While the Financial Reporting Council (FRC) has set a path towards increased focus on boardroom diversity within its new corporate governance code, there is some consternation that its existing guidelines are not being followed fully, raising a question as to corporates’ commitment on the issue.
Research by the reporting regulator and the University of Exeter Business School shows that the vast majority of FTSE 100 and FTSE 250 businesses (98% and 88% respectively) report a policy on board diversity. However, only 15% of FTSE 100 companies report against all the diversity measures outlined in the current code, including a process for board appointments, objectives for implementing a diversity policy, and progress on achieving them.
The FRC believes that a lack of compliance with the code is suggestive of a lack of commitment to taking a strategic approach to board diversity.
“We are writing to companies to challenge them to take a more strategic approach to diversity and inclusion, and to consider their approach to reporting on it,” says Tracy Vegro, FRC executive director of strategy and resources.
Are corporates really lacking a commitment to board diversity? For Susanne Thorning-Lund, a partner in board practice at Odgers Berndtson and a member of its diversity council, the latest stats represent progress. She is optimistic that there is commitment to the cause, but it is still early days.
“It’s a journey,” says Thorning-Lund. “I am positive because I observe first-hand that boards are discussing this, and in a genuine way.”
The gender focus has kick-started boards, in a rapidly changing world, to think about diversity of thought and the requirements for “flexible” mindsets. But, in tandem, they need to look at measuring their attempts to change the composition of management and boards. “Wider types of diversity are to be discussed in due course,” she adds.
Professor Laura Spira of Oxford Brookes Business School thinks companies see such reporting as “yet another box-ticking exercise”, and those that are compliant may be looking to gain “useful PR”.
“It will be interesting to see if such companies see this as a continuing advantage and sustain the company-specific quality of their reports, or revert to what will probably be standard boilerplate reporting, as, for example, in reporting on internal control,” says professor Spira.
A warning sign that the “boiler plate” path being taken is illustrated in another figure from the research: in 2018, 21% of FTSE 100 and FTSE 250 reports mention diversity in their appointment evaluation process—down from 38% in 2014 (for FTSE 101-200).
“The report describes it as ‘disappointing’, but it may be a significant signal about boards’ real priorities in considering their composition and certainly deserves further investigation,” says professor Spira.
Thorning-Lund concludes that more discussion and thought into what true “diversity” is, and how to use that understanding to positively impact a board, is required. And she sees an added complication: people don’t like to be “pigeonholed”.
“You’re relying on people being comfortable to define themselves on who are they and put themselves forward to tick those boxes—it’s something for us all to consider,” says Thorning-Lund.