How do we change the recruitment of UK boards?

I read with interest Tony Drury’s recent blog on “Women on board” advocating that we keep the status quo and do not introduce any kind of female board member quotas. I think the two examples given of female MPs and female doctors are not enough to sway my view that there is still much that is rotten about the state of corporate governance in the UK which would benefit from some female directorship.

This is largely due to the lack of transparency about the recruitment practices of many firms, not just in the FTSE 100 but also in the FTSE 250 with only 50% having female directors. Tony suggests that quotas will lead to women being appointed “as directors without understanding the real responsibilities (and personal liabilities) they may face” which is somewhat demeaning to women; as if they are less capable of understanding their responsibilities than men. You did not really mean this did you Tony? Was this merely a slip of the tongue or maybe part of a subconscious bias that afflicts many incumbent UK FTSE board directors?

The key issue is the lack of transparency and the “closed shop” approach to recruitment such that many executive and non executive appointments are down to the “best mates of the Chairman.” Many capable women (and men) do not get any opportunity to even know which appointments are available. We rely on head hunters who have emailed me in confidence, following previous blogs about this issue, to say that they rely on a tiny pool of women which is not big enough but Chairmen are unwilling to look at any new candidates.

I have listened to the lament of extremely capable women who have many years of corporate experience, Harvard and McKinsey trained who struggle to get their first board appointment because of this lack of transparency. So my question to Tony is – how are capable women meant to find their way onto these restricted head hunter lists?

The Sunday Times commented last week that head hunters are reluctant to do any work to find any new women to fill their board posts so how is the situation likely to change? Are we to let another 20 years go by before we realise that a change of behaviour and attitude is required to redress the balance? The Cranfield Female FTSE Board Report 2009 which has a full list of companies with and without female directors states that. “Overall, the percentage of women on FTSE 100 boards is 12.5%, showing a three year plateau.”

Here is what Lord Davies could have done as suggested in the blog “Corporate Law and Governance”:

  • Strengthen the new principle on diversity in selection within the UK Corporate Governance Code to ‘Comply or Explain’. Any Chairman with less than 20% women on their boards and executive committees needs to explain why this is the case in their annual reports. This should apply to all FTSE 350 listed companies. The 20% should be reviewed in three years time with a view to lifting it to 30%.
  • Advertise all Non Executive Director positions in the private sector.
  • Require search consultants to produce balanced candidate lists.
  • Continue to make the appointments process as rigorous and objective as possible through use of skills audits.
  • Use peer-to-peer pressure from FTSE 100 Chairmen to encourage FTSE 250 Chairmen to seek female candidates for their boards.

Whilst I don’t think female quotas are going to solve the issue, there have not been any disasters since Norway implemented their 40% female board quotas in 2006 and since Spain introduced a quota in 2007. However the Guardian has reported that quite a few Norweigan companies have avoided the issue by delisting. Research by a company called Catalyst in 2007 further found that those Fortune 500 companies with at least 3 women directors experienced the most dramatic returns for sales and invested capital1.

I am a firm believer that diversity breeds innovation and yet we have corporate bodies across the UK which do not in any way represent the diversity of the people they employ and the customers that they serve.

You may argue that shareholders also have to be accounted for but if you remember back to Tony’s opening words “Women will control 60 per cent of the UK’s private wealth by 2025” many of the shareholders of UK enterprise will increasingly be female as they are setting up their own businesses in droves. There are almost 1 million women in the UK who make up over 27% of the 3.5m self employed people in the UK .

Women are not going to wait for quotas and I suggest women start to make more informed choices about where to spend their money and time. My advice to any female graduates is to take a close look at the board structure of a potential employer and consider only those companies where females are represented on the board or look elsewhere. If female consumers and women buying shares did this aswell when making key buying decisions we could have the start of a very interesting shift in behaviour, which might spur some boards to reconsider their untenable position.

I look forward to your comments and please don’t disappoint me by not responding and grumbling to yourself. If you agree or disagree I’d love to hear your views.

1   Catalyst (2007) The Bottom Line:Corporate Performance and Women’s Representation on Boards”.

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