment processes that have proven in the past to find safe candidates.

Anecdotally I am seeing some change as the ‘old guard’ of NEDs are stepping down; some are being replaced by new NEDs with different skills, experience and demographics to meet the demands of changing business environments. They, of course, bring with them a new network with potentially diverse directors.

For diverse leaders, we need diverse feeders

In the UK corporate world, the organisations’ executive and operational committees ExCos (e.g. audit & risk, investment, management) are traditionally the pipelines of talent for non-executive director roles. If the composition of these committees is not diverse, then there is a flow-on effect on the diversity of UK Boards.

The Spence Stuart Index found that the composition of ExCos among just the FTSE 100 companies, only 24% are women. With only 8% of committee members identifying themselves as Ethnic.

Conclusion

The conversation and push for diversity on UK boards still focus mainly on gender and ethnic diversity. Whilst we are seeing progress in these areas (which is sterling), we must remember that diversity is far broader.

I believe UK boards genuinely acknowledge that diversity matters and acknowledge the strategic benefits of having a diverse board. However, in many instances, the intent is there, but the execution is lacking. Over the last five years, it is clear that there has been significant change within the top listed companies. Unfortunately, no comprehensive board diversity studies and reviews cover all board and organisation types. I believe that boards, in general, across the UK will have seen a positive shift towards diversity. Government boards are likely to be far more diverse, following more diverse policy guidelines and formal recruitment processes.

We are also yet to see the full effects of COVID filter through to the current and future composition of UK boards. In coping with the pandemic, organisations were forced to adapt and change. Boards, committees and senior management actively sort candidates with new skills and experience; these can only have a positive effect on the diversity of UK boards.