On March 22, 2016 the Equality and Human Rights Commission (the Commission) published a report following their inquiry into board level recruitment and appointment practices in the FTSE 350 companies and the reasons why many companies have continued to fail to improve gender diversity. The inquiry was launched in July 2014, looking at how FTSE 350 companies and executive search firms instructed by them recruit and select people for board director roles. The aim was to identify whether recruitment and selection practices are transparent, fair and result in appointments on merit, and to identify where companies and their agents could improve these practices to increase the diversity of company boards.
The inquiry found that in terms of boards’ performance on gender diversity, headline figures concealed wide variations in the performance of individual companies and the lack of women in executive director roles is still particularly stark. Many board evaluations do not take gender diversity into account, and although many companies had board diversity policies, more than half had not set objectives or targets to increase the number of women on their board. Other areas reviewed by the inquiry included role descriptions, the search process used, selection processes, the role of the nomination committee and the process for improving diversity in the talent pipeline and candidate pool.
The report highlights good practice and makes recommendations for improvements, including:
- Board evaluation should be used to assess the balance of skills, experience and knowledge on the board and to obtain information about its diversity composition.
Diversity policies and targets
- Boards should use information about under-representation to create a diversity policy for the board and senior management which includes aspirational targets unique to the company.
- Boards should make sure targets reflect realistic expectations of what can be achieved and do not result in pressure to take potentially unlawful steps.
- Boards should report annually on progress in meeting these targets.
- Boards should ensure role descriptions describe necessary skills, experience, knowledge and personal qualities for the role, identified by the board evaluation.
- Boards should avoid potentially discriminatory requirements, such as a preference for candidates of a particular age or sex, previous FTSE board experience where not justifiable, or using terms such as ‘chemistry’ or ‘cultural fit’ which are subjective and undefined.
- Boards should select an executive search firm that can demonstrate its effectiveness in improving diversity in appointments.
- Boards should avoid giving unlawful instructions to an executive search firm, such as requesting an all-woman longlist or shortlist.
- Boards should broaden the candidate pool by advertising appointments widely through appropriate channels, unless a role is business-sensitive.
- Boards should avoid relying only on personal networks to identify potential candidates.
- Boards should assess candidates consistently against objective criteria identified in the role description throughout the appointment process.
- Boards should avoid questions about irrelevant factors that may introduce bias into the assessment process.
- Boards should ensure selectors discuss their individual assessments where selection is based on one-to-one or informal interviews, to ensure consistency and reduce the impact of bias based on irrelevant factors or stereotypes.
- Boards should define the skills, knowledge, experience and personal qualities that give rise to ‘chemistry’ and ‘fit’ and assess candidates against these criteria.
The nomination committee
- Boards should ensure the nomination committee is involved in the appointments process alongside the chair.
- Boards should ensure that the nomination committee and selection panels are diverse to bring different perspectives to the selection process.
- Boards should provide training to everyone involved in the appointments process on equality law and avoiding unconscious bias.
- In addition, the FRC should clarify the role and remit of the nomination committee and its chair in relation to diversity and board appointments and its disclosure requirements in the annual report.
Improving diversity in the talent pipeline and candidate pool
- Boards should encourage executive search firms to identify ways of attracting more applications from women, and question the firms about their efforts if the candidate list is not diverse.
- Boards should widen the candidate pool for board roles by considering suitably qualified individuals from outside the FTSE 350, such as the professions, the not-for-profit and public sectors, and academia.
- Boards should use positive action measures to encourage individuals from under-represented groups to apply for roles or to help them gain skills which will enable them to compete on merit on an equal footing with others, such as training, development and leadership programmes, mentoring and networking opportunities.
- Boards should use the tie-break provision to select a candidate from an under-represented group where there are two or more candidates who are equally qualified.
- Boards should adopt management practices that support women’s retention, such as improved management of women who are pregnant or return from maternity leave, flexible working and flexible career paths.
The Commission expands on these recommendations in a separate publication ‘How to improve board diversity: a six-step guide to good practice’.
(Equality and Human Rights Commission, An inquiry into fairness, transparency and diversity in FTSE 50 board appointments, 22.03.16)