Women on Boards: as the public and third sectors do better than PLCs, is there anything to worry about?

In November I blogged on the possibility that Lord Davies’s independent review into Women on Boards would recommend mandatory quotas for boardrooms. Yesterday, Lord Davies’ report was launched; I opens with the bald fact: at the current rate of change it will take over 70 years to achieve gender-balanced boardrooms in the UK. However, his report does not recommend quotas. It recommends that FTSE 100 companies should be setting their own targets for a minimum of 25% female board member representation by 2015.

Lord Davies’ report also recommends that the Financial Reporting Council should amend the UK Corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity. This would include how they would implement such a policy and require an annual disclosure summarising progress made.

Corporate Governance Code requirements usually flow through to the governance codes and requirements in the public and third sectors. Targets of 25% would not make sense in many organisations where women are well represented. (Last week I was presenting at a housing conference. When I started talking about gender balance on boards, one of the seminar participants pointed out that housing associations do much better than the 7.8% figure for women on the boards of FSE250 companies.)

While sectors such as housing associations may do better but there is no room for complacency when 37% of board members are women and only 21% of board chairs and chief executives.

Women, diversity and board quotas

At the weekend The Guardian reported that the Lord Davies is considering gender quotas as part of his review for the Department of Business, Innovation and Skills into the obstacles that prevent more women from reaching senior positions in business.

The suggestion of quotas will raise howls of protest. In the summer the Institute of Directors’ queried the way that the revised UK Corporate Governance Code highlighted gender as an important factor in making appointments to the board. It said: “By including gender in the Code, there is a risk that the Code will increasingly become seen as a tool of social policy rather than good governance.”

While I do not share the IoD’s concerns over the UK Corporate Governance Code, I do fear that quotas may lead to tokenism.

Business should, of course, work harder at finding suitable female board members. As women thin out in the higher reaches of business, maybe corporate boards should look further afield and outside the corporate sector for candidates for non-executives.

Generally changes in the corporate sector flow through to the public and third sectors. These organisations are generally more diverse at board level: for example, one-third of college governors are women compared with less than one-twelfth of FTSE250 board members.

Diversity, boards and the financial crisis

While the public and third sectors are (rightly) keen to become businesslike, it is worth noting that they can sometimes be ahead of the private sector. Diversity on boards is one area. For example, a third of FE college governors are women. Colleges and housing associations have been addressing the issue of having boards that have people from a mix of backgrounds. (Of course, they can do better.)

This week a report from Cranfield University School of Management found progress – albeit slow - in women getting onto corporate boards.

One of the authors made an interesting argument for more diverse boards: "We might not be in quite such a dire situation if there had been more females on the boards of banks. The evidence is that women are not more risk averse, but they are more risk aware."

More diverse boards were "less likely to fall into group-think or to accept the status quo," Ruth Sealy commented. "Decisions can take longer to reach, but they will be better."

Equality and diversity: the Third Sector struggling to match words with actions

The community investment foundation Olmec has just published A Guide to Equality and Diversity in the Third Sector (pdf available). The guide provides a useful set of signposts to more information.

The guide came out of the findings of an Olmec survey of 159 third sector organisations (pdf available). The study found that the third sector had its heart in the right place with 97% of organisations having an equality and diversity policy but problems in putting it into practice.

The study found more work needed to be done in two main areas:

Firstly in ensuring that the commitment to equalities is demonstrated at the
highest level of an organisation. Secondly that this commitment is transmitted across all policy and strategy areas as well as in individual work plans, performance targets, measurements and reporting requirements. In particular organisations current monitoring systems do not lend themselves to reporting on outcomes and the difference their work has had on those who it is set up to serve. Equalities monitoring was largely directed by funders requirements rather than because it was part of an internal drive to achieve better equalities outcomes or part of externally accredited quality standards.

Data, community cohesion, equality and diversity

Last week’s Public Finance has an interesting article by Professor Ted Cantle of the Institute of Community Cohesion (iCoCo for short).

On this blog I have expressed a certain wariness of some of the thinking behind the community cohesion agenda. In particular, I am uncomfortable with the hostility to multi-culturalism and the shift towards an emphasis on inter-cultural ignorance rather than inequality and discrimination. (I would add that I also believe that the public and third sectors need to treat this agenda seriously and connecting it in a progressive way to work on equality and diversity.)

After that caveat and caveat to my caveat, I would recommend Ted Cantle’s article. While talking primarily about the variety in the Muslim community (or communities), he notes more widely:

There is a real need to refine the crude total population data from sources such as the census to reflect the turnover of population and to map the complexities within communities. This would allow a move beyond a uniform approach to engagement and service delivery.

Too often organisations adopt a simplistic approach to using data in these areas – sometimes narrowly focusing on “targets” for “BME” (black and minority ethnic) access to services rather than thinking about what level of use would be expected and by which communities.

Productivity and diversity of perspectives

This week’s Global Business on BBC World Service was about developing effective teams. (The podcast will only be available for a week or so.) Professor Lynda Gratton of the London Business School talked about the key ingredients – which don’t include mandatory team building!

Like James Surowiecki in his excellent book The Wisdom of Crowds, Professor Gratton argues that diversity of perspectives results in creative tension and from that great ideas. She suggested that productivity in the UK would improve if corporate boards had a better gender balance.

That logic applies to the public and third sectors – and other perspectives: culture, belief, disability ethnicity.

Governance and diversity: an inspector calls in Norway - what can we do here to improve board diversity?

Things get serious in Norway next month. The Economist reports that public companies will shortly receive a letter informing them that they have until the end of February to act - or face the legal consequences (which could include being dissolved) - unless they ensure that at least 40% of their board directors are women.

A law passed in 2003 setting the quota has pushed board representation up from 7% to 36%. That compare with the UK’s figure of 11% tracked by Cranfield School of Management’s FTSE Female Index.

You might think that things were better in the public sector given the profile of equality and diversity. You would be right – but things aren’t OK.

According to a study last year by the Centre for Excellence in Leadership (CEL) only about one-third of Further Education college governors are women. (Studies suggest that diversity is poor in relation to age, ethnicity and disability too.)

Does diversity on boards matter?

The HR professional's institute, the Chartered Institute of Personnel and Development, says:

Diversity is ... the concept that people should be valued as individuals for reasons related to business interests, as well as for moral and social reasons. It recognises that people from different backgrounds can bring fresh ideas and perceptions which can make the way work is done more efficient and products and services better.

There is a strong case that diversity helps avoid groupthink.

What can be done by the public and not-for-profit sectors?

I would argue that the key is moving away from reliance on personal contacts and word of mouth – it still survives.

The CEL study mentioned above included in its recommendations:

* Open and Formalised Advertising of governor vacancies, with specific requirements on outlets used. Advertising should clearly specify the skills required to become a governor.

* Clear Messages in Advertising Material that ‘the college strongly encourages applications from all sections of the community’.

* Consider independent assessors on search committees who contribute to the screening, interviewing and assessing of applicants.

* Formalised Records on appointment decisions, which can then also be viewed in audit.

* Formalised induction and training procedures (especially on equality and diversity issues).

* Community outreach initiatives: to enhance applications from underrepresented groups, colleges should explore creative ways to reach out to local communities, consulting with students, staff and parents, for example, by focus groups and surveys.

Its findings also suggested that horariums for governors might be helpful. However, I would note that board remuneration can cause complications for diversity – particularly due to the anomalies and disincentives of the benefit system.

I would also stress the importance of organisations building links with networks in the community – rather than just the personal networks of existing governors.

Lessons from Ujima?

The demise of Ujima, the UK’s largest black and minority ethnic (BME) housing association has not had much coverage beyond some discussion in the Guardian and its blog (and, of course, Inside Housing). You might expect it to be bigger news – as Patrick Butler asks “Is this the housing sector's Northern Rock?”

For me Ujima raises three sets of questions:

1) How does this affect the social housing sector in the eyes of lenders? The Housing Corporation says that we do not need to worry. Yet this is the first housing association to go bust. Lenders are looking for safe harbours after the credit crunch. Is social housing as safe as they thought?

2) The related question – how good is regulation? The conventional wisdom (that I share) is that the Housing Corporation’s financial monitoring is generally good. Perhaps we need to check out lessons from Ujima. But we should not fall into the sloppy reasoning of presuming that because something went wrong therefore something was wrong. Bad things can happen even with good regulation.

3) Does this symbolise broader changes in thinking? In particular, why is the BME brand of Ujima being binned? What does this mean for organisational ethos? Over recent years “multiculturalism” has become taboo for much of the political class. Likewise, the discourse of cohesion has shifted towards an emphasis on the problem being inter-cultural ignorance rather than inequality and discrimination. For me, this was typified by the film American film Crash which I suspect was popular with British policy-makers. It seems to me contradictory and sad that when there is so much talk of co-production and community empowerment, black leadership and self-help seems to fallen out of favour.

Any answers?

Juries, boards and diversity

While recently traveling on crawling Russian trains and decrepit ex-Aeroflot planes I have been able to read some books. My holiday reading included the book by James Surowiecki on The Wisdom of Crowds. It is an interesting set of essays on the effectiveness of collective wisdom - collective wisdom even trumping individual experts. (He does explore when and how groups don't work as in stock market bubbles.)

I would recommend that you read the book if you haven't already. (Its been out a couple of years.)

I was particularly interested in the chapter on Committees, Juries, and Teams. Many of Surowiecki's comments have a bearing on governance and management.

Surowiecki argues that juries are either verdict-based (starting with the verdict and working back) or evidence-based. He also points to the influence on group decisions of the status and talkativeness of individual group members.

In making small groups work better Surowiecki stresses the importance of diversity of group members. This militates against "groupthink" and improves the chances of a "devil's advocate" emerging who can challenge and test the evidence and recommendations being put forward.

I see Surowieck's arguments supporting the case that boards and governing bodies should have a real social, gender, ethnic and skill mix. This isn't "political correctness" or just "tokenism" (although it can be, if done badly) - it is a vital contribution to making decision-making more effective.