April 27, 2023

Gender diversity on corporate boards

The landscape of board diversity is rough and often unchartered, particularly when trying to excavate industry specific data on gender and it gets even worse for ethnicity. If we take the lack of data, add the different approaches country by country followed by the continual disagreement over the use of quotas versus targets versus gentle encouragement, it’s tough going. It’s no surprise then that, in an attempt to pull together existing data and create analysis for a brief introductory comment on “diversity on boards” it felt like my own personal Everest.  

Let’s start geographically. The introduction of European targets and impending regulation has certainly improved the picture in Europe and the UK with many companies in financial services coming close to the 40% target put in place for 2025. Although it is important to note that Switzerland and Germany still lag behind generally across financial services, as does insurance when compared to banking and wealth management [EY 2022]. Canada leads the pack in North America with 30% of women on boards in financial services whereas in the US it is 23.8% and 22.5% in Bermuda [Deloitte 2021]. Although, on further investigation, that number in Canada drops to 24% when applied specifically to insurance [CSA 2023].  

Source: EY

Source: EY

Investors are seeking out organisations with diverse boards in terms of characteristic make up and experience. An organisation with a diverse board has been shown to perform better on profitability and adaptability. Their increased pressure should be being reflected universally and yet there are some countries which are seeing marked improvement while others are stagnating. Unlike in Europe, many US boards do not have term limits and are increasingly doing away with age limits which results in lower turnover and less opportunities for diverse candidates. Moreover, in the US and Canada there are currently no government or regulatory bodies mandating percentages of diversity on corporate boards. There are organisations like the 30% club and “government challenges” like the 30/50 Challenge in Canada which provide guidance, but it is in no way compulsory to follow. This is markedly different from the state of play in the UK and Europe with targets and quotas being implemented by countries and companies alike.

Source: EY

There is some history (and plenty of debate) over the comparative merits of targets versus quotas which ISC explored in 2020 with Sue Vinnicombe CBE who was instrumental in putting in place voluntary targets in the UK [a recording of that conversation is available to ISC members]. But whichever way you fall on the debate, there is certainly a link between countries which are utilising benchmarking and reporting practices versus those that aren’t. The CSA (Canadian Securities Administrators) identified a correlation between issuers that adopted gender diversity measures and the percentage of board seats held by women. The Notice revealed that issuers that had set targets regarding women on boards had an average of 30 per cent of their board seats held by women, compared to 20 per cent for those without targets [McMillan].  

In the countries with positive trends for non-executive appointments, there are other concerns around the corporate cultural appreciation of diversity as many companies still have very low levels of women in executive roles. This is reflected in the experience of those women being appointed onto boards with only 17% of women in the FTSE 100 currently holding an Executive Director role and 2% holding a C-Suite role [Cranfield]. If women are not provided with robust career development opportunities, then we will continue to see a broken rung of advancement and a weakened pipeline which will in turn prevent long term diversity in senior leadership. Inevitably, this will carry through to board level with Executive and C-Suite level experience being hugely desirable for NED candidates. This picture becomes even more complex when considering diversity outside the lens of gender.  

Not only does difficulty around succession planning suggest that organisations may struggle to hit targets in future, but it also holds up a mirror to the culture of inclusion. As shown by the latest McKinsey ‘Women in the Workplace’ study, women are leaving their jobs at an unprecedented rate and are “asking for more”. A situation which is, again, intensified for women from underrepresented racial and ethnic backgrounds. Therefore, it begs the question, if an organisation is struggling to retain women internally, then how will it retain women non-executives? As with any programme or initiative designed to boost diversity, without inclusion it is likely to be short-lived.  

The workforce is at a pivotal moment of flux; with an ageing global population and increasing workplace flexibility, the scope for more women to be interested in accessing non-executive spaces will only be growing. The talent is there, but it is up to corporates to make the most of the opportunity.  


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