Board Diversity - should gender and ethnicity have a quota?

Having seen a few snippets in quick succession on the matter, I figured it was as good a time as any to revisit Board Diversity, the gift that keeps on giving...headaches to Legal, Compliance and Company Secretarial departments all over Europe!

My initial interest in the matter was piqued by the potential dichotomy between having a Board that was "Fit and Proper" in the context of Solvency II or indeed the myriad Corporate Governance Codes within Europe, and the simultaneous push within the EU for setting quotas for a minimum percentage of female representatives on Boards.

Certainly a couple of years back, it looked like companies may be faced with a choice of meeting any gender quota (but with a Board that was not "Fit and Proper", if only due to lack of Board-level exposure and experience), or simply thumbing their noses at the quotas. The UK's current informal approach recommended by Lord Davies suggests that, while progress is being made on the gender front specifically, there is no danger of radical positive discrimination in order to meet a quota, regardless of who sets it.

I have therefore rather caustically covered the topic on previous posts (here, here and here) due to the hijacking of the word "diversity" as actually meaning "gender diversity" - seulement! There is evidently nowhere near enough working class (or working class origin) representation on plc Boards, not to mention ethnicity, disabilities and people who have served coal-face time in not-for-profit or charitable sectors - do they get a quota too?

All levity aside, there are rumblings from the UK Labour party that perhaps gender isn't the only quota worth talking about, floating the idea of ethnic quotas should they be elected next year. Bearing in mind the shamefully unrepresentative gender and ethnic make-up of the British members of parliament, and the triteness of his leader's behaviour when white-bloke hunting at PMQs the other week, he may wish to turn his attentions closer to home. That said, if the diversity debate has broken out of its gender-soaked malaise, it is cause to celebrate.

Dude? You're barred...

InsuranceERM have (unwittingly?) helped to perpetuate the idea of "diversity" being a debate that is overwhelmingly about gender in a recent round-table centred on how the Insurance industry "...can become more reflective of society" - which had no dudes in attendance!

While I certainly wouldn't argue that Insurance was, is, and will continue to be the "domain of the white male" for the foreseeable future, can that be remedied by excluding said males from a conversation on inclusivity of all things?

While the conventional pros and cons were discussed about Golden Skirt-style quotas, mandatory shortlisting of women for senior positions and mentoring, the child-rearing-sized elephant in the room was also tabled. The prevailing opinion seemed to be that it is encumbent on both employers and women to do a bit more during that phase of life to maintain career progression.

Had my two cents been sought (heaven forbid!), I would have added the "H" bomb into the mix. As a husband who works in another country from my family home, I personally offer an additional constraint to my wife's career every single working day, and one thing which won't change between generations is that one partner generally has to "take one for the team". Do the significant others of UK plc realistically provide more of a constraint on career development than any of the factors discussed by the InsuranceERM panel?

I would also have referenced Britain's blue-rinsed demographic timebomb, caring for infirm relatives, in this context, a job that most men manage to avoid, even when it's their parents! I have no first hand experience on the matter, so am reluctant to do more than float the idea, particularly when high-achieving female talent may have the means to outsource such activity.

Progress on the diversity issue therefore remains clunky, piecemeal and gender-obsessed. With every Lloyds (voluntarily?) taking the initiative, there is a Glencore or LSE who manages to clear the decks!

I certainly hope to see some progress on the gender percentage front soon, if only to hit a target so that we may switch the debate back to genuine diversity. With the topic gaining traction across the pond, maybe we won't have to wait too long.

ABI update on Board Effectiveness - updates on Diversity and more

The ABI pushed out their Board Effectiveness update recently, which remains thematic rather than broad-brush, so I hoped to take something significant out of it, particularly around Board Diversity, which they have touched on before in a rather clunky manner, reflecting the uncertainty around the topic (specifically the gender element) last year when it was brought to the fore politically by Lord Davies report amongst other works


Diversity - apparently impossible
without symmetry...

 Staggeringly, the terms "Board Diversity" and "Gender Diversity" continue to be interweaved, which flies in the face of recommendations around "diversity of perspective" (p8, then reinforced by Chairs on p18), which of course needn't be constrained by gender any more than class, race, age or all-round Manx rugged handsomeness...maybe not the last one then :-(

That said, the statistics have clearly improved over the year on overall female Board representation, despite some recent high profile FTSE 100 CEO resignations leaving things at the Executive end somewhat less positive. Some benchmarks included on what "good" looks like in the context of disclosures and gender diversity policies, with M&S (what we're doing) and Vedanta (why we can't do it) representing opposite ends of the inclusivity spectrum while remaining concise. Good stuff on examples of gender diversity policies and affirmative action from p31-33 as well.

The ABI have also picked out the trend of using existing relationships with remuneration consultants/auditors to spin-off independent Board evaluation work to, and have recommended that it cease, and be replaced by something more independent (hmmmm, wafer thin market and lack of independence - sound familiar to anyone in IMAP?)

FTSE results and spare capital - Old Mutual

UK results season - my favourite time of year (note to self: get out more). Old Mutual have put their goodies in the window today, and while not disclosing how much Solvency II project spend they have laid out in the last year, they have been very bullish on project preparations to date, for example;

• "The Group comfortably met the recent stress tests required under the EU-wide Solvency II project"
• "In tests there was no scenario when the Group's capital reduced below the SCR level. "
• "We were the first major UK retail group to submit Group QIS5 results and the Self Assessment Questionnaire on the internal model to the FSA" - not such a boast now the FSA have ripped the template up!

They also indicate the most material uncertainties left in the EC/EIOPA/Parliament squabbling,which is very refreshing - latter seems most perturbing on their front;

·         "Discussions on the treatment of EPIFP (Expected Profits In Future Premiums) have moved in a positive direction and we believe they are likely to be eligible as Tier 1 capital under Solvency II".

·         "Bermuda was included in the first of three groups of non-EEA jurisdiction equivalence assessments. EIOPA‟s findings from this assessment were inconclusive and will be revisited this year. The equivalence of South Africa will be reviewed in 2012 as part of the second group of assessments".

·         "The latest draft regulations have suggested that a short contract boundary may be applied to some of the Group‟s long-term unit-linked insurance business. We believe this proposal is not aligned with an economic balance sheet valuation of this business and we have raised concerns about this definition with the FSA and other bodies".

The bits on capital are just as lively as those released to date (captured here and here), with some shenanighans regarding what is in and what is out for FGD surplus purposes on bond capital where they have followed Aviva's "but if we show it like this it's better..." philosophy!

Their FGD requirement actually came down y-o-y unlike Aviva's, though this was by virtue of "required capital" falling by more than the "available capital" fell by (if that makes sense!). Most bizarrely, the UK-specific regulatory capital coverage went from 2.8x to 5.1x to 2.0x between Dec-10/Jun-10/Dec-11 - no idea what to think about that!

Interesting post-script in light of the multiple moves on Boardroom diversity (or "gender diversity" as it might as well be called) is that they have ticked off a couple of boxes with a new NED hire. As I recall they have committed to a gender-specific target by 2014-15, and this obviously gets them going. I'm certain the 30% club might like to see more executive directors however... 

Late Post-script - Annual Report and Accounts and Annual Review and Summary Financial Statements published at the end of March contains all the ORSA-related disclosure materials one could want (p74-88)

ABI Report on Board Effectiveness - board diversity

The ABI pushed out the findings from their research on board effectiveness, predominantly covering diversity, succession planning and board evaluation. The document itself will be available from tomorrow (the ABI press release link is the best I can do), but I had a look through an advance copy.

The purpose of the report is to focus on the three areas above that they believe "can help ensure an effective board and ultimately contribute to the success of the company", and they make a suite of best practice recommendations. Diversity is more on topic for me, as I suspect smaller insurers may struggle to meet any formal or informal quotas by 2015, while simultaneously meeting the Fit & Proper requirements of the management body under Solvency II, without padding out board with token non-exec female representation (and indeed the ABI allude heavily to tokenism in their advice).

The recommendations cover making the achievement of diversity a key objective when making appointments; stating steps taken to achieve it, and expanding on these in AR&A documents; widening the search for NEDs; developing more women throughout the corporate pipeline; and setting and reporting on objectives to promote gender and other diversity in companies.

I found that the advice is a little light and contradictory - while extolling the virtues of diverse boards, the ABI are against quotas for example, citing the likelihood of "two-tier" boards (two-tier, but better surely?). Norway is cited negatively, which is surprising, and the "marked increase" in 2011 female appointments does not appear to have been linked to two-tierism, despite the speed at which it has materialised pointing towards a "quantity not quality" scenario.

There are a couple of good bits covering attrition rates at FTSE 250 firms (smaller boards, lower attrition, and therefore should evidence their plans and objectives, rather than be obliged to artificially meet target level of gender diversity. They also show a good example of the problems on the hiring front, where one company was previously receiving almost exclusively male long lists for NEDs (now rectified by the recruitment firms voluntary code which requires 30% female representation on the lists).

Finally, a couple of amusing best practice examples - the Man Group and Mothercare are both cited for good work in this area. Coincidence, or does someone at the ABI have a sense of humour!

Gender Diversity on Boards - the drive continues...

Lots on gender diversity this week, which I keep a watching brief on for obvious corporate governance purposes as well as impact on the post-Solvency II board, bearing in mind the Level 3 guidance on System of Governance in the area of "collective knowledge, competence and experience of the management body" (Guideline 12).

The Guardian highlighted progress towards Lord Davies recommendations (where the 6 month "ticker" has almost "tocked"), and flagged that there is some rather specious cramming of female non-execs since February to get the numbers up (only 1 executive appointment since Feb!). Interestingly, the responses sent to the FRC on adding a piece into the Corporate Governance Code on promoting diversity have been mostly in favour.

Looks like the 25% target could be a while away yet, and may be against the spirit of Lord Davies intent if completed by using the Non-Executive tactic.

The FT also flagged up a drive in Norway to extend the 40% female quota past listed entities and on to large unlisted companies (where it currently stands at 17% in the numbers quoted). The positive criteria cited made me chortle with my own inadequacy, namely that female board candidates;

• Are younger and better educated
• Are less risk prone (NB as a risk professional I have no idea what to think of this "trait")
• Are not as driven by high salaries and bonuses
• Generate deeper and broader discussion 

Evidence cited below this argues against, whilst highlighting that it is a fait accompli when considering the political persuasion of the current government.

Staying in Scandinavia, I checked out the recently revised corporate governance code in Denmark. Whilst they have a number of pieces on board "diversity", its benefits, and recommendations on regular reporting on diversity, they also slip in a clause (4.1.4) recommending the board discuss annually their activities to "ensure diversity at management levels, including equal opportunities for both sexes", as well as recommending that "measurable objectives" be set to this respect and publicly commented on.

Further comment gets to the heart of the recommendation by using the proportion of women at specific management levels as an example - they could just put the quota in and be done with it!

Gender diversity on UK Boards - raising the stakes

Becoming a meatier story by the week, the efforts of city headhunters to begin the (necessary?) positive discrimination to up the numbers of women on boards may or may not have the desired effect by the time the Davies committee reports in October.

Supplemented by the Home Office's memo this week that they are expecting more action to achieve the "25% by 2015" targets, it has all the hallmarks of a badly driven juggernaut. The quote "It's about improving performance and having a board that reflects and understands its customers" I found particularly grotesque (offensive to both sexes I would suggest - "Greedy Man" needs empathy lessons from "Lovely Lady").

From the Solvency II angle, this would be much better parked as a requirement in the Corporate Governance Code a.s.a.p, as the Fit and Proper requirements on the Level 2 & 3s are shooting at hard skill sets, so there may need to be some promoting done in UK insurers to get to 25% with sufficient hard skills by 2014/15

Vince Cable speech at the ABI Conference

Always noce to get a steer from Government on future policy in the governance world (bearing in mind that, even with a coalition, it will get enforced quicker than Solvency II!).

Dr Cable in his speech to the ABI today seems to be fishing hard at the "voluntary" targets for improving gender diversity on boards (I believe if enough FTSE companies haven't declared by September we are probably looking at quotas). Executive pay and short-termism also feature high on the Business Secretary's agenda.