Roundtable march 2011

In association with

ICSA

March 2011Issued as a supplement to CHARTERED SECRETARY

A wider viewHow can we make boardroom diversity happen?

16 March 2011 ß Congress Centre ß London WC1

The age of accountability

The 3rd ICSA

CorporateGovernanceConference

6 hours CPD accredited: ICSA, Solicitors Regulation Authority, Bar Standards Board, PMI & ACCA

This year’s conference will examine what lies ahead in corporate governance following the work on the new UK Corporate Governance Code and other regulatory measures, and asking what it all means for corporate accountability and transparency. The conference programme will look in detail at the conclusions of the work on improving board effectiveness, and at regulatory moves from Europe.

Conference chair: Anthony Hilton, Financial Editor, London Evening Standard

Keynote speaker: Sir John Egan, former Chairman, Severn Trent Plc

Other speakers:Peter Butler, Chief Executive, Governance for Owners Lutgart Van den Berghe, Chair, Policy Committee, ecoDaAlison Kennedy, Head of Governance Engagement, Standard Life InvestmentsFrank Curtiss, Head of Corporate Governance, Railpen InvestmentsPhilippa Foster Back, Director, Institute for Business EthicsRichard Anderson, Deputy Chairman, Institute of Risk ManagementSallie Pilot, Director of Research and Strategy, Black Sun Corporate Reporting

Programme highlights Building better boards – The new guidance on improving board effectiveness is almost upon us. So what does it say?Hearts and minds – Is ‘comply or explain’ under threat from Brussels? And would that be such a bad thing, anyway?Practice, pitfalls and good PR – The relationship between good disclosure and good governance is key – but what should companies disclose, and how? Perspectives on stewardship – We look at what the new code means for companies and investors.

Supporting partners:Sponsor:

Don’t forget, ICSA Members and affi liates save a further 10% and ICSA students save a further 40% on the full conference price.

Secure your place today! Conference prices start from £330 + VAT. Contact the ICSA Events team on 0845 850 4272 or 020 7612 7032 or e-mail [email protected].

Find out more about this year’s conference and see the full programme at www.icsacorporategovernance.co.uk.

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» EditorialEditor: Rachael Johnson020 7612 [email protected] Editor: Gareth Pearce020 7612 [email protected] Graphic Designer: Mareike Schulz020 7612 [email protected] for editorial enquiries only:[email protected]@icsa.co.uk

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A wider viewThe fifth Chartered Secretary Roundtable discusses board composition, constituting a timely debate of an issue which is currently high on the political agenda.

Fundamentally, attendees acknowledged that progress towards greater diversity has stagnated, and that something needs to be done. With that in mind, there was strong support for quotas as an option that has the strength of purpose to challenge the status quo. Other alternatives, such as reporting on diversity and greater scrutiny of the recruitment process, were also considered.

The topic is a wide and varied one. As such extensive debate around it is required in order to identify an effective method to bring about change. In this context the roundtable discussion was very useful for airing what is a fascinating debate.

Welcome to the first Roundtable of 2011, which focuses on the very topical theme of board composition.

The Financial Reporting Council requires that boards consider diversity and composition. Within this supplement a group of industry experts explore why this is still an issue, why we do not have much diversity on our boards and finally how we can make this happen.

Diversity was deemed as being much wider than gender and caused some interesting viewpoints and opinions, which I hope you will find insightful.

Rachael JohnsonEditor of Chartered [email protected]

Wayne StoryChief Executive of Equiniti

In association withWelcome

This publication is printed by Warners Midlands Plc who are fully certificated to ISO.14001:2004. This is an internationally recognised standard of excellence in environmental management.

Hurdlepractice

In recent issues of Chartered Secretary we have made the case for greater diversity in board composition. The evidence suggests that having a more diverse board boosts the financial performance of a

company. In practice, however, change is proving slow to materialise. There must be barriers in place that are preventing change, but what are they and how can we overcome them?

With this in mind, the fifth Chartered Secretary Roundtable was held to discuss the topic of board composition. The discussion raised some interesting issues and opinions. Attendees thought that one of the reasons companies might be wary of appointing someone who falls outside the standard director mould would be the market’s reaction to such an appointment. It may be that companies are reluctant to cause a stir and frighten potential or existing investors. However, it was asserted that the idea that there is a certain ‘fit’ for a particular board, which makes some candidates more suitable than others, should be challenged. Such a notion is too vague and is often

Rachael Johnson considers possible solutions to the current stagnation in developing diversity in the boardroom, asking if there is more that the company secretary can do.

symptomatic of a board’s desire to recruit members in its own image.

The conversation naturally focused on the gender issue as the group recognised that because this issue is currently the most high profile, it might act as a catalyst that eventually brings change in other areas. The idea of quotas was met with more enthusiasm than they sometimes receive from other groups; there was an awareness in the room that ‘something has to give’. However, a word of caution was sounded in relation to tokenism, as the argument was made for more than one woman to be present in the boardroom. Indeed, the 30 per cent target was highlighted as a good yardstick to aim for, avoiding tokenism and acknowledging that not all women behave in exactly the same way.

Taking the right stepsOne of the key questions the group centred on was, ‘What can be done?’ Reporting was considered as an option. The argument for reporting was that it often drives greater behavioural change than any other solution, the argument against being that a requirement to report on

diversity might make reporting as a whole more compliance-based, rather than strategic. An alternative might be to consider a shorter tenure for directors, or to perhaps use personality profiling in recruiting directors, or at least have a more instructive relationship with the headhunter to make sure that the board sees all qualified candidates. Fundamentally, it was acknowledged that chairmen need help in making their boards more

Board composition

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diverse; some are not closed to the possibility, but need to be shown how it can be achieved.

Might there be a role for the company secretary here? Indeed, at the very least, the company secretary’s relationship with the chair should be such that he or she can advise on the benefits of diversity and persuade the chair to consider less predictable candidates. But perhaps company secretaries should be thinking bigger:

what is to stop them from taking on a non-executive role at another company? Their unique understanding and experience of boardroom procedure and function make them a perfect candidate. Perhaps this is

a question of widening ambition as much as anything else.

There was an awareness in the room that ‘something has to give’.

Rachael Johnson is Editor of Chartered Secretary magazine.

» About the author

In association with


Meet the panel1. Maggie HeasmanHead of Corporate Affairs, Chartered Institute of Management Accountants (CIMA)In addition to her role as Head of Corporate Affairs at CIMA, Maggie is the Membership Secretary of the Association of Women Chartered Secretaries, an ICSA Members group, which aims to provide professional support and networking opportunities for female ICSA Members and students.

2. Janet CooperPartner, Linklaters (Chair)Janet has been a Partner at Linklaters, a global law firm, for 20 years, and has been one of the longest serving global practice heads. Janet sits on a number of boards, including UNWomen, which is the United Nations organisation that works to empower women globally.

3. Susan HendersonCompany Secretary, Smith & Nephew Susan Henderson MA FCIS has 25 years’ experience as a company secretary in a wide range of businesses, covering board support, corporate governance, corporate transactions, share registration, listing obligations, corporate social responsibility, pensions, insurance and employee and executive share plans. She has held various company secretarial positions, including Deputy

Company Secretary at Amersham for five years prior to its takeover by GE in 2004 and at Prudential for four years. She joined Smith & Nephew in May 2009 as Company Secretary.

4. Peter SwabeyCompany Secretary and Industry Leadership Director, EquinitiPeter is the external face of Equiniti and responsible for the development and support of all the share registration and corporate governance services offered by the company to its clients and their shareholders. This includes the company’s engagement with market, government and regulatory contacts; representing registrar and issuer interests on industry bodies; and managing Equiniti’s responses to formal and informal consultations. A history graduate, Fellow of ICSA, and member of the Investor Relations

Society, Peter has worked for more than 25 years in the share registration industry. Peter is Chairman of the ICSA Registrars Group, and is a member of the Company Secretary’s Forum, the CBI Companies Committee and the Shareholder Voting Working Group. He is a regular speaker at industry conferences and events, with an industry-wide reputation as a technical expert on shareholder and corporate governance matters.

5. Julie BamfordJoint Head of Policy, Corporate, ICSAJulie Bamford recently joined ICSA as Joint Head of Policy, Corporate. Prior to that, she spent six years with Standard Chartered as Deputy Group Secretary. She has more than 20 years’ experience working as a Chartered Secretary in the financial services sector, initially in life assurance and pensions, then in investments, before

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Board composition


moving into banking. During this time, she has experienced many challenges in the financial services industry, from pensions mis-selling through to the very recent banking crisis. She has also worked through the many changes in the regulatory environment and to corporate governance best practice that followed. Julie is a Fellow of ICSA, has a first degree in law from the University of London and a masters degree in Corporate Governance.

6. Peter WaineDirector, Hanson GreenPeter has worked for manufacturing companies and professional firms, both as a director and a non-executive director. A former CBI Director, he acquired Hanson Green with Barry Dinan in 1989. He is co-author of The Independent Board Director and Takeover, the business novel, and author of The Board Game.

He is a former visiting Professor at both Warwick and Cass Business Schools. He is currently National Chairman for the Campaign to Protect Rural England (CPRE).

7. Lorraine Young Chartered Secretary in Public PracticeFollowing a long career in the City, Lorraine set up her own company secretarial practice in 2003. This provides individually tailored and flexible advisory services for a variety of client companies. Lorraine is a policy advisor to ICSA and a facilitator for its board evaluation service. She is a regular speaker for ICSA training courses and writes for Chartered Secretary magazine. Lorraine has over 20 years’ experience as a Chartered Secretary, including as Company Secretary at Brambles Industries and Head of Secretariat at Standard Chartered.

8. Robert ArmourDirector, David Venus & CompanyRobert Armour became a Director of David Venus & Company last year, joining the practice after many years as Company Secretary and General Counsel of British Energy Group plc, a FTSE 100 company until its acquisition by EDF SA in 2009. Following a career in private legal practice, Robert spent almost 20 years as company secretary of significant companies in the energy sector and has experience of the issues facing any company secretary sitting round the board table or acting as a director of regulated businesses. Robert was in-house counsel of the year in 2005 and awarded an OBE in 2007 for services to the electricity sector. Based in Edinburgh, Robert chairs the Scottish Council, Development and Industry and is an advisor to Equiniti and EDF Energy.

9. Caroline EvansDirector, CSSCaroline is Director of CSS, the specialist company secretarial recruiter, and its parent Beament Leslie Thomas. Her early career was as a tax consultant with two of the ‘Big 4’ firms, before she moved into recruitment. Initially specialising in management consultancy appointments, she transferred to lead the team at CSS some ten years ago. Caroline has a particular interest in the growth and development of company secretaries and is committed to raising the profile of the profession at the highest levels of the business arena.

10. Kerry PorrittDeputy Secretary, Severn TrentKerry qualified as a Chartered Secretary and initially worked within the investment banking industry. From August 2003 until December 2006, she was Deputy Company Secretary of Brambles Industries, a FTSE 100 global support service provider with an Anglo-Australian dual listed companies structure. Since 2007, Kerry has held the role of Deputy Secretary of Severn Trent, a regulated FTSE 100 utilities group. In 2010, Kerry was appointed a Court Assistant to the Worshipful Company of Chartered Secretaries and Administrators.

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In association with


A wider viewWe know that greater diversity of board composition makes sense, so how can we make it happen?

Janet Cooper: The topic for today’s roundtable is diversity on boards. The Financial Reporting Council (FRC), in its UK Governance Code now requires that boards consider their diversity, looking particularly at gender. Why is this still an issue? Why do we not have much diversity on our boards and particularly lack women on boards?

Peter Waine: I think there’s still not enough women, even at the executive committee level, to consider. Even if one’s going for the plc, the sort of corporate entity, taking diversity one step further from the traditional cadre of talent. The graduates have been coming out 50/50 for many years. But somehow there’s not enough people for headhunters to put forward. I feel that the vast majority of companies would like to have more women on their boards. It comes down to whether we can offer them the right quality candidate.

Robert Armour: I think that Cranfield said in its report that there are about 2,800 women at the next level.

There’s probably about 30 per cent female representation on executive teams and 12 per cent on boards. Somehow women haven’t passed the threshold into the boardroom. I think this may be partly due to other factors, such as boards looking for people who are already on major boards. It’s been a very slow evolution so far in increasing the proportion of women on boards.

Peter Waine: There aren’t enough people on current plc boards, especially the executive side, to satisfy the non-executive requirement. Therefore they are having to look below main board level. I think diversity will help to break that rather cosy feeling that boards have, like a little club with the same members. Plc main boards are now rather small as far as the executive is concerned and they can only have one non-executive position while they are still currently an executive. I think they’re not just going like-for-like within their own cadre of plc main board.

Board composition


Relevant experience

Janet Cooper: So what’s so special about being on the main board that’s essential to becoming a non-executive director?

Peter Waine: The buck does stop at the main board in a plc structure as far as strategy and budgets are concerned. I think it’s a concentration in the plc structure at least that makes it difficult for people outside that structure to understand certain elements of a board’s agenda. Which also means that you’ve got to be a generalist rather than represent each function. There’s quite a lot of psychological difference as well.

Janet Cooper: Looking at the availability of talent out there, do companies look at the public sector, where people have run very significant departments and where there tends to be a slightly broader, more diverse group of candidates?

Lorraine Young: I’ve seen several boards which have former male civil servants on them. Such people can be very sought after, particularly those from the treasury. But I’ve not seen this as much with female civil servants.

Susan Henderson: If you look at the age of people who would be suitable as non-executive directors, they’re probably in their 50s. Although there is a 50/50 split of graduates now, if you look at the split of graduates say 30 years ago, when these 50-year-olds were coming out of university, that split would have been a lot different. There are other issues, such as that some women will drop out to do other things. However, that still doesn’t get back to 12 per cent being a sensible number.

In terms of diversity being more than just a gender issue, I think that looking at public sector is valid. To get a proper balance of board members you will want some members to have had that range of plc experience, so that they understand the difference between a big division and the listed company environment. It is also valuable to have a wider balance, with say people from the public sector who look at some things and say: ‘You’re looking at it from a listed company perspective, but actually I’ve got a different perspective, which may also be relevant.’

Janet Cooper: In terms of the companies that you’ve worked for, do you feel there was a supply issue, that there weren’t enough women or people from different backgrounds available to be promoted within your organisation or to get external, senior appointments?

Robert Armour: I think there are two things to consider. In many cases there are good women on the executive management team. But they may be in roles which traditionally don’t go forward to the main board, such as HR Director. Perhaps it comes back to the fact that there are a limited number of executive slots and a reluctance to put people below main board level onto other boards or to

encourage them in that direction. Another factor to consider is what the reaction to an appointment will be. How will the market react to an appointment; how will the financial press react? Companies will want a wow factor which prompts people to think: I know that person, I know their track record, they’re going to be a well-received addition. That sort of person is often a safer choice.

Kerry Porritt: I agree with that, certainly from what I’ve seen in the guidance coming through. It’s very much around looking for people who have got sector experience. I think sometimes it’s difficult for people to look outside a particular remit, especially in financial services at the moment. That makes it hard for people to say: are there other people out there in the public sector or in public service, such as judges, who are sufficiently challenging and who have a different mindset that would be a good fit around the board, because these people may not have the right experience of the plc sector.

Peter Waine: We make about 100 appointments a year, which we’ve been doing for over 20 years. I don’t think we’ve placed a single civil servant, nor has it been requested, nor have we been able to push for it, despite the talent that there is there.

Lorraine Young: Why do you think that is? It does seem, from reading the papers recently, that people are trying to pull back on the size of their boards. And you can understand that, but I think that could actually count against diversity. You know they want somebody who they perceive as safe, that they can be confident in, and this is the reason why the executives want someone who can hit the ground running. They’re less inclined to say, well they’ve got suitable personal qualities, as you might have said about the civil servants. They’re not willing to put the time and energy in to train them, or to take the risk that they might fail.

Susan Henderson: I would like to ask Peter; do companies say, ‘we’re wanting somebody that’s been the chief executive or COO somewhere’, or do they specify that or do they specify the qualities they should have. For example, someone who is going to be challenging or with a wide range of experience’?

Peter Waine: Yes. It’s experience of having been on the main board that they are looking for, rather than necessarily having been Finance Director. They need to be financially competent, although there are a few non-executives who aren’t as financially competent as you might assume, having been on the main board. I still think that’s a problem. But no, they don’t tend to say they want a chief executive or former chief executive. In fact we would often caution against a current chief executive, because they are so busy at that stage, running their company and they’re not shrinking violets. The combination of the two makes it quite difficult for them to adjust within three or four hours to becoming a non-executive.

In association with


Julie Bamford: We hear the term ‘fit’ a lot. However, there’s a feeling that maybe boards need to change their thinking. Major investors always comment on appointments and like to see a ‘track record’. Headhunters tend to follow the company’s lead, which they should avoid doing, so that boards don’t automatically get what they think they want. There should be more of a discussion around board composition, to broaden people’s thinking, because this question of ‘fit’ comes up all the time. And nobody can ever quite pin down what they mean by ‘fit’. It always seems to mean that the idea they’ve got in their head is of someone like themselves. Everybody needs to get together and broaden out their thinking on this.

Peter Swabey: It often seems to me that perhaps somebody who doesn’t ‘fit’ is actually more appropriate.

Lorraine Young: It’s back to the ‘groupthink’ problem.

Julie Bamford: Yes, in many ways diversity means ‘not fit’. The two terms are contradictory.

Peter Swabey: For me, awareness of board diversity may develop with the requirement for external board evaluation, making that requirement quite positive. There will be greater

concentration on evaluating the effectiveness of the board, which may make people see that they don’t necessarily need what they traditionally thought they needed.

Peter Waine: With some of the board evaluation exercises that we’re currently doing, there has been a sort of reflective moment by the board or by the chairman on what is really needed. Sometimes we find boards are saying that they don’t really know each other. They meet at nine o’clock, and finish at three. It tends to be the global companies whose boards actually know each other because they travel together. I think that there’s a need for companies to bond and understand each other and spend more due diligence on chemistry and corporate cultures.

Julie Bamford: I think that when a lot of executives first go onto the board that is when they may have real difficulty focusing on the whole company, rather than just their own area of operational responsibility. Some training would help; directors have induction training when they come on the board, part of that should focus on their legal responsibilities. To dismiss people who haven’t had board responsibility in the past is, I think, a bit narrow.

QuotasJanet Cooper: When Norway looked at this in 2001 they introduced a quota to get 40 per cent of women on boards and they found a supply very quickly. This was because, if they didn’t, their companies would be liquidated within two years. No company was liquidated, because they all complied. Does that mean that Norwegian companies are now operating at a suboptimum level because they don’t have the right talent onboard, or was the talent actually there when they went looking for it?

Peter Waine: I don’t like quotas; I think they’re going to be counterproductive. I know something needs to be done to smash this glass ceiling. Certainly a number of our appointments have been women and the number of boards that are asking for women is increasing. I can’t believe that companies have been so naive as to not seek talent wherever they can find it. It’s just that they haven’t been flexible enough or open-minded enough to take one or two women onto their boards. In a small economy of a country like Norway the standard must have dropped and that is not good for really talented women.

Janet Cooper: I’m not aware of any research showing anything yet, because they say it’s too early to identify whether it has had a positive impact on performance.

Caroline Evans: I’ve read that Norway has exceeded its quota, which suggests that the quota has created the opportunity to view potential board members in a different light and to assess them differently. Maybe the mechanics of assessing someone’s suitability have to be altered.

‘ Do companies look at the public sector?’

Janet Cooper

Board composition


Kerry Porritt: I agree that it’s too early in the cycle to produce any results as to whether the quota’s working. A second interesting point is that getting one woman on the board tends to be quite ineffective, because that person is always seen as being a female representative, or the ‘woman director’. Having two or three women on a board of, say ten, is far more effective because then they become part of the usual debate; they’re no longer seen as the token. Although I don’t agree with quotas, in going to 30 per cent, you do away with the idea of the token woman on the board. I do wonder whether that’s going to have a positive effect in Norway, because they have more than 30 per cent, rather than just the one woman at the table.

Peter Waine: But even having one woman on a board does change the logistics, the dynamism of that board. That’s the feedback we get. I still feel that a more subtle approach can be more effective. In the UK corporate scene that’s not quotas, but what’s been hinted at: quality induction. Not just a half-day, but over a whole year in different formats. The attitude of the chairman of that board is also important, because after all it is his or her board. That can make a huge difference to the remit and the instruction that people like ourselves are given and the effectiveness of the appointment.

Kerry Porritt: I think that talking specifically around gender and the diversity of boards could be a potential red herring. We all know as women sitting around this table, that we’re all different and we work in very different ways. It’s not always the case that if you have just one woman around a table, that she will work differently to the men. If she happens to have a lot of male characteristics, actually she won’t. That’s not because she’s a woman, it’s because her traits are that way. So actually, in the same way that five men around the table will all act completely differently because they’ve all got different characters, I think it’s quite generic to say that a woman has to act ‘like a woman’.

Julie Bamford: I think you’re right. Bringing diversity to the board is as much about diversity of thinking. An example is appointing a lawyer to an audit committee. A lawyer comes with a different perspective and thinks about things in a different way. It’s the different ways of thinking that boards need.

Caroline Evans: Peter, when you said that when a woman comes onto a board things start to happen differently. Is that received as positive feedback?

Peter Waine: Completely positive, if the women come to the board as themselves the feedback is that the board will be different. It’s perceived to be different even before the appointment’s made. If the women that we have placed on boards in the last 12 months were here they would say, don’t get hung up about this, or worry about that, you’re thinking too academically, too subtly. We’re actually on a board and I can see how things are beginning to change

and I’m on your side. I’m a woman, on a plc board and the shareholders seem to be happy – there’s a much more promising story to tell.

Lorraine Young: Maybe you touched on something there – there’s a lot of fear out there. What you said about changing the chairman struck me. How do you do that? I’ve changed my mind a bit in my answer to that. I started off in the camp of let’s not have quotas; we’ve all got to get there on merit. But actually if quotas are imposed after this call for evidence it may not be such a bad thing. If you look at the numbers and how long it’s taken us to get not very far, what is it that’s going to change the people that run boards to make them come out of their comfort zone and choose different people?

Julie Bamford: As you say, the mechanics of the appointment process are important here. If we go for quotas we may have a couple of years of disruption and then things will settle down, because the culture of boards will change. What they are looking for will change. What they see as ‘fit’ will change. The momentum will build. I don’t have a strong view either way on quotas, but I can see the argument for them.

Robert Armour: I think you’re right. Personally I’m in favour of quotas. I think the European average is about 12 per cent; it’s not that far off ours. I read that it would take, at the current rate of progress, 70 years to get to parity. We’re not going to get there in a reasonable timescale without some pressure. Whether you go with the Norwegian model of 40 per cent or not, it seems to me that you may need to take a leap of faith. Part of the reason you want diversity is to avoid groupthink. I think that part of the problem is that there’s groupthink out there that says, ‘we can’t take the risk of widening board composition, if we widen it from the collective usual suspects we are going to dumb-down the board.’ Actually you’re going to change things, but it’s that leap into the unknown, which is seen as risky, but which may not actually be any worse than the current situation. Most surveys of the UK population find that they would like a more gender reflective board structure than we currently have.

Julie Bamford: That’s important as boards have to reflect their customer base. If they haven’t got that thinking at board level they become detached from their customers.

Janet Cooper: The Catalyst survey in 2007 said that companies with more than three women on the board outperformed others by 83 per cent. In terms of the fear of appointing people who may not tick all the right boxes, those companies that have taken that ‘risk’ now seem to be outperforming as a result. How do we improve the talent base, so that this fear can be removed? Do you think initiatives by Centrica, Unilever or Vodafone, who will always put a woman on the shortlist for senior executive appointments, are going to improve the talent base?

In association with


Caroline Evans: I think the talent is there but that it may be dangerous to put a woman on a shortlist in order to fulfil a requirement. I think the measures of talent and the professional development programmes should all be looked at and perhaps altered in order to make them fairer across a more diverse range of equivalent, but differently manifest, talent. The ‘traditional’ talent is readily measurable against ‘traditional’ criteria; the diverse group should be measured differently. Perhaps we need to be more sophisticated in the way we measure people’s capabilities and potentials.

Peter Waine: I think that the Unilevers and the Vodafones will have a huge female talent pool. Perhaps some of the companies at the latter end of FTSE 250 may not have the sufficient depth and variety of talent because they won’t attract that number of world-class people. Even at board level they only have one or two real stars. Unilever and similar organisations will get the best from universities and should keep most of them. I think their trouble is that they have too much home-grown talent and not enough diversity of experience. So they think they’re doing well compared with internally set yardsticks, but the competition isn’t standing still. That makes their people pretty useless as non-executives elsewhere, because they say the only way to do things is the Unilever way of doing things, which is not the case. So it’s not quite as crisp and as neat as sometimes the arguments or the articles convey.

Janet Cooper: It seems a powerful step forward, that the chief executive or the chairman in these firms has been saying, right we’ve got a lot of women at the lower level, but virtually nothing at the top of the pyramid. But the process that they are using to get people to the top won’t equip them with the right talent to be moving into other businesses.

Confidence Maggie Heasman: Is there something to be said around the fact that women don’t feel they can do it? That they stop at a certain level and they’re not encouraged further. Perhaps they’ve gone through an education system where, if you’re in your 40s or 50s, you’re not encouraged to progress up the ranks and so you don’t feel you can do that. You’ve got the talent, but no one has ever encouraged you. So you hold yourself back.

Lorraine Young: I think confidence is a huge factor. When I ran a department and was recruiting company secretaries I found that you could interview a woman and a man who were reasonably equally qualified, but, in general, the woman would be far more modest about her achievements and what she could do, than the man. Yet on paper the woman may have been better, or the candidates would have been at least the same.

Janet Cooper: Do you feel that women are not putting themselves forward; that they’re waiting to be asked?

Robert Armour: Of the people who come to you, Peter, asking to be considered, how many are women? If they don’t come forward by themselves, how do you find female candidates? Because taking Maggie’s point, if they don’t put themselves forward because they think they’re not going to get through and the statistics say there are less jobs for them, then they’re not going to try, in case they fail. It’s a vicious circle.

Peter Waine: A number of people do write in. Secondly we get chairmen and non-executives who say, I think this person on our board should be considered, which is very useful. They’re not always recommended from their own board even, they could be recommended from a board that they’re also on in some other capacity. We do back certain candidates we believe passionately in. Sometimes we add them to a list and say, they’re not quite right for your direct specification, but they should be considered. They tend to see that extra one, because it’s pretty pointless for us to propose that person unless there’s some real benefit.

Robert Armour: Would that extra person you put forward actually be somebody appropriate from a diversity angle?

Peter Waine: I was thinking mainly about women in that particular category. But actually it’s not only women; nor should it be. You talk about lawyers, especially within regulated industries. I still find that financial services is a big, big problem when it comes to having a genuine desire to have a balanced board. But certainly lawyers are very good for regulated industries, the utilities and so on and we’ve made some exciting good appointments there. In turn that’s helped that candidate to broaden into a more general portfolio of non-executive positions outside regulation.

Reporting and the nominations processJanet Cooper: In terms of the nomination process, how are the specifications for these board positions put together? Are the required characteristics predominantly male, so that it’s a self-fulfilling prophecy that a man will be taken on?

Peter Waine: I don’t know. Being a man, I’m not sure if I can see through what is actually presented to me sometimes. I’m not aware that they’re doing that. But I am aware that they’re wanting, where possible, a woman on the board; it’s definitely what they’re asking for. It’s inordinately slow, but I do believe the momentum is there.

Susan Henderson: When I went to New York, I went to Ellis Island, where they had processed everybody coming into the US. The tests they had used to decide if you were an acceptable person to live in the US tested aspects that were completely alien to people coming say from a rural Eastern European society. They now recognise that the kind

Board composition


of questions they were asking were unfair, because they were not taking account of a different range of skills and experiences. I wonder if there’s something like that going on subconsciously in the process of board appointment.

Julie Bamford: I think this links in to what Maggie was saying that women who are in their 40 and 50s now may not have been brought up to push themselves forward and to strive for those kind of careers. They’re also dealing with men of that same generation, who were brought up to see women in this way. Often they don’t realise how they are thinking, what they are saying, or what they’re doing.

Janet Cooper: In terms of the FRC UK Corporate Governance Code, which says you need to describe the nominations process in appointing new directors, are you going to be putting more information about the nature of the nomination process in your reports this year?

Susan Henderson: I did it last year. We had two new non-executive appointments. We were looking for one to take over as chairman of the audit committee. The headhunter said to us: ‘here are some audit committee possibilities, but there is somebody else we think you should see as you’re a scientific company and innovation is your thing. This person comes from a scientific background. That person was a woman, who brought diversity along with an innovative, scientific point of view, without the conventional financial or plc listed background. She’s brought diversity when we weren’t specifically looking for it, but we were open to the suggestion. It is important for a board to define what it is looking for, but also to be open to something else as well.

Janet Cooper: When you appoint women to the board, is one of the first committees they join the nominations committee? Doing that might enable us to try and break down this tendency for people to appoint in their own likeness and to accelerate the consideration of diversity in the recruitment process.

Susan Henderson: I tend to see nomination committees composed of people that have been on the board a bit longer, who know how the board works.

Robert Armour: I don’t think people say, right we’ll put a woman on the nominations committee, as such. You have your list of non-executives and you sit there and say, how am I going to allocate them? Let’s start with the chairs for these committees; have they got experience of that particular field? Then how do I divide them up to get the right balance of skills and approach? By the time you’ve got to that stage you know the personalities around the table, so you know how they’re going to fit.

Julie Bamford: I think your point on reporting is very important. Companies should report on their nomination process. This links into the evaluation process and focusing on this issue as part of board evaluation. Reporting tends to

change behaviours, so the more reporting we can have, the better, perhaps with companies setting internal targets and reporting on how they are working towards their goal.

Janet Cooper: If one of the outcomes of Lord Davies’ committee is that there will be more reporting on diversity, throughout the organisation, this will fall within your remit as company secretaries. Do you think that level of reporting would be a good thing?

Kerry Porritt: Although reporting is a good thing that can drive a change in behaviours, I think there is a problem with that approach. From my perspective, the danger is that the more obligations of this kind that come along the more likely it is that corporate governance will become very compliance-based, instead of being very strategic. The ICSA guidance says that the composition of the board is the chair’s vision and the chair should be feeding that into the nomination committee. If the chair’s vision isn’t a very good one, or if there isn’t a process in place to define how the company should align board composition to its strategy,

‘ There’s a lot of fear out there.’

Lorraine Young

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then I don’t think the nominations procedure will ever really change. I also think we should consider the terms of usual employment. If you appoint somebody to the board, they’re usually on there for at least three years, maybe six years or even nine years. How do you know you’ve got the right person? It’s usually within the first six months that you know if it’s working. Maybe personality profiling is something that the whole board needs to undergo, or maybe there is a need for probation periods and coaching. Currently there is induction and development, but is that enough? I wonder if the appointment and retention process for directors on a plc board is too one tone.

Peter Waine: If we’re not careful, with all these reports, corporate governance will become an industry; an end in itself. I think that’s where you, as company secretaries, play a huge role. When I talk to chairmen, the successful boards are those where they don’t have to say, ‘we spend a lot of time talking about corporate governance’, because they’ve got a good company secretary who tells them exactly what needs to be done. I think that’s a very powerful relationship between the company secretary and the chairman; even the more liberal, open minded chairmen need help. I think it is important to emphasise chemistry but I think that profiling would be a bit too difficult for some chairmen to take.

Robert Armour: There is something in looking at the process that’s important. The public sector has a much better balance of appointments, with almost 50 per cent of boards chaired by women. Why is that, compared to the process for corporate boards? Looking at the differences, most of these posts are publicly advertised. There’s a fairly strait-jacketed process to public sector appointments, set by Government bodies. Sometimes that is frustrating, but nevertheless it has achieved a result which is overtly fair. In many ways the corporate appointments tend to be less visible.

Peter Waine: When we make public appointments we are asked to advertise as a parallel exercise. Not once have the people from the advert got onto the shortlist.

Caroline Evans: I think what you say is interesting: if you had a public sector appointment and were not allowed to contact anyone except via the advert, do you think you would have had the right people coming through?

Peter Waine: The answer is, we wouldn’t.

Caroline Evans: I think there is a middle ground in recruitment between the hearts and minds and knowing the ‘right’ person and having mechanical systems in place that encourage you to widen the net, so that you get a different perspective, but still maintain the quality. It’s in there somewhere, but I don’t know who takes the lead on that; all of us probably.

Janet Cooper: This idea of making non-executive director appointments more public was discussed at Cranfield’s

launch of its report in December last year. It was suggested that these appointments should be on a website or at least become more public. One or two companies thought that was a good idea. Do you think doing that might add value in bringing out more people who will put themselves forward, or will it actually just cause more work?

Caroline Evans: I think it depends on how the applications are reviewed and whether people look at them in the traditional light or look at them in a slightly more lateral light. If they are looked at in the traditional light then perhaps the end result will be the same. But if the process of sorting is adapted, then yes.

Kerry Porritt: You could put the advert wherever you like really, couldn’t you? But unless that advert is asking for the right things, you’re never going to find the right candidates to review and, in the end, get the required mindset. You need to ensure that the advert fits with what you’re actually looking for.

Action planJanet Cooper: What do we think businesses need to do, or the Government needs to do, to try and move this diversity issue on to the next level? We can’t carry on doing what we’re doing, with 12 per cent on the FTSE 100 and 7 per cent FTSE overall with women on boards. How do we move this forward if quotas aren’t the answer?

Robert Armour: We haven’t really talked about minorities, disability or international experience. It’s much easier to tackle gender as you can tell men and women apart; it’s much harder to enforce a quota for international experience. Perhaps different approaches to different aspects of this problem would work best.

Peter Swabey: The requirements of each board will differ, depending on the company.

Lorraine Young: I’ve found that on some boards, where I’ve done board evaluation, they seem to have a pretty good handle on their strategy and the kind of skills and experience they need in a general sense. Although with one evaluation that I did, honestly I think that if there were 10 or 12 directors there were 10 or 12 suggestions as to what they needed to do about the next board appointment. If they’re only a small UK company operating in the UK, the international experience wouldn’t perhaps be relevant for them, unless they are wanting to expand. A lot of them are quite good at linking their requirements into their strategy. The gender issue is perhaps just slightly different. Maybe that fits into what you were saying about disability and other areas. There are almost two kinds of diversity, aren’t there?

Janet Cooper: Yes. Gender diversity is much easier to monitor and measure, because it’s very obvious. Everything

Board composition


else is harder to define, which makes it harder to measure. If we want a more diverse board, which is more representative of customer base, gender is a factor. How do we move the argument forward, to achieve better diversity?

Robert Armour: Most boards could measure diversity. Our companies measure ethnic diversity in the workforce and could, if they wanted to, publish it. Public sector appointments always ask about sexual preference and ethnic background, so we could do it if we had a mind to. But maybe that’s not necessarily the right approach. Maybe the question should be more about the skills that the board needs. The point of bringing different groups in is to avoid groupthink, where everybody comes from the same angle because they’ve come up through the same industry with the same training.

Peter Waine: We’ve got to be careful about trying to fight on too many fronts simultaneously. We might find some chairmen who are very willing but who feel that they’re having all this thrown at them. Let’s pick one or two really significant things and go for them, instead of this right across the board approach; that’s not the way forward.

Flexibility

Janet Cooper: So what are the steps we need to take?

Kerry Porritt: We need to look at a lower level in the organisation. If women in their 40s and 50s are a bit backward at coming forward, then let’s look at women in their 20s and 30s. How do you push them, change their expectations, make them want to go forward; how do you build the networks? How do you make sure, as a corporate, that you’re talking to other corporates so that these women are gaining relevant experience so that when they get to their 40s and 50s they can make that move?

Julie Bamford: I think we should recognise people that are in their 40s and 50s now. Organisations need to value people who don’t shout loudest about their achievements. If a department does well, a man in charge may say, ‘I did this’ whereas a woman is more likely to say, ‘We did this – as a department.’ Organisations need to shift their thinking, so that the people who are quietly doing very well get noticed as well as the ones shouting about their achievements. I don’t think women are saying they don’t want to be put forward. Talented women are there, they’re just trying to be recognised in different ways.

Peter Waine: While talented women are definitely there and there are enough to make a huge difference to the diversity on boards, I think your comment is slightly too hopeful that your generation of women, if they’re looked after and given more confidence and confidants and mentored, are going to be different from the previous generation.

Maggie Heasman: Often women still do have to look after the family, so they don’t have the time there to take on these extra responsibilities.

Peter Waine: It’s back to this very important point of confidence.

Kerry Porritt: It’s got to be about choice. A lot of the most successful female business people in this country are entrepreneurs who start businesses from home to accommodate childcare. I think it would be wrong to say that every woman who decides to stay at home with children should then be pushed back into work. However, I know that companies like Deloitte for example have very good mentoring, where somebody has got a partner who keeps them in touch with what’s going on and helps them through that transition back to work after children. There are bigger firms with the scope to be more flexible in how they approach women and careers and childcare. But I think that for smaller companies it’s quite a big ask.

Caroline Evans: I think there’s two things on that. I think one is that amongst SMEs and smaller businesses, the

‘ Reporting tends to change behaviours.’

Julie Bamford

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success rate of women-run businesses is much higher. Now that suggests that women don’t need the status and the structure and everything else to feel they’re being successful. Perhaps a lot of the big corporate environments make it harder to feel confident and successful, perhaps it’s more isolating. I think at every stage women or any minority needs a mentor as well. As agents we need to support, mentor, sponsor and push forward people or empower them by saying; you might think you’re here, but actually I can see comparable people and actually you are here, you’re better than you think you are. So there’s a lot that can be done. I think perhaps it’s a power struggle that maybe women just don’t want to waste their time on.

Peter Waine: That’s a very good point, because I think women can’t see the point of company politics. They just think that talent, per se, should get them there. And yet there are company politics.

Janet Cooper: I think part of the issue is that they don’t know when to come forward. They don’t feel valued; they don’t feel their skills are actually worth anything.

Caroline Evans: There is also perhaps a perception of rigidity. They’ve perhaps gone down the entrepreneurial route because they can manage their life as they want to. Why would you want to step back into a corporate, having liberated yourself from that kind of structured working environment? These people are crucially valuable in terms of their skill set.

Peter Waine: They’re just as valuable as the Unilever person who has been cocooned and has never been in the outside world in a way. Whereas this woman entrepreneur has had to try and work out where she is going to find, A, the time and, B, the money to pay the next stage, those Unilever people have never had that experience.

Caroline Evans: That’s interesting. You’re saying that you couldn’t take someone from a big corporate out and put them in an entrepreneurial environment, but potentially what we’re saying is, you could take an entrepreneurial achiever out and put them in a big corporate.

Peter Waine: I think you can in certain cases and you could do more if we’d all think it through a bit more carefully. But it’s not just a neat automatic process though.

Robert Armour: I think Kerry’s bottom-up approach has got to be combined with the top network which says, we’re actually going to do a message from the top that the culture, the tone of the organisation is going to encourage a better gender balance. We are going to create more role models and more opportunities. That in turn probably goes to raising confidence and courage in saying, ‘right, I’ll put myself forward because I can see a chance to succeed rather than a chance to fail.’

Caroline Evans: I agree entirely, but what about generation Y? Talking about diversity, is generation Y going to want what we’re aiming to achieve, will that generation of women actually want it? A female partner in a strategy consultancy has recently commented to the effect that: I’m glad I’ve done it my way, but I’ve got a daughter and I don’t know if she’s going to want this. So are we trying to achieve something that, by the time we’ve achieved it, generation Y is going to say, no thanks!

AgeRobert Armour: This makes me think of another diversity issue: age discrimination. We tend to put people over 50 on the board. You can get some very talented, able and energetic candidates in their late 30s, early 40s. It’s quite difficult to spot them and sometimes it seems a risk. But actually, you know, one of the things... the groupthink that we are trying to counter, often derives from the fact that everybody’s in that 50 to 65 age bracket.

Peter Waine: I think that’s changing. We’re finding that, increasingly, people have had a lot of exposure by the age of 45 and their companies are very willing to have one non-executive position of that age because they realise that no business problem is unique.

Kerry Porritt: There was a very good book published about ten years ago now, called Funky Business, by Jonas Ridderstråle. His argument comes back to your generation Y point, that there’s a lot going on in the world and people now have so much choice. His quote was: ‘Sameness sucks.’ The thing that’s making people invest in companies, buy from companies, do business with companies is diversity. And actually, he could foresee in the future that it will come down to having a connection with the people who were leading these organisations. I think that’s still really relevant today. I think you need to be looking on a much bigger scale than just gender diversity to say: ‘How are we going to attract generation Y into our organisation? Do we do things differently? Do we look at things differently to get them to come in and buy into whatever the brand is?

Caroline Evans: I think, yes, and I think the need to do so is reflected in hard commercial terms, isn’t it? If board-involved women are performing better then there’s an investment decision for everyone to make; whether to buy shares because there’s a woman/women on the board because you think it is their presence that is making the company more successful.

Time to step upJanet Cooper: Is there a supply issue, that there aren’t enough talented people from diverse backgrounds who are available to take on these board appointments? Do

Board composition


we agree with that? Is there an issue? Or are there some really talented women and people from diverse backgrounds out there who should be considered for non-executive director appointments?

Caroline Evans: Emphatically, yes. I’m struck almost daily by the calibre of women available. The company secretarial profession is a profession that holds a lot of women. Perhaps historically there are two reasons for this. One is because of the way the profession has been perceived. Secondly, I think it’s because it plays to a lot of the less tangible skills that are absolutely crucial to a successful business, such as successful communication through business that women have the capacity for. The women who are coming up the ranks through the company secretarial field are supremely well-qualified professionals in comparison with any other discipline. In particular, having had boardroom exposure, albeit perhaps in a secondary capacity, but they have that experience of what goes on in the boardroom, perhaps on a number of different boards but the years of exposure that you get are hugely valuable, over and above any other discipline potentially.

Janet Cooper: Now do you feel, as company secretaries, that you have a reasonable financial background?

Lorraine Young: I think you’ll find there are a variety of company secretaries. There’ll be some that take to that and some that have got different skills. I think across the board you’ll probably find the same with other executives coming through the organisation. Some company secretaries are running a big department and have to manage the budget, so they’ll need at the very least the basics and there are accounting exams in the ICSA qualification. But beyond that, I think some of that is people’s inclination, isn’t it? I can understand the numbers; I don’t always find them very exciting. Having done loads of minute taking you need to understand what the numbers are about and look at the reports so that you can do the minutes. So I think most of us can, but not necessarily all of us want to.

Peter Swabey: I think I’d agree with that. I think most company secretaries are financially literate. I question whether it’s actually necessary for a non-executive director to be completely financially literate. If they’re going to be on the audit committee, yes that’s an issue. But then they’ve got to have reasonable financial experience anyway. Surely there are going to be some places for non-executives who are not necessarily that financially literate. They’re bringing other diverse skills to the board, which are not necessarily financial skills. That’s going to mean that they feel able to question, in much more detail, financial information that is just presented to them.

Caroline Evans: Sometimes you need that person in the room, don’t you, who’s prepared to say, ‘I just didn’t understand that.’

Julie Bamford: That can also be a very good way of questioning. If you’ve got something coming to the board for a decision, you’ll probably have someone from below board level presenting it. It’s a good way of establishing whether that person fully understands what they’re proposing. Because if someone on the board can say, ‘I don’t understand this,’ that person will need to explain it to them in another way and in terms they can understand.

Peter Swabey: Yes, and then you’ll rapidly identify whether the person presenting fully understands the proposal.

Caroline Evans: On the other hand, company secretaries also have in-depth understanding because surely the act of minuting in itself must require a deep understanding of the subjects under discussion? If the boot were on the other foot, could everybody else in the boardroom minute as well as company secretaries?

Susan Henderson: I think there’s a distinction between being a company secretary and then going onto the board of that company. You’d avoid that at all costs, because you need to be a dispassionate observer. Translating the skills as a company secretary that you’ve developed at one

‘ Any minority needs a mentor.’

Caroline Evans

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organisation into another organisation as a non-executive director would be preferable. I also think that being able to see what it’s really like to be a non-executive director in another organisation would help you back in the company secretarial job you’re doing, to understand how you can better support the non-executives on that board. You can then see things from both perspectives.

Peter Swabey: I can think of maybe one or two company secretaries who I’ve known who have been non-executive directors of other companies and for me that’s a waste. I think many have the necessary skills. That goes back to the thing we were talking about earlier, how boards and chairmen identify what the required background qualities of the non-executive director are and how they communicate those to the people who are searching for candidates. It seems to me that the outlook now seems to be excessively blinkered. We talked earlier on about the perception that a non-executive director must have experience on a company board. That’s not always going to be necessary. It just needs maybe to be that little bit more inclusive, but I think it’s still struggling to do that.

Susan Henderson: But it gets back to Kerry’s personality argument, that you perhaps don’t want to be asking for financial experience, board experience. You’re wanting to ask for, you know, openness of mind, independence of mind, ability to challenge and be inquisitive.

Julie Bamford: And you do need that mix, don’t you? You need somebody who is all over the detail and somebody else who is ‘big picture’ and thinks strategically. Everybody should be looking at it from a different point of view, so you don’t miss anything. That’s the whole point of diversity and to avoid groupthink. If everybody’s thinking about it differently, all the issues should be covered.

Making the changeJanet Cooper: So how do we make that change to be more inclusive?

Caroline Evans: I think there has to be something done on the mechanics of professional development within corporate culture so that it’s more inclusively relevant or more inclusively accessible. But I also think that somebody needs to pick up the baton, take the risk and run with it. Maybe quotas, or the diminishing pool of non-executives, or the issues around how big your executive board needs to be will drive that.

Robert Armour: I think part of it has to come back to the relationship between search firms and the chairmen. The discussion on how wide you’re going to go has to be at the point of setting that job description. I think the search firms have got to try and encourage the chairmen or the nominations committee to take a slightly riskier approach.

Caroline Evans: That’s where there’s a disconnect in my industry. I’m a contingency recruiter. I recruit up to the top of the line route. There should be a greater relationship between the sort of executive search firms that Peter runs and the contingency recruiters that are bringing people up the ranks. I’d welcome that, because I think recruiters have means of identifying future potential.

Susan Henderson: But perhaps company secretaries can play a role, because typically they’d be company secretary to the nominations committee and probably be involved in non-executive directors searches, which are usually quite confidential. You know if you have a sales manager or an assistant company secretary that’s required, everybody knows that that job’s up. But a non-executive search is probably carried on quite quietly for some time. So it’s kept very close to the chest, without HR being involved. The company secretary, however, probably is involved and even though the chairman would be speaking to the headhunters, usually on the day-to-day logistics of setting up meetings, it’s the company secretary that can be involved. So maybe we should be putting our oar in and asking: ‘Is this a diverse shortlist?’

‘ Diversity is wider than just gender.’

Peter Swabey

Board composition


Kerry Porritt: I do think there is something around the procedure for how you come up with what you’re looking for. Because at the moment, all the Code is saying is, report on what the process is. It’s not saying best practice would be to go through these sorts of routes to get to what you are looking for. A change is needed to force chairs to recognise that a chat with other board members about what sort of person is required is not enough. I’m by no means advocating a cottage industry in this approach, but maybe you need a mandate on the support they get in putting that process together, having a look at what qualities they need as well as the skills and experience.

Susan Henderson: Again that’s something that the company secretary can help with probably better than an HR person who is familiar with executive appointments.

Lorraine Young: It’s quite a tough call to challenge the chairman, isn’t it? But if you’re a good company secretary, you’ve already got that relationship of trust and so if you’re challenging them you can do it in a way that’s acceptable, which is perhaps much harder for the search firms. It’s a harder call for them because it could affect their business. They’re not wanting to go along and upset the chairman, who they’ve maybe worked with for so many years, by saying, actually you shouldn’t be doing this; you should be looking at the other people.

Susan Henderson: But if the company secretary drops it in on conversations with the headhunter it might give the headhunter a little bit more confidence perhaps to add one or two different choices to the shortlist.

Robert Armour: Does the appointment criteria tend to be agreed between the chairman and the headhunter, or HR, the company secretary and the headhunters or by the nominations committee? Because in some ways, if you could get the nominations committee to sit down with the headhunter and say, look, let’s have a discussion, you’re much more likely to get a diverse mix than if it’s simply an instruction to the recruitment advisor of ‘we’ve thought about it, here’s the brief, do as you’re told’.

Julie Bamford: To have a proper conversation with the whole nominations committee, HR and the headhunter is definitely the best approach.

Susan Henderson: That’s what we’ve done.

Julie Bamford: And through the board evaluation process, looking at recruitment to see how it’s being done. That’s also a good way for the company secretary to talk to the nominations committee or the chairman about it.

Caroline Evans: I think the board headhunters are really going to be protective of their territory. That’s the only issue there. They’re not going to want the nominations committee saying, well if you can’t find them we’re going

to go and talk to somebody else who can. But if the board headhunters and contingency recruiters build mutually supportive relationships or the boards themselves spread the net wider, that would be a positive step.

Janet Cooper: When you’re reporting on the new governance requirement for greater diversity, will you be saying, we’re instructing head-hunters to help us fill these vacancies and we’ve requested they consider diversity?

Lorraine Young: I think it depends if it’s happening everywhere. Eight years ago when the Higgs report came out it gave more focus to the nominations committee, which previously people may or may not have had, that was supposed to change it all. But it hasn’t actually, has it? It doesn’t matter if it’s the chair speaking to the headhunter. Does it make it any better if there’s a nominations committee? It hasn’t changed anything and I’m not sure it’s working.

Robert Armour: The wording on a company’s approach is going to be fairly generic. Almost inevitably we’re going to write a paragraph in the report that refers back to the codes and says we instructed recruiters having due regard to the skills and requirements and balance of the board, including diversity. That will be given far more emphasis if there’s a quota requirement as we go forward. But you’re not going to learn a great deal from that wording.

Janet Cooper: So we’re saying that this requirement that’s gone into the UK Corporate Governance Code is actually not going to make that much difference.

Peter Swabey: I think it depends on how it’s managed. One of the issues that we mentioned earlier is around investors in the market looking for a ‘big hitter’ of some sort being appointed as a non-executive and that being favoured over somebody who is less well-known but who might well bring more diversity to the board. Maybe there is some merit in the market allowing companies to take more risk in terms of who they appoint as non-executive directors, rather than going back to the traditional ‘safe pair of hands’. Kerry commented earlier that when you’re looking for a non-executive, you’re typically looking for a three year appointment. Well now, under the Code it’s annual elections for directors. There is a practical issue there, because I can see that for some companies it’s going to take directors more than a year to actually get their feet under the table and really understand the business. But equally if you normally know in the first three to six months whether somebody is going to be a useful director on the board or not, perhaps appointments should be for one year, after which the chairman and the board can take a view on whether so and so is actually adding value or not. If not, then they can be discreetly persuaded not to offer themselves for re-election at the annual general meeting.

Kerry Porritt: Yes, companies are not static; they’re dynamic. They’re either growing, they’re acquiring, they’re

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demerging or they’re moving into a new industry and to suddenly have these people in for three, six or nine years is actually a little bit out of kilter with how a company lifecycle works. So maybe there should be less stigma around the fact you might only be with a company for one or two years, because the company reviews its board annually as part of its long-term strategy. Maybe if that were the case there would be more room to bring more people in, with all these diverse skill sets.

Robert Armour: But isn’t annual rotation too destabilising? At one year there’s a real danger of saying, the face doesn’t fit, or I just don’t like them; they ask too many questions or create pressure not to rock the boat. But it’s true that boards can be too cosy. Having a level of discomfort around that board where people are actually challenged and tested and face up to going to the board with appropriate seriousness is important as well.

Janet Cooper: There are many mentoring programmes that are already out there, might they be of help here? There’s the board forum one where chairmen or other senior directors mentor talented women, do we think that will help the pipeline? Do we have any company secretaries that are participating in that?

Caroline Evans: I think that perhaps those sorts of programmes should be drawn down into more junior levels to mark out the stars for these sort of positions at an earlier point in their career and apply the mentoring processes earlier – the big companies do it already. They mark out their stars for the future and they carry out professional development around that. Maybe there needs to be another exercise done for marking out people in the organisation who could take on non-executive roles.

Kerry Porritt: I think there’s two points in relation to that. It’s all very well for up and coming stars, but what about those who are already in their 40s and 50s and haven’t got to where they might want to get? The second thing is, that while corporates can set up these mentoring programmes, you then miss a whole pool of people that don’t necessarily sit in the corporate sector, such as people in the public sector, or if you’re looking for international experience and you need people who have worked overseas. I think there’s a huge question around: how do you bring that all together?

Caroline Evans: Yes, you’re right and it’s acute. It’s almost as if, in relation to the company secretarial discipline in particular, there’s an idea that once you’re at a certain level of seniority that’s it, that’s as far as you want to go, that’s as far as you want to spread your wings. Why shouldn’t people translate their careers upwards and beyond? That’s not a perception of those people in the field, but perhaps of those around it who are addressing wider professional development possibilities.

Peter Swabey: Which is why I was a little surprised when Peter indicated that headhunters are reluctant to advertise positions. While undoubtedly a company will get letters from some of those people with whom I’m only too familiar with that turn up at every AGM, potentially advertising does open it up. I struggle with the idea that headhunters will always know all the best potential candidates.

Susan Henderson: Some of the feedback from other headhunters has been that they just don’t know of the right women to put forward. I wonder whether, when a company’s going to headhunters and saying, we want you to find a non-executive director for us, you know there’s a sort of quid pro quo option of saying: ‘By the way, we have three talented women in our organisation, who would be ideal non-executives in other roles, we’ll give you their details.’ Perhaps we should be doing that when we’re using head-hunters. It’s probably the case that different firms of headhunters would deal with different roles, but it might kick start something.

Caroline Evans: I think that the quid pro quo idea is a good way of giving something in order to achieve a benefit and also to prompt the introduction of a mechanism to push things forward.

The futureJanet Cooper: So what do you think is going to come out of the Lord Davies review? What would you like to see happen?

Robert Armour: A 30 per cent quota. I think it’s also probably where it might end up.

Lorraine Young: I think I’d go with you on that one. I just don’t think it’s going to change. For me it wouldn’t change quickly enough.

Susan Henderson: Provided it could be on a comply or explain basis. Because I think there will be companies that will always say there’s some reason not to do it. It will take quite a long time to get from 12 to 30 per cent. It’s got to be a reasonable timescale; it can’t be 30 per cent by 2014.

Robert Armour: I think two years sounds enthusiastic. But if we’re going for a slightly lower percentage and maybe three years, that doesn’t seem entirely unreasonable. Otherwise it becomes so distant that people don’t get around to it.

Kerry Porritt: So you could do 10 per cent one year, 20 per cent two years, 30 per cent by three years.

Robert Armour: I think graduating it in that way is quite difficult because it depends on your board size and you know, 10 per cent means you’ve got to have someone in

Board composition


year one. I think it’s better saying, that’s the deadline for achieving that percentage, whether it’s 25 or 30 per cent. Then companies can work to a transition to fit their own circumstances.

Susan Henderson: But you’ve got to also think that we are on three year cycles. What if you’ve already got your full complement of board members?

Lorraine Young: Maybe you have to have a slightly bigger board. Maybe you just have to have one extra for a little while until someone is ready to go.

Susan Henderson: I just wouldn’t want to be the woman that was doing that.

Kerry Porritt: I don’t agree with quotas; in the ideal world this wouldn’t be an issue because boards would realise that women add value. But I think again, we’re going down the gender route when we talk about diversity, which is a bigger issue. So the conclusion I’m coming to is that,

maybe, imposing a quota on gender will start to change the thinking around the board table in terms of overall diversity and not just gender diversity. Because I just don’t know otherwise how you’re going to kick-start that motivation to start thinking outside of the box in terms of what the board needs overall around a table.

Peter Swabey: There isn’t a perfect process. There isn’t a perfect answer to that. Quotas are one way of dealing with the issue, but I think it depends very much on what your quota is and what timescale you’re imposing. If you were to say it must be 40 per cent by next Tuesday, every company could hit that but that would not necessarily mean that it had the right quality candidates. It’s about setting the quota and developing the timescale in a way that enables you to bring on the right quality of candidates. For me that then becomes a process whereby you look at diversity as a whole and not just in terms of gender. One of the issues that I think is coming out around some of the European activity is that the Commission seems to be thinking about diversity primarily in gender terms. Certainly some of the early drafts of the corporate governance legislation seem to concentrate on that point and so I think it’s right that we probably have focused on that today. But diversity is wider that just gender. The more widely a quota, if there is one, and the timescale for achieving that quota, can be set, the more able you are to maximise the quality of the candidates. I think that will lead to a greater development of diversity.

Caroline Evans: How about putting it on its head and saying that there has to be a quota, but the quota is just around diversity, not around women?

Robert Armour: Yes, but how do you measure it?

Caroline Evans: I know, it’s a rather simplistic suggestion and yes if there were a quota of 30 per cent diversity to fulfil it’s got to be measurable in some way, shape or form.

Kerry Porritt: And that’s a reporting requirement already, to say what skills your board members bring to the table. So it might not be a number, but it might be achievable through reporting.

Robert Armour: I’d love to get away from the idea that diversity is just about discrimination. Because in reality, the important issue for the board is the skill set present. That’s going to determine its strategy and success. Inevitably we are taking a sledgehammer to the diversity nut in order to crack it, but actually it’s the overall picture that’s important.

Lorraine Young: And that might change. I think once you get the gender bit done, hopefully the process will change. And then going back to the idea of ‘won’t it be awful for the woman who’s there thinking she’s the token director?’ I think the women who do that have got to be brave and thick-skinned and say: ‘I’m doing this to further the cause, whatever that is, and I don’t care what people think. I’m

‘ Diversity is not just about discrimination.’

Robert Armour

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there, I know I’m good and if I’m not good I’ll be out in three years. So I’ve got to prove that I’m good enough.’

Caroline Evans: It’s a long-term gain, isn’t it? Because if you do it and you get it right and you’re successful, then suddenly it turns around, rather than being the token woman, suddenly you’re the leader. You represent the future; you’re the star.

Julie Bamford: There’s lots of men that go on boards and don’t get it right.

Maggie Heasman: The problem is, if Harry goes on the board and screws up; well Harry was a bit weird. If Sarah goes on the board and screws up, well she’s a woman.

Julie Bamford: It shouldn’t be just one woman, boards need two or, preferably, three.

Susan Henderson: If you’re going on a board as a woman, you are actually representing all women as well as yourself. That’s an uncomfortable feeling.

Lorraine Young: But it’s true that there is a difference between the diversity issue, which is about representing all

views on the board and the women issue, which does smack of discrimination, which is different. I think we need to be conscious of that.

Susan Henderson: I’m not sure that will necessarily happen. If you get the gender thing right, will the other diversity issues follow? If you have a quota to fulfil, you’re diverting the board’s mind from the proper process of establishing what it really needs to have a diverse mindset.

Julie Bamford: We’ve established that there are lots of talented women out there but they’re not on boards and something is in the way of them getting appointed. What is that? That’s the question. The recruitment agencies say there are lots of talented women but boards say they don’t have ‘fit’, or they don’t have credibility. What’s stopping those two sides coming together? They all seem to be well-meaning – all the boards say we want women; all the recruitment agents say we’ve got talented women. So why are there so few women on boards?

Caroline Evans: It comes back to the whole issue about boards liking candidates that are in their own likeness.

Julie Bamford: Yes, and that is a prejudice.

Caroline Evans: Yes, we can either put quotas in or mentor and improve the quality of candidates to ensure they have the tactical qualities necessary. Or we can educate those that are already there. I think it’s an easier task to do the former than the latter. I think we have to accept that that’s the issue. Many men on boards are receptive, but I think it takes time for them to become receptive and they’re usually receptive in the context of their own lives. Is there a woman in their peer group? That speaks volumes because that’s when they learn a huge lesson, or when they start to see their daughters frustrated by inequality. I think we have to do the development up front, rather than change the mindsets of those who are already there.

Robert Armour: Paradoxically it could go two ways. If you set a quota and it forces a result in terms of the recruitment of women directors coming from a wider pool, then that may reduce opportunities for men. It might also be the case that opening up the range of women candidates and looking beyond the existing FTSE directors available might encourage boards to look at a wider range of male candidates, or it might make boards more cautious in their appointment of men to counter the more ‘risky’ female appointments, so that male appointments are even more likely to come from existing FTSE stock.

Kerry Porritt: We keep talking about gender diversity, but if you go back to the actual idea of board effectiveness, gender diversity is one very small sentence in the guidance. There is far more said about the diversity of psychological type and personal attributes – that is what you need around the table. For me it’s not about diversity in terms

‘ Diversity of psychological type is what you need.’

Kerry Porritt

Board composition


of discrimination; it’s about how to get the board to start thinking in wider terms about what it needs around the table. I’m not saying that we should all do personality profiling. What I’m asking is; what is the support to the chair in terms of achieving diversity of psychological attributes?

Lorraine Young: Do chairs think they need that support? I think the question’s one step further back from there.

Janet Cooper: Do you think there will be more rigorous board evaluation to identify groupthink?

Kerry Porritt: I don’t think so. I think that for certain sectors there may be, because they need to demonstrate that they’re not going down that groupthink path again. I think that for other companies and sectors who’ve not been there before, they don’t see it as an issue for them.

Julie Bamford: Groupthink is a risk and risk is the big issue now, which affects all companies. If I’m being optimistic I’d like to think that all companies looking at risk are seeing not having enough diversity on the board as a big risk.

Robert Armour: Can I put in a plea for personality profiling? I think many of the headhunters do that as part of the sifting exercise and one of the drawbacks is that it’s generally not shared with board colleagues. A profiling exercise we undertook was for a company which operated in heavy engineering and manufacturing operations, where typically the board was made up of people who had a similar technological or engineering background. The profiling was shared with the board and 90 per cent of the members realised they approached problem solving or analysis in a very similar way; it was an eye-opener which made people aware of the tendency for groupthink.

Kerry Porritt: But I do agree with that. I think people are too set to go down the same path they would go down with any other executive appointment.

Julie Bamford: Profiling may alert the board to the issue of recruiting in their own image, which they may not have been conscious of previously. Somebody who thinks differently could be an absolute ‘thorn in their side’ and they’re going to find him or her difficult, but diversity should make boards a little uncomfortable and that’s a good thing.

Peter Swabey: Also perhaps we shouldn’t think that directors are different, acknowledging that they need training for their role despite it being a very senior role, just the same as any other employee.

Robert Armour: Does this take us into director development plans? One of the ways out of this one is in terms of widening the pool for recruitment, but it boils down to whether chairmen take seriously the obligation that has now been placed on them, and which many of them haven’t woken up to yet. They have to go through their

plans and vision with each of the board members, asking them: what are the gaps in the board? What are the gaps in your particular understanding or skillset and the part you play in the board? Having a feel for the optimal composition of the board and its skills overall has to be part of the chairman’s armoury in approaching the issue of diversity.

Peter Swabey: That links into the idea that there is a need for director induction and the chairman’s role should include carrying out an annual appraisal of directors. If you give an annual appraisal to every other member of staff in your business, what’s different about directors?

Janet Cooper: We’ve talked about quotas and possibly the way to achieve what we need to within the timeframe, but the other aspect that Lord Davies will be looking at is increased disclosure on diversity and gender. What do we think about that?

Kerry Porritt: I think the danger is that it sends the message out that the issue is around compliance and I think that there’s just so much of this nature coming through at the moment for boards. It’s a very important thing that could get brushed under the carpet of compliance.

Robert Armour: I’d much rather the objective was to say, ‘Do we have the right mix on the board, having regard to a variety of criteria?’ We should widen it out, rather than just singling out a particular gender diversity issue and perhaps missing a bigger one.

Julie Bamford: Personally I’m a big fan of reporting. If companies have genuinely gone into the issue and they report what they’re actually doing in a meaningful way then I think it does change behaviours.

Janet Cooper: Certainly Australia I think has found that. Rather than going down a quota route, they required significant disclosure at various levels within organisations and not just the board. Reporting further down the organisation allows you to look at the pipeline, so that you can see if women are falling off a cliff at a certain level of management grade and just not being promoted, so that there is no pipeline. Australia has found, in the few years that they’ve had this requirement, that it is making a difference because there’s pressure from within. Also the consumers can now see that women actually are, or are not, being promoted.

Caroline Evans: I think meaningful reporting can give you insight into the culture of the organisation as well and how it views its people.

Janet Cooper: It can also affect graduate recruitment. If they can see women are falling off a cliff at a certain level, they will enquire as to why and will choose not to go to that organisation. So it can fundamentally affect the business because they’re not attracting the best graduates.

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