The 30% Club: Engaging for better diversity on boards

Brenda Trenowden, Global Chair, 30%25 Club / Head of FIG Europe, Australia and New Zealand Banking Group Limited (ANZ)Brenda Trenowden, Global Chair, 30% Club and Deborah Gilshan, Co-Chair, Investor Group, 30% Club write:

A growing body of empirical evidence and research, from different sources and geographies, corroborates the intuitive argument that more diverse boards and senior management teams are more effective than ‘identikit’ teams in delivering better decision-making, and that firms with better gender balance at board and management levels outperform their peers on a variety of financial measures1.

Deborah Gilshan, Co-Chair, Investor Group, 30% Club / Governance & Stewardship Director, Aberdeen Standard InvestmentsA better gender balance is good for the economy and should be supported by public policy. However, this should not be through ‘hard’ legislation such as quotas, as we do not believe that their impact filters down into companies and into organisational cultures to deliver longterm sustainable change.

The stakeholders who are in a position to really drive change are Chairs and CEOs, regulators and public policymakers, such as the Financial Reporting Council (FRC), and investors – both asset owners and asset managers.

Shareholders have a major role to play in expecting their investee companies to seek out and hire the best people and to draw on all of their individual strengths and experiences to produce the best possible outcomes.

The 30% Club Investor Group was established in 2011 with the following purpose:

  • To co-ordinate the investment community’s approach to diversity, in particular to explain the investment case for more diverse boards and senior management teams;
  • To exercise our ownership rights, including voting and engagement, to effect change on company boards and within senior management teams;
  • To encourage all investors to engage on the issue of diversity with chairs of boards and senior management teams.

As asset owners and asset managers, members of our Investor Group are responsible for the stewardship of the investments they make on behalf of their pension scheme members and clients. Part of that responsibility includes the assessment of the boards and senior management teams of their investee companies. Whilst the 30% Club Investor Group focuses primarily on gender diversity, we have found that it provides a good segue into discussions about other forms of diversity and opens up the conversation with boards of companies about their nominations processes.

The 30% Club believes that appointments should always be made on merit and that considerations on diversity can ensure that appointments are made precisely on that basis, by widening the pool of talent available from which board appointments are made. There are many consequences of a lack of diversity for board effectiveness, including a lack of appropriate representation and understanding of a company’s customers, workforce and geographic footprint, all key to successful delivery of long-term strategy. Importantly, increased diversity on the board is likely to reduce the potential for entrenchment and groupthink, and will further widen the potential talent pool for appointments.

Since 2012 the UK Corporate Governance Code has included Provisions for companies to report on board diversity policy, with measurable objectives and progress towards meeting them. In addition, and following on from the review by Lord Davies on women on boards of UK listed companies, we support the brief of the Hampton-Alexander Review to focus on “improving female representation in leadership positions of British business, broadening the ambition to the entire FTSE 350 and raising the target to 33% of women on boards by 2020.” We were encouraged by the focus on diversity in both the earlier inquiry into corporate governance from the Select Committee of the Department for Business, Energy and Industrial Strategy and in the UK Government’s Green paper on Corporate Governance.

We now have a large number of members (with collective assets under management [AUM]) of £10.7 trillion) who are using the leverage of their stewardship work and ownership stakes to engage with the boards of investee companies to promote the importance of diversity. This engagement is underpinned by the expectations of companies on board diversity as set out in the UK Corporate Governance Code. The Code states that:

  • ‘constructive debate can be encouraged … through having sufficient diversity on the board’;

  • ‘diversity is as much about differences of approach and experience, and it is very important in ensuring effective engagement with key stakeholders and in order to deliver the business strategy’;

  • the ‘search for board candidates should be conducted, and appointments made, on merit against objective criteria and with due regard for the benefits of diversity on the board’ which underpins a ‘formal, rigorous and transparent procedure for the appointment of new directors’;

  • there should be a ‘description of the board’s policy on diversity, including gender, any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives’; and

  • diversity should be considered as part of the board evaluation.

These Code expectations provide fertile ground for a discussion on board governance with investee companies. Such discussions allow shareholders to better understand how the Board is harnessing the power of diversity to ensure optimal board outcomes, both in terms of membership of the board and in the collective decisions that are made by them.

In addition, we have published a “Statement of Intent” and now have 25 investor organisations that have endorsed the statement, which signals the collective voice of the 30% Club Investor Group to companies and the wider marketplace, and to demonstrate the ways in which members will use their ownership rights and undertake stewardship to encourage progress on gender diversity. The Statement of Intent includes supporting the following achievements by 2020:

  • 30% women on FTSE350 boards
  • 30% women at senior management level in FTSE100 companies

Commitments, as set out in the Statement of Intent, include: 

  • Engagement with investee companies
  • Exercise of Ownership Rights
  • Recognising exemplars of best practice as well as engaging with laggards

The 30% Club launched our Statement of Intent at an event to open the market at the London Stock Exchange in October 2016 with CEOs of asset owners and asset managers, as well as regulators and other stakeholder bodies, to demonstrate the importance of the investor voice in the diversity debate. We are planning a further event with corporates and investors in early 2018 to continue the dialogue.

As with all of our initiatives, this is a group of ‘men and women working together for real change’. Diversity is not a social issue, it is a financial issue and should be treated like any other business imperative, with targets that are regularly measured and reported. What gets measured gets managed, and what gets managed gets done. Our Investor Groups are growing in AUM globally and we intend to harness the power of stewardship to work together to hold investee companies to account on this important issue. In addition, we look forward to providing input into the FRC’s formal consultation on the UK Corporate Governance Code as to how the Code can further elevate the importance of diversity in our investee companies.

We believe boards that genuinely embrace cognitive diversity, as manifested through appropriate gender representation and a broad spectrum of skills and experience, are more likely to achieve better outcomes for their investors. Intuitively, it makes sense that diverse groups will be able to draw on a wider set of experience and broader thinking, leading to better decisions and, ultimately, superior financial performance over the longer term.

1 McKinsey Women Matter: Ten Years of Insights on Gender Diversity, October 2017
Petersen Institute: Is Gender Diversity Profitable? Evidence from a Global Survey, February 2016
MSCI Women On Boards: Global Trends in Gender Diversity on Corporate Boards, November 2015
Grant Thornton The Value of Diversity, September 2015
Credit Suisse The CS Gender 3000: Women in Senior Management, September 2014
Credit Suisse Gender Diversity and Corporate Performance, August 2012
Citigroup ASX100 Women on Board Analysis, August 2011
Catalyst ‘The Bottom Line: Corporate Performance and Women’s Representation on Boards’, 2007

Authors: Brenda Trenowden, Global Chair, 30% Club / Head of FIG Europe, Australia and New Zealand Banking Group Limited (ANZ) and Deborah Gilshan, Co-Chair, Investor Group, 30% Club / Governance & Stewardship Director, Aberdeen Standard Investments