Leave gender off the board agenda
Heather McGregor says companies don’t need diversity in the boardroom but skill, commitment and experience ‘In the corporate boardroom, the importance of the non-executive director is recognised but their role, perhaps like the monarchy of old, is largely invisible and poorly understood,’ the former banker Sir Derek Higgs wrote in 2003, introducing his report on ‘the role and effectiveness’ of these curious creatures. Christopher Fildes made the same point more vividly in The Spectator: ‘Some boardrooms have potted plants in them and some have non-executive directors. The question in either case is: are they there for use or for ornament?’ And so the debate rolled on: shortly after the Higgs report came the Tyson report on ‘recruitment and development’ of non-executives. Higgs lamented that research showed most non-execs to be ‘white males nearing retirement age with previous plc director experience’; he encouraged public companies to appoint more non-execs, so that they formed a majority of the board, and to draw them from a wider pool of candidates. Laura D’Andrea Tyson, then dean of London Business School, went further, suggesting that diversity ‘enhances board effectiveness’ and recommending that progress in boardroom diversity should be monitored closely. Also in 2003, the DTI published a natty 16-page brochure entitled ‘Brighter Boards for a Brighter Future’, designed to promote diversity and in particular the cause of women.
So, two years later, how are we getting on? Have we now got lots of female and ethnic minority non-execs, or are we still appointing chartered accountants who play golf with the chairman? Helpfully, Professor Susan Vinnicombe of Cranfield School of Management has made a speciality of research into board diversity: each year her unit publishes a report on the number of women in the boardrooms of the FTSE 100. The Female FTSE 2004 report shows that there are now 96 women who hold non-executive directorships, up from 65 in 2001 and representing 13 per cent of the total number of FTSE 100 non-executives.
That might not sound a lot but it is more than you might have expected, given that the Times Power 100 list of top corporate networkers published late last year featured only six women — Alison Carnwath of Land Securities, Deanne Julius of BP, Penny Hughes, formerly of Coca-Cola, Baroness Hogg of 3i, Rona Fairhead of Pearson and Lady Patten, non-executive chairman of Brixton, the construction group. From an ethnic minority point of view, the Times list looked even worse: Arun Sarin of Vodafone was the only representative. What the list seemed to say was that the preferred model of non-executive still looked very much like Oliver Stocken (ex-Barclays) or Sir Mark Moody-Stuart (ex-Shell): white, male, bags of plc experience, and exactly what Higgs was complaining about.
And let us not forget Patricia Hewitt, who as well as being the Secretary of State for Trade and Industry, is also minister for women. She too would like to see more women in the boardroom: ‘Having more women and people from diverse backgrounds means that companies represent — and bet ter understand — the customers they want to attract, leading to improved competitiveness and productivity.’ Professor Vinnicombe, who has been working in this field for 20 years, would no doubt agree. But my problem with this is that, in reality, it does not look like much of an improvement. From the chairman’s golf partners — jolly but probably useless — we may turn instead to appointing politically correct people just for the sake of it: jolly attractive, but possibly useless too.
Personally I could not care less if a company in which I have invested appoints a man, a woman or a Martian as its next non-executive director. What matters to me, and should matter to all its other investors, is whether that non-exec can add value in terms of monitoring company performance, strategy and risk on behalf of the shareholders, and supporting the executive directors to achieve the highest possible return on capital employed.
Professor Vinnicombe’s team has tried valiantly to measure whether gender diversity improves financial performance, using return on capital as a measure. Their conclusion? ‘Although we find no significant relationship between the proportion of women on boards and financial performance, we cannot conclude that gender diversity in the board is not beneficial to shareholder value.’ Why not? Might I suggest, unfashionable as it might be, that there is simply no link at all, positive or negative, between diversity and performance?
What this says to me is that non-executive directors should be appointed for the additional resource that they bring, not for the colour of their skin, their gender, their sexual persuasion or any other attribute that they happen to possess. I applaud, for instance, the recent appointment of Baroness Prashar of Runnymede to the board of ITV plc. Lady Prashar is, rather obviously, an ethnic minority woman, and has impeccable diversity credentials, having been director of the Runnymede Trust and chairman of the Parole Board of England and Wales. Crucially, though, she has been a director of Channel 4 and a trustee of the BBC World Service Trust, and has good links with government. If I were a shareholder in ITV, I would be very pleased they had recruited someone with so much relevant experience.
‘A major surprise finding is that 33 per cent of the new female directors already have FTSE 100 experience,’ says the Female FTSE report. Why a surprise? I am told by company chairmen and headhunters that while the Higgs and Tyson reports did lead to some examination of widening the pool of non-execs, boards have generally reverted to their previously held view that experience and understanding of commercial needs are as important as they always have been.
And at the same time as Higgs’s recommendations were raising blood pressure in British boardrooms, it was edifying to read the views of billionaire investor Warren Buffett on a similar subject. In a letter to shareholders in Berkshire Hathaway in February 2003, he noted that his company would have to appoint additional independent directors in order to comply with new US regulations. But he stressed that the appointees would have to be ‘business savvy’, that he would pay them a pittance, and that they must be prepared to take a significant personal stake — meaning some millions of dollars worth — in the company’s shares.
Not only that, he would not be offering them ‘directors and officers insurance’ to protect them against claims from stockholders, employees and customers. His view, and mine, is that — on the principle that you drive a car more carefully if there is a metal spike protruding from the steering wheel rather than an airbag inside it — non-executives make more careful boardroom decisions if they know they might be called to account for them personally.
Given such risks, you might wonder why anyone would want to be a non-exec. But people still volunteer, and I frequently meet charity heads and senior academics who grumble that they have never been asked to join a corporate board. Perhaps it is because they have no relevant commercial experience and no value to add. But again there are admirable exceptions — such as Vodafone board member Lord Broers, a former vicechancellor of Cambridge University who has a track record of helping take technology from the laboratory to the high street. I am sure he never moaned that nobody wanted him on their board.
Professor Vinnicombe’s most recent report shows that the number of ethnic minority non-execs in the FTSE 100 was 17 in 2001 and still only 20 in 2004. Well, things are not going to change overnight. The increasing number of women in the boardroom is not a result of the worthy words of Higgs, Tyson and Hewitt, but of women sticking with their careers and building valuable experience, like Baroness Prashar or the late and much lamented Dame Hilary Cropper, chairman of Xansa, the computer group which started life as an all-women company. Cropper was a powerful advocate for equal opportunities, but she never made an issue of gender in her own career: she got there on merit. And so eventually will many other people who are not white, not male and have never played golf with the chairman. As the DTI pamphlet said, ‘You’re in for the long haul. You may not be recruited immediately, but don’t give up. Keep acquiring the skills that will one day take you into the boardroom where you know you belong.’
Heather McGregor is a former investment banker who is now a partner in an executive search company.