September 28, 2018 Reporting on board diversity
When reporting on the duties and expectations of company directors, one of the issues which crops up on a regular basis is the way in which diversity can impact on corporate governance. It’s fair to say that the topic of diversity is one which has moved up the boardroom agenda over the last decade, partly due to social conscience but also reflecting a growing recognition of the importance which diversity can play in delivering organisational outcomes. It’s also fair to say that whilst some companies have made significant progress, others still have some work to do.
Now a study conducted for the Financial Reporting Council (FRC) by Exeter University Business School has shed further light on the progress of organisations in treating diversity as an intrinsic element of business strategy. The study, commissioned in advance of a change in the UK corporate governance code which takes effect from January 2019, acknowledges that 98% of FTSE 100 and 88% of FTSE 250 companies now have a policy on board diversity. That’s the good news. However, when it comes to meeting the four provisions set down within section B.2.4 of the current code including setting objectives to meet the diversity policy and outlining the company’s progress on achieving those objectives; just 15% of FTSE 100 and 6% of FTSE 250 companies satisfied all four requirements.
As a result the report concludes that “The majority of FTSE companies continue to need support to develop their approach to diversity.” This will include moving companies away from simply complying with the letter of the code or treating it as a tick box exercise, improving commitment and understanding, and looking towards leadership succession by improving diversity across the organisation.
Whilst diversity shouldn’t be seen as a purely gender issue, the report has noticed that those organisations signing up to the Women in Finance Charter do have high levels of diversity reporting. Nevertheless, the report also comments that there is evidence that ‘progress on increasing female representation at companies has stalled. ’
Overall it seems that whilst there has been some progress, boards in general and nomination committees in particular have more to do in order to meet diversity expectations. Commenting on the Exeter University report Tracy Vegro, FRC Executive Director of Strategy and Resources said:
“To maintain a competitive edge and success over the long-term, UK companies need to consider how diversity and inclusion is relevant to the markets in which they operate, all their stakeholders and the communities they serve.”