Tesco’s Chairman John Allan’s comment that white men on boards are becoming an “endangered species” threw the thorny issue of board room diversity back into the spot light at the weekend. Senior associate Stephen Roberts explores the details.
Mr Allan has made it clear that his turn of speech was intended to be humorous and that his comments were intended to encourage more women to apply for NED roles. While there are good reasons for believing that board diversity matters, the evidence suggests that progress in achieving greater diversity has been slow.
Does diversity on boards make a difference?
There is a clear consensus amongst commentators that it does. Diversity on boards helps to promote the constructive and challenging dialogue that effective decision making requires. It also engenders trust and confidence amongst an organisation’s stakeholders.
There is also plenty of evidence of a positive correlation between diversity on boards and a company’s financial performance. In their 2015 international review ‘Diversity Matters’, management consultants McKinsey & Company concluded:
- In the UK, greater gender diversity on the senior-executive team corresponded to a financial performance uplift: for every 10% increase in gender diversity, EBIT rose by 3.5%.
- Companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians.
McKinsey & Company acknowledge that the correlation (which went well beyond the two points highlighted above) does not amount to causation – greater diversity will not necessarily give rise to greater profits – but they do link greater board diversity with success:
“…the correlation does indicate that when companies commit themselves to diverse leadership, they are more successful. More diverse companies, we believe, are better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, and all that leads to a virtuous cycle of increasing returns.”
What progress has been made by UK Plc?
The current picture is mixed. Looking at the FTSE 100:
- Women now make up 26% of board directors. Although this is a significant improvement on the 12.5% figure from 2010, the increase in gender diversity has stalled in recent years. Also, women hold only 9.7% of the executive directorships and only 19.4% of the executive committee roles, so there is a real concern that the shortage of women in senior roles will make it difficult to achieve Lord Davies’ target of women making up 33% of boards by 2020.
- According to the Parker Review, in 2016 only 8% of directors were people of colour (compared to 14% of the UK population), with UK citizens of colour representing just 1.5% of the total director population. Over half of the FTSE 100 companies did not have any directors of colour. The Parker Review has set a target of every FTSE 100 company having one director of colour by 2021.
Some progress then (but perhaps not enough yet to suggest white men are an endangered species) and still much more to do if the Davies and Parker review targets are to be met.
For further information, please contact:
Stephen Roberts, senior associate, Corporate
T: 0161 836 7749