“We see some extremely good results. But there are also implications.” So says Dr Elisabeth Marx, a corporate leadership expert, after undertaking a close study of UK board composition two decades after a previous investigation lifted the lid on what was happening inside boardrooms.
The conclusion is that things are definitely better, but unintended consequences have emerged: there are concerns about where future female executives will come from and whether non-executives spend enough time with executive functions other than the CEO and CFO. There is also a worry that diversity of thought may become a casualty of the increasing dominance of accountancy or finance as a professional background. Yes, there has been progression. But at the cost of new problems.
The first View at the Top study by Marx was undertaken in 1996 and provided a snapshot of boardrooms in Britain’s top 100 companies. A fresh study—undertaken in conjunction with the Leadership Institute at London Business School and delivered at the annual London conference of ICSA: The Governance Institute—reveals how board composition has changed, based on 2017 data.
Back then boards averaged 12 members; now they average 11. Non-executive membership has grown from 51% to 74%. Women accounted for 4.1% of board members in 1996, but are now at 28%. Average boardroom age has matured from 56 to 58.5. Meanwhile, accountants and finance specialists totted up to 38% in the first study but have come to account for almost half (49%) of all boardroom seats now. White occupants hold 96% of CEO positions and 98% of chairships.
Execs vs non-execs
The upshot is that while increased non-executive presence on boards has improved governance, and growing female boardroom membership is evidence of greater equality, there are still concerns.
Most women on boards are non-executives and Marx believes that achievement has come at the expense of hollowing out the ranks of female executives. That possibly implies a lull while a new wave of women rise to the most senior executive levels.
Marx says: “The interesting thing is that the increase in women is [among] the non-executives. That’s been extremely successful as a way of increasing women on boards.” But she adds: “This reduces the internal talent pipeline of executive women because they moved to concentrate on portfolio careers.”
According to Marx, the changing boardroom balance between non-executives and executives raises problems too—non-executives are mainly exposed to just CEOs and CFOs, and few of the other functional executives. Here two questions arise: how do non-executives acquire a reliable view of operational risk, and how do they get a taste of the talent available for succession planning?
“The question is, how will the non-executives know the potential CEO contenders?” says Marx. She adds: “If you do not know the executive team who are running the company day-to-day, how are [the board] equipped to predict the likelihood of achieving the strategy?”
The dominance of accounting and finance as a baseline profession before settling into a boardroom role also prompts concern. According to Marx: “This reduces the diversity of perspectives… which is urgently needed given the complexity of business.”
The View at the Top report comes with a list of questions for boards to consider, not least whether having fewer executives on board undermines a board’s “in-depth knowledge of operational details” and whether non-executives fully understand the “bench strength” of their executive team. Also worth considering is whether the dominance of accountancy, or finance, as a background offers boards the full range of “diverse” views to function in the current business environment.
Randall Peterson, co-author of the report and academic director of London Business School’s Leadership Institute, describes some of the findings as “alarming” despite genuine progress being made. Peter Swabey, research director at ICSA, says: “One way that boards are judged is whether they represent the population they serve. We have come a long way since 1996, but there is still a distance to go.”
The report clearly signals there is no room for complacency. ICSA’s press release concludes boards are set to remain “pale, male and stale”. At a time when there is greater pressure than ever on non-executive and executive members, the report provides a blunt reminder that there is work to do on making sure board composition is right.