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Diversity and Board Appointments

By Melissa J. Anderson

Recently Deloitte released the results of a study on board governance in UK firms. The report put a significant focus on diversity. According to the study, in the past year almost a third of FTSE 350 non-executive board appointments have gone to women.

Carol Arrowsmith, partner in Deloitte’s executive compensation team said:

“It is extremely encouraging that since Lord Davies published his report on women on boards, almost a third of non-executive appointments in FTSE 350 companies have been women. However, we also need to look hard at the number of female executive appointments. This is where many of the non-executive directors of the future are likely to emerge from and we are still seeing only one in 10 recent executive director appointments filled by a woman.”

She added, “This is an improvement on the overall number of executive positions held by women, which stands at around one in every 20, but it is not enough.”

Focus on Diversity

According to the study, “At the Helm,” almost 30% of non-executive board appointments at FTSE 350 companies went to women – more than twice the current number of female non-executive directors on these boards.

In the report, Arrowsmith writes, “The proportion of female executive directors remains much lower but one in ten of recent appointments were women, which is still higher than the total number of executive positions held by women which stands at 5%.”

The report authors noted that diversity has become more prevalent in the UK since the publishing of the Lord Davies report last year on board diversity. The economic crisis has also brought the issue of governance front and center, and many studies have shown that diversity can improve decision making and the financial performance of a company. The report explains:

“However, over the past twelve months there has been considerable focus on the lack of diversity in UK boardrooms and the potential this has to weaken the board and encourage ‘group think’. This debate has focused on the lack of women on boards but there are other aspects of diversity and we wanted to find out how diverse company boards actually are.”

According to Deloitte, three quarters of the companies surveyed said they are working to increase the diversity of their board and senior management. But what does diversity mean to these companies? The report delved deeper and found a surprising factor. When board members hear “diversity” the don’t necessarily think about gender or ethnicity.

The study revealed, “Less than one third of these respondents, compared with two thirds of shareholders, see gender diversity as an important factor.”

Board members were more likely to cite other factors of diversity as more important for board composition. The study says:

“What is interesting is that, when reviewing the composition of the board, our companies secretary and non-executive director respondents are more concerned with the balance of the board and the diversity of personal experience than with specifically ensuring diversity of age, nationality, or gender.”

Arrowsmith commented, “Companies are right to focus on getting an appropriate balance of directors in terms of skills and experience, and this should be the main priority of any company.”

But, she added, “Businesses are starting to recruit from more diverse backgrounds and we believe this is a very positive move which will be welcomed by shareholders.”

The UK has taken positive steps this year in terms of increasing the percentage of boards composed of women. But it’s clear that these companies can do more – according to the research, only a third of companies have a policy to ensure that each slate of candidates includes at least one woman. Shareholders feel the need to see more action as well, the report says. Over three quarters of shareholder respondents “intend to increase their level of engagement with companies on the issue of board diversity.”

The paucity of women in executive board appointments is become more well-known, and this study adds to that body of research. Those companies that really wish to be on the cutting edge of gender diversity should consider adding women to the boardroom in executive roles.

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