Blog : BOARD TALK
|Posted on September 29, 2016 at 2:45 PM|
The number of institutional investors who believe that the gender diversity of the senior management of an investee company is 'vitally important ' or 'important' has more than doubled in 12 months, an annual survey of over 100 leading UK and European institutional investors has found.
In 2015, only a quarter of investors surveyed placed importance on gender diversity. But in 2016 it seems a total of 51% of investors agreed on its importance.
Harriet Steel, Hermes Investment Management
“To see the number on investors who place importance of gender diversity leap up by more than double is extremely encouraging and reflective of the high profile campaigns and initiatives introduced to increase gender parity" said Harriet Steel, Head of Business Development, Hermes Investment Management.
“In our research we believe that the issue for investors appears to be risk, rather than high returns. Investors are growing increasingly aware of the link between ‘group think’ and poor corporate practice. Boards with more diverse composition tend to challenge senior management, be more innovative and make better decisions. These are febrile times and investors increasingly recognise that certain sorts of risk can fundamentally undermine the performance of their portfolios over time. Worse still, they may be accused of failing in their fiduciary duty” she added.
But the survey also showed that despite the gains made in gender, other characteristics of diversity lag behind in investors’ importance; such as race (30%), socio-economic factors (19%) and educational background (30%).
Hermes quotes the ‘Commonsense Principles of Corporate Governance’, recently endorsed by Warren Buffet and others: “Directors should have complementary and diverse skill sets, backgrounds and experiences. Diversity along multiple dimensions is critical to a high-functioning board. Director candidates should be drawn from a rigorously diverse pool.”
“In the Responsible Capitalism survey it was particularly encouraging to see that only a tiny proportion of investors now consider diversity of board experience (2.1%) and a Chairman independent of CEO (1%) to be ‘not important at all’. Given ongoing shareholder concerns over shared CEO/Chair roles at companies such as JP Morgan, corporate diversity is no longer being considered a ‘nice to have’, but a necessary part of responsible governance" said Ms Steel.
The UK's emphasis on doing something about the woeful representation of its population by race in its boardrooms has been covered repeatedly by me on Forbes - just google me and Forbes to find. Most recently in August here - in UK Set To Tackle 'Difficult Truths' On Race And Inequality - Maybe.
Or this - at the end of last year: Racial Diversity In UK Boardrooms Today equals Female Representation In 1998.
As for cognitive diversity in a boardroom, a recent report covered here in Board Talk this week points to the reluctance to consider academics for seats in UK boardrooms.
As Hermes points out, nineteen nations in the European Union now mandate that employee representatives sit on corporate boards. And US presidential candidate Hillary Clinton has also promised corporate governance reform.
Let's not think about the alternative, I say.