Three Reasons the UK is Facing a Big Slow-Down for Women on Boards

By Melissa J. Anderson (New York City)

Six months ago, FTSE 100 and 250 companies were being commended on their efforts to bring more women into the boardroom. The first half of 2012 saw a big uptick in hiring women to director roles, with 44 percent of new board appointments in the FTSE 100 going to women. The FTSE 250 wasn’t far behind, with 36 percent of appointments going to women.

But toward the middle of last year, female board appointments dropped off abruptly, and now only 26 percent and 29 percent of board seats are going to women in the FTSE 100 and FTSE 250 respectively. Why the slow-down is occurring now is up for debate. But the Cranfield School of Management’s latest report [PDF] – “False Dawn of Progress for Women on Boards” – suggests a few potential causes.

In their introductory letter to the report, Rt Hon Maria Miller MP, Secretary of State for Culture, Media, and Sport & Minister for Women and Equalities, and Rt Hon Vince Cable MP, Secretary of State for Business, Innovation and Skills write that UK companies should maintain a strong their commitment to top-level gender diversity. “Our top companies need to continue to demonstrate that within this competitive, global economy, boards that have a better gender balance are able to make better decisions which can only lead to better performance. This can only be beneficial for individuals, for companies and for the economy as a whole.”

By identifying underlying causes of the slowdown, companies can develop new best practices around identifying stronger female board candidates and building a solid pipeline of talent to the executive suite and beyond.

Potential Reasons for the Drop

1. Distraction. Today 17.3 percent of board seats in the FTSE 100 and 13.3 percent of board seats in the FTSE 250 are held by women. Those are both a long way off from the initial target of 25 percent of women on boards by 2015 as proposed by Lord Davies of Abersoch in his 2011 report on the subject. The report suggests that, to meet that goal, a third of board appointments should go to women. What’s happening?

The first and most obvious potential cause for the drop-off in the hiring of female board directors is simply that perhaps the focus has shifted elsewhere over the past six months. The road to gender parity won’t just happen – it will require a sustained and concerted effort over time. It is possible that the public and the media’s attention drifted away from the subject of women on boards, and therefore, so did the attention big companies.

But, as we know, this is not a once-a-year concern. After all, Viviane Reding, Vice-President of the European Commission, has promised that if gender targets are not met, the answer will be boardroom quotas. UK companies and public figures have been some of the strongest voices against quota legislation. The authors of the report, Dr. Ruth Sealy and Professor Susan Vinnicombe OBE, write, “The only way the UK can opt out of it is to achieve the required level of gender diversity on boards the Davies way.”

They continue:

“We at Cranfield have stood steadfast against quotas on the basis that Chairmen must understand the benefits of gender diversity and commit to achieving it. Undoubtedly a number of Chairmen do get it and see a gender balanced board as the ‘new normal’. Unfortunately too many Chairmen choose to ignore the issue in the false hope that it will go away. Viviane Reding’s demanding legislation is on its way and it goes far beyond Lord Davies’ recommendations.”

Companies perhaps have lost sight of the consequences of not meeting targets – not only will their businesses suffer from a lack of diversity in thought, but they also face EU intervention if they do not keep up the hard work.

2. Pipeline. The report suggests that it doesn’t seem companies are making the necessary headway in developing a strong pipeline of women who are prepared for board service. In fact, the study showed that women in the UK are still finding harder to climb the ranks within one company than men do.

The researchers looked at women board directors in the UK who held executive suite jobs. About half (48 percent) of women directors in the study had been internally promoted to the job they had when they received a board appointment, while 52 percent had been hired externally. The researchers produced a matched random sample of male executive committee members, and found that 62 percent of men were internally promoted, compared with only 38 percent who were hired from outside the company. Sealy and Vinnicombe write, “This suggests that women find it harder to be promoted internally than men and in order to make the Executive Committee roles find it more necessary to move between companies.”

They also discovered evidence that gender diversity in the boardroom and the executive suite is linked. By focusing on pipeline diversity, companies can better prepare the pipeline of women they will need to meet diversity targets in the boardroom.

3. Homogeneity of Backgrounds. Finally, Sealy and Vinnicombe called out the lack of background diversity on boards all around. According to the study, almost all of the women directors had already held board roles in “other major companies, often on foreign listings such as S&P, ASX, OMX, or in the UK on companies registered on the Techmark or Smallcap listings, from a wide variety of sectors.”

Opponents of increasing gender diversity on boards have claimed that it would be too hard to find enough qualified women to meet gender targets in the FTSE 100 or 250. Therefore, they claim, women hired to these seats would be unqualified and could damage companies. In fact, this research proves that the women being appointed to these positions are experienced and well prepared to contribute in a meaningful way.

But on the other hand, there is not a lot of diversity in the background of these directors. Lord Davies had recommended that companies look “outside the corporate mainstream” for new directors, including “entrepreneurs, academics, civil servants, and senior women with professional service backgrounds.” There was not much evidence that this is happening.

Perhaps companies have already sought out the low-hanging fruit of women from the usual corporate background. If they were to broaden their ideas of what a board director could be, they may be able to raise the appointment proportions to the 33 percent advised in the report. In doing so, they would be better positioned to benefit from gender diversity and diversity of thought. They would take a step toward avoiding EU-imposed gender quotas.