BOARDROOM BEST PRACTICES

Are UK Boards Suffering Inertia When It Comes to Diversity and Inclusion?

That’s the question posed in a new report by Company Matters, Link Group, Boardroom inertia? A spotlight on the diversity of FTSE Small Cap and AIM listed company boards.

The report covers companies in the AIM UK 50 Index and the 100 largest companies in the FTSE Small Cap Index and was based on research carried out from companies’ annual reports published between November 2019 and November 2020.

It is the second annual report Company Matters, Link Group, an accredited Diligent partner, has published on diversity and inclusion (D&I) – therefore enabling comparisons with the previous year and identification of some trends.

With ESG, diversity and inclusion recognised among the key priorities for boards in 2021, we explore the key findings from the report and how companies can use them to improve their own performance on D&I.

 

Key Findings: How Are UK Companies Performing on D&I?

The report found that:

  • 96% of AIM UK 50 directors are white
  • The same is true for 94% of FTSE SMC 100 companies
  • 84% of AIM companies and 78% of the FTSE SMC 100 have all-white boards
  • 37% of the AIM UK 50 and 7% of the FTSE SMC 100 have no clear boardroom diversity policy
  • Only 6% of executives are women in AIM UK 50 and 8% in in the FTSE SMC 100
  • 4% of FTSE SMC companies have all male boards, unchanged year-on-year

There is, though, evidence of some progress:

  • The proportion of all-male boards has fallen 7% year-on-year, to 16%
  • 41% of new directors to FTSE SMC 100 were women over the period covered
  • Although only 20% of AIM UK 50 directors are women, this is up 2% year-on-year

 

How Are Aim 50 and FTSE Small Cap 100 Companies Performing? – the detail

Gender
While D&I isn’t confined to gender, the importance of gender diversity in the boardroom is well-recognised.

The report finds that gender parity continues to show some progress, continuing a positive shift that was first noted in the 2020 report. Women now make up 33% of FTSE Small Cap 100 boards, putting them ahead of the FTSE 250; in the AIM UK 50, the number of women directors has risen 2% points to 20%.

Unfortunately, most of this growth comes from Non-Executive Directors (NEDs) rather than from women executives within the organisation.

Race
The 2021 report sees ‘no material improvements in the racial mix’ at board or senior management level, noting that ‘All-white boards will not disappear for years at the current rate of change’ and urging companies to make more visible progress.

Age
Again, the research finds no significant change here, with women of less likely at all ages to be represented.

Disclosures
More companies are starting to disclose their boardroom diversity policies, although among the AIM UK 50 more of a ‘tick-box, boiler-plate approach’ is seen, with the quality of disclosures not showing any real improvement.

In summarising progress, Link Group awards the cohort ‘a “B” on gender and a “D” on ethnic and age diversity’. The full report goes into far more detail on the findings, as well as exploring the impact of tenure, the effects of new appointments and departures, and anticipated requirements around diversity disclosures.

 

Examining the Drivers for Diversity and Inclusion

It is easy to imagine that D&I is primarily an exercise in corporate reputation – and this is certainly one impetus. But there are other compelling reasons for businesses to try and improve their diversity and inclusion practices. It’s increasingly recognised that greater diversity improves the performance of the board and, ergo, of the entire business.

A more diverse board and leadership team has also been seen to drive better governance via diversity of thought and more rounded decision-making.

More broadly, shareholder pressure is building on companies that don’t live up to best practice, whether that’s around climate imperatives, wider corporate social responsibilities or D&I. Companies that fall short face a double-whammy; consumers vote with their wallets when it comes to the businesses they support, while investors are increasingly looking at environmental, social and governance (ESG) credentials, which include D&I, when considering their options.

Other external imperatives, such as the robust challenge to UK businesses to increase racial and ethnic participation in boards issued by the CBI in October last year, compound the pressure on businesses to increase their focus on D&I

 

Responding to Growing Pressure to Improve D&I Performance

These varying – and growing – pressures on businesses to report on, tackle and materially improve their performance when it comes to diversity and inclusion will likely drive an increasing focus on all aspects of D&I in the coming years.

It will be interesting to see how the trends observed in this second Link Group report develop over time and whether the changes seen gain momentum. There is certainly a keen interest from many parties in the entire area of D&I, helping to drive it up the boardroom agenda.

The full report not only has more detail on the findings of the research, but also sets out what good practice reporting and disclosures look like, providing valuable practical advice for boards aiming to improve their own stance on D&I. You can read the complete report, Boardroom inertia? A spotlight on the diversity of FTSE Small Cap and AIM listed company boards, on the Link website.

 

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