The appointment of women to FTSE 350-listed non-executive director roles is being held back by selection processes which ultimately favour candidates with similar characteristics to existing male-dominated board members, according to a new report released today by the Equality and Human Rights Commission.
The report, produced by Cranfield School of Management, is the first in-depth study into the appointment process to corporate boards and the role of executive search firms (ESFs). It follows the recent Davies Review which called upon ESFs to take on a more active role in increasing gender diversity on FTSE boards.
The report reveals a recognition by many chairmen and search firms that gender diversity should be increased at board level. Search firms have introduced a voluntary code of conduct and had some success at getting more women on long lists. But when it comes to shortlisting and appointing, the candidates who are selected tend to be those who are perceived as “fitting in” with the values, norms and behaviours of existing board members, who are largely men.
Interviews with senior consultants at 10 leading ESFs in London, all signatories to the voluntary search code, reveal that search firms are beginning to challenge chairmen and nomination committees when defining briefs. In particular, this includes giving more importance to underlying competencies than “fit” with existing board members.
The research shows how selection of candidates based on “fit” and previous board experience rather than competencies is self-perpetuating as it works against women who have had fewer opportunities to gain previous board level experience. It also limits the ability of chairmen to broaden the range of skills and experience of their boards.
As well as identifying examples of good practice at ESFs, the report concludes that a more transparent, professional and rigorous approach to the selection process would allow chairmen and search agencies to appoint more female candidate and encourage more women to consider applying for roles as non-execs.
Baroness Prosser, deputy chair of the Equality and Human Rights Commission said:
“Research shows that diverse boards produce better performance. Many companies recognise this and we commissioned this report to support their efforts to improve the representation of women at board level. However, the often subjective way appointments are made ends up replicating existing boards rather than bringing in the talented women
who could bring real benefit to individual company performance and ultimately help Britain’s economic recovery.”
Dr Elena Doldor, Senior Research Fellow from the Cranfield International Centre for Women Leaders and lead author of the report commented:
“Our research shows that ESFs are more willing to play a part in increasing board diversity and we identified a number of good practices in the sector. However, we noticed that search firms tend to focus their diversity initiatives on the first stages of the appointment process. In the later stages of the process, which entails short listing and interviewing, there needs to be more effort from headhunters and chairmen to ensure that selection practices remain inclusive. It is at these later stages of the process that the focus appears to inadvertently shift from candidates’ actual competencies to the slippery notion of ‘fit’. Despite increased awareness of the need to diversify boards, there are still ‘default preferences’ for candidates with certain backgrounds.”
Helena Morrissey CBE, 30% Club Founder and CEO of Newton Investment Management said:
“Over the past eighteen months the 30% Club has been pleased to see evidence of considerable progress towards better balanced UK boardrooms. Today’s report suggests that more remains to be done around the recruitment process to further widen the choice of boardroom candidates, and as a result we expect the spotlight on this aspect of the issue to further add to the momentum for change.’
The report revealed a lack of consensus among search firms when it came to what qualities are sought in board candidates beyond their experience. This lack of clarity leaves room for shifting criteria and subjective judgement in the appointment process.
Whilst the research revealed good practice amongst certain ESFs, it also revealed a lack of consensus with regards to the appointment process. To tackle this, the report makes recommendations including:
• ESFs, as intermediaries in the executive labour market, need to set clear definitions as to what is sought from board candidates, beyond their experience.
• ESFs, chairmen and nomination committees need to review the interview process to make it more transparent, rigorous and professional.
• ESFs need to invest more time into developing relationships with women in the pipeline.
• ESFs need to carry out regular reviews of the effectiveness of the voluntary code of conduct