Overcoming Barriers to Equality and Diversity Representation on Public, Private and Third Sector Boards in Scotland

6 Overcoming Barriers to Equality and Diversity on Private Sector Boards

Chapter Summary

• The Lord Davies Report (2011) "Women on Boards" has been a key driver of change for greater gender diversity on private sector boards.
• Appointments to boards need to be transparent to ensure that powerful elites do not continue to appoint people in their own image and that information on board vacancies is widely advertised.

• Mentoring can assist women chart a path to the board by giving legitimacy, reducing their status as an outsider and helping to form powerful alliances with influential individuals.
• Corporate Governance Codes can be used to set targets for gender diversity and monitor compliance.

Introduction

6.1 The UK Government commissioned Lord Davies to develop recommendations for increasing the number of women on corporate boards. In his report, published in 2011, Lord Davies noted that women made up only 12.5% of members of corporate boards of FTSE 100 companies. The rate of increase of female representation was slow, having been at 9.4% in 2004. Since publication of Lord Davies' report, the percentage of FTSE 100 boards with women directors has increased steadily to 22.8% in 2014. For non-executive directors, 25.7% are now female^[56].

6.2 According to the report, the business case for increasing the representation of women on corporate boards was clear: 'companies with a strong female representation at board and top management level perform better than those without and that gender-diverse boards have a positive impact on performance. It is clear that boards make better decisions where a range of voices, drawing on different life experiences, can be heard. That mix of voices must include women'^[57]. The report outlined several recommendations to be fulfilled to improve female representation on corporate boards. A summary of these recommendations is described below.

• All Chairmen of FTSE 350 companies should set out the percentage of women they aim to have on their boards in 2013 and 2015. FTSE 100 boards should aim for a minimum of 25% female representation by 2015 and we expect that many will achieve a higher figure.
• Quoted companies should be required to disclose each year the proportion of women on the board, women in Senior Executive positions and female employees in the whole organisation.
• The Financial Reporting Council should amend the UK corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity, including measurable objectives for implementing the policy, and disclose annually a summary of the policy and the progress made in achieving the objectives.
• Executive search firms should draw up a Voluntary Code of Conduct addressing gender diversity and best practice which covers the relevant criteria and processes relating to FTSE 350 board level appointments.

6.3 In April 2013, the Government introduced a 'Voluntary Code of Conduct for Executive Search Firms' as a result of recommendations made by the Lord Davies Report. The Code outlines several steps to be taken by search firms, perhaps more commonly referred to as head hunters, to improve gender diversity on corporate boards. Among the provisions of the Code are that, 'search firms should look at the overall board composition and, in the context of the board's agreed aspirational goals on gender balance and diversity more broadly, explore with the chairman if recruiting women directors is a priority on this occasion'^[58]. An independent review of the Code noted that search firms should be encouraged to improve prominence of the code in their marketing, but also should ensure they have at least one women whom they strongly recommend on their shortlist of potential clients^[59].

6.4 A Cranfield University study (2009) commissioned by the UK Government Equalities Office^[60] identified six recommendations to improve the engagement of equalities groups at board level. The recommendations seek to address several systematic barriers to boardroom diversity, namely a lack of transparency in the appointment process and the need for targets on levels of gender representation. The recommendations of the study are described below.

• Organisations should set their own targets for gender and other under-represented groups and report on their progress in annual reports.
• The UK should emulate the Netherlands with a voluntary charter scheme, whereby chairs are invited to sponsor, for example, one of their senior women into a FTSE 100 NED position. This initiative should work on the assumption that women are board ready; hence the role of the chairman is to directly connect and sponsor women onto a board.
• Greater encouragement should be given to mentoring programmes and multi-dimensional programmes in both the public and private sectors.
• All directorships in the private sector should be advertised (as occurs in the public sector). The opaque nature of the appointment process, particularly in the private sector, is a considerable barrier to under-represented groups. Information about all aspects of the appointment process, including the availability of directorships, would help address this.
• The UK Government should maintain its targets of 50% female, 14% disabled and 11% ethnic minority candidates for all new Commissioner-regulated appointments by 2011, and monitor progress.
• Diversity initiatives must be politically, socially and culturally aligned to be effective.

Appointment Process

6.5 Cranfield University (2009) research described how 'the problem is not related to the lack of available candidates, but to the process by which directors are appointed on boards' ^[61]. This finding suggests that the current power elite are continuing to 'hire in their own image, thus failing to tap into a more diverse pool of talent'^[62]. This 'groupthink' approach, where boards appoint new members in their own image, undermines the independence and oversight function of boards as new talent and fresh perspectives are squeezed out in favour of those who are most like existing members. The Association of Chartered Certified Accountants sees this 'groupthink' as particularly problematic given that the pool from which new directors is drawn is already small^[63].

6.6 Addressing the institutionalised structures of power that protect the interests of those already at board level requires changes to the way in which: directorships are framed and created; the weak links between search (executive HR and head hunter firms) consultants and under-represented groups; the lack of diversity on current nomination committees; and, potential unconscious bias in the selection process.

6.7 Hurn^[64] draws attention to the approach outlined by Lord Davies. Lord Davies' strategy^[65] includes:

• The long lists of potential boardroom candidates sent to FTSE chairmen must include at least three women candidates.

• Headhunters are required to check with a company's board regarding the company's position on diversity and the number of women on their board.
• Target of at least 25% of board members to be women by 2015.
• Companies had until September 2014 to produce their plans to achieve their target.

Practical Approaches

6.8 Beardwell and Claydon^[66] consider that women very often need further support to improve confidence in the face of male competition. They offer some practical measures to develop women managers and therefore future potential board members. These include:

• Integrating women's career development as part of mainstream HR development.
• Providing role models and mentoring.
• Promoting the networking of women.
• Reviewing selection, promotion and appraisal procedures.
• Assertiveness training.

6.9 Hurn^[67] states that 'change should be incremental, not forced by mandatory quotas, and should be backed by positive structural changes in recruitment, selection and career development within companies', he provides the following ambitions:

• Creating a corporate culture where women are involved as managers within the organisation working with their male counterparts so that their qualities are recognised early in their career.
• Developing a mentoring system within the organisation which encompasses both men and women to provide greater visibility at a crucial stage in career development.
• Taking note of the gradual changes in society where men take more responsibility for child raising and the acceptance of the need for greater work-life balance. These points have been emphasised by the Equal Opportunities Commission Briefing Series: The Work Life Balance^[68].
• Women who are already in or moving into senior management posts within the organisation would benefit from more responsibility in subsidiaries for a set period of time.
• Review of the UK's Corporate Governance Code to directly encourage gender diversity.
• Encourage women with potential to take Executive MBA courses where tuition is mainly at weekends in the competitive company of male managers.
• Recruit women from senior positions in other areas, such as law, accountancy and education.

6.10 Bruckmuller et al^[69] argue the need to ensure transparency on the representation of women in key positions and the implementation of gender quotas. To ensure an increase in the proportion of women on boards, more needs to be done to ensure that their role is not constrained and that they can display their full leadership potential. The following recommendations are made:

• Objective performance evaluations.
• Diversity programs and creation of a diversity culture.
• The right framing of interventions - not seeing women as add-ons and reinforcing stereotypes.

Identifying Effective Strategies

6.11 This section outlines several examples of actions taken by private sector organisations to improve access to the boardroom for women. Case studies are used to highlight examples of good practice in overcoming barriers to gender equality in the boardroom. Instead of using academic and policy literature, we used national newspapers, industry publications and information from training and consultancy firms. These sources have examples of strategies developed and applied in the corporate sector to improve the proportion of women on boards.

6.12 A weakness of using the case study approach is the transferability of findings to other situations and contexts. Strategies to improve gender equality that were seen to be successful in a large multi-national corporation may have limited relevance to a smaller organisation operating in a different industrial sector. Furthermore, the resources and culture available to one organisation to enact change at board level, may not be present in other organisations. Nevertheless, we have tried wherever possible to use examples of overcoming barriers to gender equality in the boardroom that possess some transferability and lessons that can be applied more widely.

Mentoring Works

6.13 There is a significant body of evidence that supports mentoring as an effective tool to overcome barriers to the entry of women to the boardroom. Mentoring is a practical way to facilitate movement from middle management to the higher echelons. An example is the development of leadership qualities in women through mentoring schemes being developed by the International Centre for Women Leaders at Cranfield School of Management. Mentoring programmes are well-established in many companies.

6.14 Dworkin et al.^[70] argue that strong mentoring programmes have worked to increase the number of female senior managers and that these can be extended to boards. The lack of coaching for women who seek these positions is a major factor in their under-representation according to Fitzpatrick and Rappaport^[71].

6.15 A recent report of a study^[72] involving 2,252 college-educated men and women, over half of whom were in large companies, cited inadequate career development as the primary reason women have not reached the top rungs of the corporate ladder. Mentoring programs can be effective in helping women chart pathways around barriers to leadership, for a variety of reasons. Mentors, according to Ragins^[73], lend legitimacy to an individual, offer inside information regarding job-related functions, and provide guidance and training in the political operation of the organisation. Additionally, mentors can buffer an individual from overt and covert forms of discrimination^[74]. Mentors can compensate for exclusion from organisational networks where important information is usually found. They can also, as illustrated by Dreher and Cox^[75], provide reflected power by signaling that an individual has a powerful sponsor.

6.16 Mentoring can take different forms but at its core, a professional mentoring relationship is developed between individuals, both men and women with experience in the boardroom and at executive level, offering their experience and insight to women seeking a board position. Mentoring was at the core of the recommendations identified by the Lord Davis Report in 2011 and has been applied by a range of organisations^[76],[77], to improve the number of women holding board positions in the private sector.

6.17 Mentoring enables potential board candidates to envisage their own success. Mentors can link potential board candidates into social networks through which information about boardroom opportunities and contacts with existing board members are facilitated. Mentors enable women to: think through their career goal; challenge self-limiting beliefs especially for women in male dominated industrial sectors; provide an inspirational figure with a track record of success; address feelings of isolation and not being heard when operating at a senior level^[78].

Case Study: The Mentoring Foundation - www.mentoringfoundation.co.uk

The Mentoring Foundation operates the FTSE 100 Cross Company Mentoring Executive and Next Generation Women Leader Programmes. The aim of the programmes is to improve the number of women operating in senior and board level positions in large organisations. Senior women are mentored by company Chairmen for 12 or 24 months. Mentees form strong relationships with a wide range of senior business figures who offer advice, support and professional experience. A crucial element of the mentoring programme is the way in which the process links mentees with networks of senior business figures. The mentoring relationship also brings women to the attention of top businessmen, offering a degree of visibility and contact which may not otherwise be afforded, particularly as data demonstrate that women frequently do not have access to powerful networks^[79].

Case Study: Mentore - www.mentore.co.uk

Mentore was founded by high profile UK business figures including Sir Charles Dunstone and Sir Roger Carr to train and advise women who want to reach director level. The company offers a 12 month mentoring programme that costs around £25,000 per year. Mentore is based on the principal that equality and diversity are good for business: For years now equality and diversity have been recognised by shareholders as business imperatives. It is our responsibility as business leaders to reflect this sentiment and advocacy for women in business, and mirror this passionate belief in leveraging the best talent to serve our customers and our stakeholders"^[80]. Mentore offers a range of training modules from senior one-on-one mentoring; training modules; network building and assurance and board reporting. One-on-one sessions would typically last about eight sessions over a 12-18 month period and target specific development goals and support the transition into executive roles. Mentore uses high profile mentors drawn from a wide range of corporate backgrounds.

6.18 An indicator of the way in which social change is creating a favourable environment for the promotion of diversity in the boardroom, is evident in the proliferation of non-governmental and private sector organisations that are taking a lead in promoting gender diversity in the boardroom. The examples cited in the previous case studies are part of an increasingly large network of organisations whose purpose is to promote gender diversity across organisations. Globally, organisations such as Catalyst^[81] are contributing to an international debate on promoting the representation of women at executive levels.

Improve Access to Networks

6.19 This review has identified a significant difference between the networks that men and women develop. There is evidence to suggest that men invest time in developing an influential range of contacts through which information that helps support the transition to senior executive levels is transferred. There is evidence that men regard developing these networks as an integral part of their job. It is where contacts are established, knowledge is shared; new information is acquired; and influence is applied. Being excluded from influential social networks can mean that women are less likely to be recommended for unadvertised posts and are excluded from head-hunters list of potential board candidates. Whilst it is important not to generalise these findings to all women, the theme of exclusion from influential networks is recurring throughout the evidence. The Lord Davies commission, Women on Boards, specifically highlights the problem of 'a traditional male cultural environment, the old boy's network and a lack of networking opportunities for women'^[82] as a barrier to the advancement of women into the boardroom. Research from the Harvard Business School found that almost a third of women surveyed, stated that male dominated networks were a significant barrier to them accessing the boardroom.

6.20 To address these issues, the paths that allow access to networks need to be unblocked for women. Opportunities for women to interact with board members and senior executives can be used to develop and strengthen networks.

Case Study: Improving Access to Networks at National Grid

National Grid is an electricity and gas company that connects consumers to energy sources through its networks. To improve access to board members and create opportunities for networking, there are several structured opportunities for interaction with the board. The Chair and CEO maintain regular interaction with the top 70 staff through regular presentations to the board, invitations to pre-board dinners, to committee meetings, to regional events and to occasional social events. Board meetings are also held in regional locations to ensure that as wide a range of individuals can access board members. When promotions to the board are being considered, the board is better able to make a judgement having met potential board candidates personally through these opportunities for interaction. Once appointed to the board, new appointees may have less trepidation and more confidence having already met with board members^[83]. Gender diversity on the Board of Directors at National Grid is higher than the 20.7% of their FTSE 100 peers. In 2014, of 15 Board members, 5 were female.

6.21 In the UK, measures to improve transparency in the appointment process would go some way to address the issue of women being locked out of powerful networks through which information about board vacancies becomes known. If directorships in the private sector were to be publically advertised, there would be greater transparency across the system and a wider number of people with different backgrounds and experience would become aware of board vacancies.

Use of Governance Codes to Set Targets

6.22 This review has identified a range of alternative approaches pursued by nations as they try to address the issue of gender diversity in the boardroom. Among those countries that have opted for a voluntary approach to change, there has been a shift to the use of reporting diversity in governance codes. The Lord Davies Review of Women on Boards has already identified the use of governance codes as a means to bring pressure on organisations to improve their gender diversity. The report states that: 'The Financial Reporting Council should amend the UK Corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity, including measurable objectives for implementing the policy, and disclose annually a summary of the policy and the progress made in achieving the objectives'^[84].

6.23 The Financial Reporting Council, the UKs independent regulator responsible for promoting high quality corporate governance has incorporated recommendations from the Lord Davies commission on the need for corporate reporting on diversity. The most recent UK Corporate Governance Code states that 'the search for board candidates should be conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the board, including gender'^[85]. Furthermore, the Code states that corporate annual reports should 'include a description of the board's policy on diversity, including gender, any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives'^[86].

6.24 As a result of this recommendation, there have been three significant changes to the Corporate Governance Code with the most recent in October 2012 requiring all listed companies to disclose their diversity policies, targets and progress to date. The code applies to the six Scottish based FTSE 100 listed companies and the 15 FTSE 250 companies based in Scotland. There is evidence that the Chairmen of FTSE 250 companies are increasingly aware of the benefits of diversity in the boardroom and that Governance codes can be used to ensure compliance with equalities targets set out by the Lord Davies commission. The UK Corporate Governance Code is overseen by the Financial Conduct Authority, and is a principles based approach that outlines examples of best practice. It is not a rules based approach enforced by statutory powers. Despite this, evidence suggests that compliance with revisions to the Corporate Governance Code is high. The Financial Reporting Council notes that, there are now high levels of compliance with the new recommendations added to the UK Corporate Governance Code in 2010. The level of early adoption of some of the changes made last year, such as having a clear policy on boardroom diversity, is also encouraging, particularly as companies have also had to implement significant new statutory requirements on reporting and remuneration this year'^[87].

6.25 Research into levels of compliance among FTSE100 companies on boardroom diversity policies shows a high level of awareness of the need for greater boardroom diversity. 91% of FTSE 100 companies make some reference to boardroom diversity. However, only 37% record progress against those objectives. Findings from FTSE 250 companies were more disappointing with only 18% having a clear policy on boardroom diversity (see Table 2).

Table 2: Disclosure of diversity policies.

	All FTSE 100 companies	Sample of 50 FTSE 250 companies.
Does the company refer to the need for greater boardroom diversity and/or the new FRC Code?	91%	82%
Does the company have a clear policy on boardroom diversity?	65%	18%
Does the policy specifically mention gender?	61%	16%
Does the company set measurable objectives?	42%	14%
Does the company record progress against those objectives?	37%	12%

Source: Women on Boards: Benchmarking adoption of the 2012 Corporate Governance Code in FTSE 350; Cranfield University School of Management; November 2013. Data based on the annual reports of FTSE 350 companies issued between July 2012 and July 2013.

6.26 Internationally, there has been a shift in some countries to improve gender diversity on boards through changes to governance codes. For example, in Australia, the Workplace Gender Equality Act 2012 requires private companies with 100 or more employees to report on specific gender diversity indicators including family-friendly working arrangements, consultations with employees regarding gender equality and pay equality. There are sanctions for non-compliance with these regulations. The Australian Securities Exchange requires listed companies to disclose their diversity policies, including measurable objectives and progress, or to explain why they do not disclose this information^[88].

Special Measures

6.27 Although the UK government has thus far chosen to resist statutory quotas to improve gender equality on public and private boards, the Lord Davies report does not entirely exclude the possibility of such actions if voluntary approaches do not produce desired outcomes. The use of public reporting of the gender balance on boards and corporate diversity policies have contributed to an improvement in the proportion of women on boards. However Lord Davies states that government 'must reserve the right to introduce more prescriptive alternatives if the recommended business-led approach does not achieve significant change'^[89].

6.28 Temporary special measures may be one route to improving gender equality on boards. Although positive discrimination in the UK is unlawful, international human rights law recognises that 'affirmative action may be necessary to overcome past discrimination'^[90]. The UN Convention on the Elimination of Discrimination against Women (CEDAW) is an international human rights treaty focussing on equality between men and women. The treaty defines discrimination against women as 'any distinction, exclusion or restriction made on the basis of sex which has the effect or purpose of impairing or nullifying the recognition, enjoyment or exercise by women, irrespective of their marital status, on a basis of equality of men and women, of human rights and fundamental freedoms in the political, economic, social, cultural, civil or any other field'^[91]. The UK became a signatory to the treaty in 1981^[92]. The treaty requires of signatory states that they 'incorporate the principle of equality of men and women in their legal system, abolish all discriminatory laws and adopt appropriate ones prohibiting discrimination against women'^[93].

6.29 The UK Equality and Human Rights Commission (EHRC) has integrated CEDAW into their work on gender equality. In 2012, the EHRC submitted a list of issues for consideration at the CEDAW working group. Among these issues was the topic of women on boards and public life^[94]. In its submission to CEDAW, the EHRC noted the use of temporary special measures to increase the number of women in Parliament by extending until 2030 the provision under the Equality Act 2010 allowing political parties to adopt women-only shortlists for parliamentary candidates. The Sex Discrimination (Election Candidates) Act 2002 amended the Sex Discrimination Act 1975 to allow political parties to use all-women shortlists to select candidates for elections. The act contained a sunset clause that made the Act expire in 2015. The Equality Act 2010 extended provision for all-women shortlists until 2030, whereupon there is the possibility of a further extension^[95].

6.30 The use of all-women shortlists appears to have increased the proportion of women in the House of Commons: 'since the introduction of all-women shortlists there has been an increase in the proportion of female MPs returned to the House of Commons. Of 650 MPS elected in the 2010 General Election, 143 (22.0%) are women, the highest number and proportion ever'^[96]. Despite the apparent success of all-women shortlists at increasing the proportion of women MPs, Rosie Campbell and Sarah Childs are critical of the relatively minor gains made using shortlists: 'the post-war average (of women elected at General Elections) until the mid-1980s was roughly 4%, but the increase from 1997 to 2010 is from 120 to 142 women MPs, a difference of just 4 percentage points (from 18 to 22%)'^[97].

6.31 The EHRCs submission to the CEDAW committee working group meeting, emphasises a voluntary approach to increasing the proportion of women on boards. It states that 'the [UK] Government is confident that the voluntary, business-led approach to increasing the representation of women is working so there is no need to follow the example of Norway and others and legislate on this issue'^[98]. The submission emphasises evidence from the Lord Davies report on the proportion of women on the boards of FTSE 100 and FTSE 250 companies. It suggests that the voluntary approach pursued within the UK has led to significant positive change in the proportion of women on boards, however there are opportunities for improvement specifically around the issues of recruitment and selection of board members. Research commissioned by the EHRC found that 'the appointment process remains opaque and subjective and is typically driven by a corporate elite of predominantly male Chairmen who tend to favour those with similar characteristics to themselves'^[99]. This finding is consistent with other research outlined in this paper and has been found to be linked to groupthink and associated risks for corporate governance.