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Board experience trumps diversity

Author: ICAEW Insights

Published: 14 Nov 2023

Boards are prioritising plc experience in new director appointments over diversity, new research shows.

The proportion of first-time female and minority ethnic directors in the latest cohort of board appointments has fallen among the UK’s top 150 FTSE companies, a new study reveals. The findings suggest “a slowing down in the ongoing efforts to address gender imbalance on boards”. 

Against a backdrop of “unprecedented and destabilising events” such as the Ukraine war and high inflation, many boards have been opting for “experienced and proven hands over new and more diverse talent”, according to research by the UK Spencer Stuart Board Index, which analyses the board governance practices of the top 150 FTSE companies.

Although overall there has been a rise in the proportion of women in one of the four senior board-level leadership positions, boards have chosen women in just three of the 20 new CEO appointments and four of the 22 new chair appointments. There remain 60 boards where men occupy all four roles. 

Since the government began its push to improve the gender balance on UK boards in 2012, the composition of UK boards has significantly changed: 60% of boards now have at least one woman as either chair, senior independent director (SID), CEO or CFO, up from 51% in 2022.

The research showed that just 18 boards achieved gender parity this year, down from 26 in 2022. However, 73 boards comprise at least 50% female non-executives. 

Chris Gaunt, who leads the UK Board Practice at Spencer Stuart, says: “We saw a huge push by companies to hit the Parker review’s target by the end of 2021 deadline and therefore it’s very possible that, once almost every company had achieved that target, the foot was taken off the pedal.

“More broadly, now that most boards have achieved and surpassed targets set for diversity (including female representation), we’ve observed that chairs are looking holistically at board composition to get the balance right between experienced candidates and those joining the board of a listed company for the first time.”

In recent years, there has been concern that boards were increasing female board representation but only among non-executive roles, which are considered to have less influence. However, the increased appointment of women to senior independent director roles, which typically support the chair, highlights progress.

Gaunt says: “Despite the fact that only four women were among the 22 chairs appointed in the past year, we do expect the pipeline of potential chairs to grow as more and more women accumulate significant experience as plc non-executive directors and SIDs. 

“Today, however, women with experience of chairing listed company boards remain relatively few and far between and those in high demand are waiting for the right chair opportunity to come along before making a commitment.”

There was also a 44% drop in appointments of minority ethnic non-executive directors (NEDs) (15% of new NEDs vs 27% in 2022). Meanwhile, among female NED appointments, there was a 9% fall this year, compared with last year when women were appointed in 60% of NED roles.

This year, first-time directors filled just 31% of newly appointed NEDs roles, compared with 44% in 2022. The proportion of women among all first-time directors fell from 54% in 2022 to 45%, the findings showed. 

The government-commissioned Parker Review set a target for every FTSE 100 company to have at least one board director from a minority ethnic background by the end of 2021. FTSE 250 companies are due to meet the same target by 2024. As at 30 April 2023, Spencer Stuart found just six ‘non-compliant’ FTSE 100 companies.

Market capitalisations of the 150 companies involved in the research range from £505.2bn (Shell) to £1.9bn (Grafton). 

The research also highlighted the rise in the establishment of sustainability committees that consider risks relating to climate change, decarbonisation, human rights and labour standards, among other issues. This comes in response to regulators, investors and customers’ heightened focus on corporate responsibility.

This year, there were 55 boards (37%) with a committee to oversee environmental and social topics, nine more than last year, according to the research. 

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