Business, Innovation and Skills CommitteeWritten evidence submitted by 30% Club

The 30% Club is a group of Chairmen and organisations committed to bringing more women onto UK Corporate boards. Its members have declared their voluntary support for a goal of 30% of boards being female by 2015 and are taking actions to achieve it. Fifty-four chairmen, representing many of Britain’s largest most successful companies have now declared their support for the 30% Club. A list of the supporting Chairmen as at submission is attached as Appendix I.

The 30% Club was formally launched in November 2010 and has since developed a concerted programme of specific actions aimed at accelerating the pace of change towards better-balanced boardrooms in the UK. We are working collaboratively with a number of other groups engaged on this issue, particularly the Davies Committee. The neutral, non-commercial and apolitical status of the 30% Club has attracted widespread support and has enabled us to draw together a number of prevailing efforts and create new initiatives to achieve greater collective impact.

We are seeing mounting evidence of a change in mind-set and results in the UK. Between 2007 and 2010, the representation of women on FTSE-100 boards plateaued at around 12%. The past two years has seen a rapid acceleration in the pace of progress and this figure now stands at 17.3%. Most importantly, the pace of this voluntary change continues to accelerate. In 2010 13% of new FTSE-100 board appointments were awarded to women, increasing to 30% of all new appointments in 2011. Since 1 March 2012, 55% of all non-executive FTSE-100 director appointments have been female. This is a dramatic shift and we expect ongoing improvement in the gender balance of Britain’s boardrooms. The 30% Club is now working on the longer term issue of developing a sustainable pipeline of senior female talent; we have two main efforts—a Professional Services Firms Pipeline Initiative and a new FTSE-350 Executive Pipeline Action Group. Again, our approach is collaborative and we have found companies willing to share their experiences to address this multi-faceted problem.

In the pages that follow we provide specific responses to those questions raised in the Call for Evidence where we feel we have expertise. We have therefore not answered the first three questions but hope that our views are still helpful.

Helena Morrissey
Founder, 30% Club
CEO, Newton Investment Management

5 October 2012

5. What more should be done to promote part-time work at all levels of the workplace and to ensure that both women and men have opportunities to gain senior positions within an organisation while working part-time?

Building a sustained pipeline of female talent and therefore achieving a better balance of men and women at senior levels requires multiple, concerted efforts, including but not limited to the promotion of part-time or flexible working. In many situations, there is no reason why part-time workers cannot contribute at a senior level.

The 30% Club sees this specific issue as one aspect of broader changes required across much of the corporate world, to modernise working practices by using technology more and facilitating a variety of different possible work patterns rather than the traditional office-based, full-time model which often suits men better than women. We do not believe that further legislation is required or desirable around part-time working; companies need to “own” the development of a sustained pipeline to achieve real progress. There is strong desire amongst the major firms to accelerate results in this area.

To focus on specific practical recommendations around this broad topic, the 30% Club has established a Professional Services Firms (PSF) Pipeline Initiative, bringing together twenty leading law, accountancy and consultancy firms to develop a collaborative approach. These firms typically suffer from a particularly acute female attrition rate between graduate intake (when women are often in the majority) and senior partnership levels (typically 10–15% women). It is evident from the initial sharing of experiences that most of these firms have made considerable efforts over a number of years to develop diversity and inclusion initiatives. These efforts have yielded only limited results and in some cases, progress is starting to reverse. There appears to be a more fundamental problem, namely the somewhat old-fashioned requirements to “make partner”, including long billable hours and “face time” in the office. Encouragingly, it is increasingly acknowledged that solving this to retain more female talent will also help these firms attract and retain the best male talent in the future, as young gifted people are expecting to contribute intellectually quite differently from the current senior generation. This realisation may help us to achieve a breakthrough, as the issue is seen as less about helping a particular group to succeed and more about the future health of the partnerships themselves.

Regarding the part-time work component of any solution, it is clear that in these particular firms, the project-based nature of the work lends itself better to enabling senior women (and men) with family commitments to take periods of time off (for example, the school summer holidays) rather than to work three or four days a week. We have also been exploring whether clients might be prepared to have two part-time senior staff working for them rather than to assume that only one very full-time partner might meet their needs.

We will be publishing the output of a detailed McKinsey-led project on this topic at a seminar “Getting More Women to the Top of Professional Services Firms” being hosted by Linklaters on 12 December 2012 and would be happy to share the recommendations with the Committee. We will be using the results as a blueprint for listed companies and have recently established a FTSE-350 Executive Pipeline Initiative.

6. To what extent have the recommendations in Lord Mervyn Davies’ Report “Women on Board” (published in February 2011) been acted upon?

The collective impact of Lord Davies’ ten recommendations has been highly significant and generally well followed-through, although there have been different levels of response regarding the individual recommendations, including variation across company size, with the FTSE-100 tending to be further ahead than the FTSE-250 at this stage.

FTSE-100

Female representation on boards now stands at 17.3%* (up from 12.5%**); 21.5% NEDs are women (up from 15.6%*) 6.6% female executive directors (up from 5.5%*)

Eight boards have over 30% female representation with Diageo leading the way with 44%; a further 18 boards have 25% or more women

All-male boards stands at 7* (down from 21**)

Women accounted for 25% of all new appointments in 2011 (including executive roles), compared with 13% in 2010

55% of NED board appointments since 1 March 2012 have been women

FTSE-250

Female representation on boards now stands at 11.3%* (up from 7.8%**); 14% NEDs are women

All-male boards stands at 94* (37.6%—down from 52.4%**)

35% of board appointments since 1 March 2012 have been women, including 41% of NED appointments

*Boardwatch, 4 September 2012
**Lord Davies Women on Boards February 2011

The key first recommendation, that all Chairmen of FTSE-350 companies should set out the percentage targets for women on their boards in 2013 and 2015 has not been universally adhered to although many companies have set out diversity statements and goals within their annual report. Appendix II is a collation of FTSE-100 statements (typically drawn from company accounts) on this issue along with each firm’s position in terms of female representation on their boards; we have also created a similar document for the top 50 FTSE-250 firms ranked by market capitalisation (Appendix III). There is a notable wider spectrum across these somewhat smaller firms. Notwithstanding this variation, overall progress in both groups has been significant regarding the actual appointment of NEDs, with 55% of FTSE-100 non-executive positions since 1 March 2012 going to women and 41% of similar FTSE-250 roles.

Clearly, the Financial Reporting Council (FRC) has amended the UK Corporate Governance Code (recommendation 3), from which progress towards Lord Davies’s points 4) and 5) is expected to follow. The 30% Club investor group has been working on ensuring the implementation of recommendation 6, namely that investors should ensure that companies they invest in adhere to recommendations 1-5. This group now numbers 13 institutions representing £1.8 trillion assets under management who are engaging constructively with companies to encourage them to develop a business-led approach towards the goal of better gender balance at all levels of company management, including boards. See question (7) for further details of the work of this group.

Recommendation 7 of the Davies Report, that companies should periodically advertise board positions, does not appear to have been followed and the NED recruitment process does remain more opaque than for other positions although the approach of executive search firms is much improved. The executive search firm community has drawn up a Voluntary Code of Conduct (recommendation 8) and the effectiveness of this is considered separately below. Evidence that recommendation 9, the opening up of the process to facilitate more cross-over appointments from public or voluntary sectors to private sector board positions is limited in that few NEDs have yet been appointed outside the private sector, but as a chairman commented to us recently, the “gene pool” for board candidates has widened over the past two years. Finally, the strong on-going efforts of the Davies Steering Committee outlined in recommendation 10 are evident from their very public monitoring of progress and collaboration with groups like the 30% Club to ensure effective implementation of their suggestions.

7. To what extent should investors take into account the percentage of women on boards, when considering company reporting and appointments to the board?

Diversity is a key theme in the debate about the quality and performance of boards. As the Davies Committee noted in Women on Boards, March 2012, investors “are increasingly becoming one of the most active and vocal groups championing women on boards....Evidence suggests that diversity is becoming a key component of stewardship dialogue between investors and companies.” Publicly listed companies are ultimately accountable to shareholders for their results and for how they govern themselves, and it is right that investors take a leading role in campaigning for more balanced boards. Furthermore, gender diversity is often the first step in breaking the mould towards achieving more generally diverse boards.

We therefore believe that it is important for investors to take into account the percentage of women on boards, when considering company reporting and appointments to the board. 30% is the figure widely agreed to transform perceptions of the contributions of the minority group from representing that particular group to being judged on their own merit—in other words, critical mass is achieved. We believe that once 30% is reached, the culture and practices of the board will have changed significantly and as a consequence, further progress towards true balance will naturally follow.

Accordingly, an investor group has been set up under the 30% Club Steering Committee. In aggregate, this group manages over £1.8trn of assets on behalf of pension funds, charities and individuals. The purpose of the investor group is to help coordinate the investment community’s approach to the issue and in so doing, to accelerate the pace of business-led change towards the goal of better gender balance at all levels of company management, including boards. 

In February 2012, the 30% Club investor group organised a seminar in London to discuss Board effectiveness: why diversity matters, attracting over 150 delegates from the fund management community. At the seminar the 30% Club investor group published Achieving More Diverse Boards: Guidelines for Engagement to help other investors engage with companies on this issue (see Appendix IV). We believe that investor engagement has begun to provide useful additional impetus to achieving better balanced boards.

The calls for greater disclosure from Lord Davies, the UK Government and the FRC have already provided members of the 30% Club investor group with additional information and public disclosure to take forward their own individual actions to encourage companies to improve boardroom diversity. For example, members of the investor group are using the new company disclosure to initiate conversations with companies about diversity. Some of these investors are making their dissatisfaction about companies’ lack of progress on diversity known through their voting decisions.

One member of the 30% Club investor group, The Co-operative Asset Management (TCAM), has become, as far as we know, the first investor to factor gender balance into a UK voting policy. During the 2012 voting season, TCAM abstained on the re-election of the Chair of the Nominations Committee at 13 Annual General Meetings, where the company had failed to disclose an aspirational target or to elect any women to an all male board, and wrote to the company in question on each occasion to let them know their concerns.

Since the publication of the Davies Review, members of the 30% Club investor group have seen a marked improvement in the willingness of company directors to engage in a productive dialogue with shareholders about boardroom diversity.

A growing body of empirical evidence corroborates the intuitive argument that more diverse boards are more effective than “identitkit” boards and a number of relevant and useful research papers can be found at www.economist.com/node/21539928. A compelling outcome of Lord Davies’ review was the economic and business case for addressing the gender imbalance in the current structures of companies’ boards, which moves the debate away from a social issue to an urgent business imperative.

It is worth highlighting two recent pieces of research. The first, Getting the Right Women on Board published by SocGén in October 2011, provides some interesting analysis—conducted purely on the empirical results achieved by European companies—that suggests that 30% is the “magic number” when the financial performance of a company increases due to a critical mass of women at board level. Another published more recently by EIRiS Women on Boards of Directors—Do they add value? (Aug 2012) found that a global value weighted portfolio of companies with more than 33% women on the board outperformed its respective benchmark by an estimated 31 basis points per month on a risk adjusted basis over a 90 month period (1 January 2004–30 June 2011). Both pieces of research depict the same results; that there is a positive correlation between women on boards and financial performance (return on equity, return on capital employed) and that this correlation becomes more marked once 30% representation is reached.

However, it should be noted that how diversity is achieved is also very important; the precipitous introduction of quotas in Norway appears to have detracted from rather than increased shareholder value (see The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation, Kenneth R. Ahern and Amy Dittmar, University of Michigan, Ross School of Business May 20, 2011) while not improving the pipeline of executive female talent.

8. Why are there still so few women in senior positions on boards and what are the benefits of having a greater number?

Given the position before the Davies Report (published only 20 months ago) and the founding of the 30% Club (initiated in March 2010), when just over 12% of all FTSE-100 board directors were women, a figure that had plateaued over the preceding three years, a great deal has since been achieved in a short space of time and we should not describe the current situation (on boards) as “so few women”. Absent the termination of existing directors or significant increases in the size of corporate boards (both undesirable measures), the pace of change could hardly be quicker than at present. The most dramatic statistic is the increase in the proportion of FTSE-100 NED roles going to women, with 55% of new appointments being female since 1 March 2012. The 30% Club believes that given the importance of appointment on merit, the pace of change could not be bettered although it is important that this progress is sustained. The development of senior executive female talent has to be a longer term ambition; the pool of talent for an effective NED is inevitably wider than for, say a Chief Financial Officer, where specific expertise and experience is required. The 30% Club is now focusing its attention to the development of a sustainable executive pipeline and as outlined in our answer to question (5), we have been developing targeted action plans to help get more women to the top of organisations, whose success hinges on our collaborative approach where men and women are working together on effective, more radical solutions. Notwithstanding these intense efforts, success will not be achieved overnight, not least because broader sociological and cultural changes are needed.

The benefits of better gender balance on boards start with the powerful intuitive argument for incorporating multiple perspectives and types of people (not just a mix of genders) into the decision-making and oversight process. There is less danger of “groupthink” and more likely to be robust challenge and a wide range of inputs into any decision where directors are truly independent, not just of the company’s management but of each other.

We chose 30% as our target for female representation on a board since that is the widely-researched proportion when the contributions of a member of a minority group become valued in their own right rather than as representatives of that group. The 30% Club chairmen supporters speak from experience about the “improved dynamics” of a mixed gender board, “better atmospherics” and how it is “more representative of employees, customers and shareholders”.

The 30% Club is primarily focused on the greater effectiveness of diverse boards as a consequence of these qualitative impacts rather than on financial performance, partly because it is impossible to prove causality but also the data sets are still limited. However, there is a growing body of empirical evidence that corroborates the intuitive argument that more diverse boards might help corporate performance. At least four well known studies based on experiences in different countries set out this empirical evidence: McKinsey Women Matter, Catalyst The Bottom Line and Women’s Representation on Boards, (both analysing US companies) Citigroup ASX100, Women on Board Analysis (Australia) and SocGen, Getting the Right Women on Board (European companies). Two further recent pieces of work, Credit Suisse Research Institute, Does Gender Diversity Improve Performance and EIRis, Women on Boards of Directors—Do they add value? depict the same results; there is a positive correlation between women on boards and financial performance (return on equity, return on capital employed).

Significantly, academic research into the Norwegian experience suggests that achieving balanced boards through mandated quotas can have the opposite effect, undermining shareholder returns (University of Michigan; The Changing of the Boards: The Impact of Mandated Female Board Representation).

Finally, the financial crisis suggests that perhaps the burden of proof should lie with those who argue for the status quo; the failure of a number of significant financial institutions with very uniform, mostly male boards, is testament to the dangers of “identikit” boards.

9. How successful is the voluntary code of conduct (a recommendation of the Davies Report) which addresses gender diversity and best practice, covering relevant search criteria and processes relating to FTSE board level appointments?

Over 20 leading search firms, representing the vast majority of those engaged in boardroom practices, have subscribed to the Voluntary Code. There is good evidence that the Code is helping to increase supply of female NED candidates through the consideration of more thoughtful and creative boardroom criteria, often described as more of a focus on “intrinsics” rather than standard credentials for positions. This is welcomed. We have directly witnessed a real change in mindset among this community, who initially seemed concerned that prevailing practices and relationships might be threatened but who now are constructively working to effect change. Significantly, over 60% of the FTSE-100 directorships awarded to women in 2011 were to those without prior board experience, confirming that executive search firms are broadening their lists of candidates and that nominations committees are more keen to diversify the talent on their board than to appoint “tried and tested” individuals.

In May 2012, the 30% Club hosted a seminar to launch the publication of a report commissioned by the Equality and Human Rights Commission and researched by Cranfield School of Management on “The Appointment Process and the Role of Executive Search Firms”. A highlight of this report was the inclusion of 10 anonymous interviews with leading search firms into how they were conducting board level searches and whether the process had evolved materially since the introduction of the Code. It was clear from these interviews that individual firms have created new best practices regarding specific aspects of this process but that few if any firms were embracing all of these. The seminar was widely attended by the headhunting community and the level of engagement, led from the industry’s side by Julia Budd of Zygos, was impressive, thoughtful and encouraging. As with all aspects of this effort, more remains to be done but we commend the search industry for a rapid shift in mindset and also a willingness now to lead Chairmen and nominations committees towards a wider slate of candidates where necessary.

Please note that the views expressed in this response do not necessarily reflect the views of each and every 30% Club supporting chairman, member of the 30% Steering Committee or member of the 30% Club investor group, or their employing companies.

APPENDIX I

LIST OF 30% CLUB CHAIRMAN SUPPORTERS

Sir Win Bischoff—Lloyds Banking Group	Will Lawes—Freshfields Bruckhaus Deringer
Mark Bomer—BDO	Rich Laxer—GE Capital EMEA
Donald Brydon—Smiths Group	John MacFarlane—Aviva
Sir Roger Carr—Centrica	Charlie Mayfield—John Lewis
David Childs—Clifford Chance	Mike McTighe—JJB/Volex
Simon Collins—KPMG	Glen Moreno—Pearson
Michael Cole-Fontayn—BNY Mellon EMEA	David Morley—Allen & Overy
Allan Cook—Atkins	John Nelson—Hammerson
David Cruickshank—Deloitte	Dick Olver—BAE Systems
Miranda Curtis—Waterstones	Patrick O’Sullivan—Old Mutual
Andrew Duff—Severn Trent	Alan Parker—Brunswick
Ian Durant—Capital & Counties Properties	Sir John Parker—Anglo American
Neville Eisenberg—Berwin Leighton Paisner	Sir John Peace—Burberry Group/Standard Chartered
Robert Elliott—Linklaters	Ian Powell—PwC
Douglas Ferrans—Invista and IMA	Sir Michael Rake—British Telecommunications plc
Douglas Flint—HSBC	Sir Simon Robertson—Rolls Royce
Anita Frew—Victrex	David de Rothschild—Rothschild
Sir Ian Gibson—Morrisons	Sir Nigel Rudd—BAA/Invensys
Lord Green of Hurstpierpoint	Chris Saul—Slaughter & May
Sir Philip Hampton—Royal Bank of Scotland	Peter Scott—Engine Group
David Harris—Hogan Lovells	Lord Sharman of Redlynch—Aviva
John Heaps—Eversheds	John Stewart—Legal & General
Tony Hobson—former chairman of Sage	Carl-Henric Svanberg—BP
Christine Hodgson—CapGemini	Robert Swannell—Marks & Spencer
Dr Franz Humer—Diageo	Michael Treschow—Unilever
Greg Jordan—Reed Smith	David Tyler—Sainsbury’s
Lady Judge—UK Atomic Energy	Steve Varley—Ernst & Young
	Bob Wigley—Yell