Representation of women - focus on the pipleline

The Hampton-Alexander review recommends 33% representation of women for FTSE 100 executive pipeline by 2020.

Introduction

In July 2016, the UK Government announced a new review on women in senior leadership aiming “to help deliver the new progress for greater female representation in business, backed by government support”.

The review team, led by Sir Philip Hampton, Chair of GlaxoSmithKline and Dame Helen Alexander, Chair of UBM undertook a new review on improving female representation in leadership positions of British business, broadening the ambition to the entire FTSE 350 and raising the target to 33% of women on boards by 2020.

The review was focussed, in particular, on the talent pipeline and in November 2016 has now issued its report.

Our view

As we have said previously, to be fair to Lord Davies, his original recommendations were not just about female non-executive representation, and included a focus on female executive directors and senior managers. This latest review serves to double underscore the importance of the talent pipeline.

In addition to setting out its recommendations, the review contains a very helpful “How to” for companies to consider. The report urges organisations to focus and have stamina, “Once there is a clear understanding of the pipeline issues, initiatives need to be identified to address the specific challenges faced. It is critical not to leap to "easy" answers and there seem few organisations where the entire answer is an attrition problem for example. However, an organisation is likely to only have the energy for two to three challenges at a time and can expect at least two years before seeing substantive results.”

This latest review adds yet further weight behind the need to effect change both for economic and risk-management benefits. They come at the same time as the:

For an outline of the helpful guidance aimed at Board level appointments from the Equality and Human Rights Commission see here.

We still think that the mathematics of the 33% female board representation and talent pipeline and the transparency of gender pay gap reporting will expose very publicly which companies are well advanced in developing their pipeline of female senior management talent and from which a greater number of female executive directors can be drawn. The report itself starts this process by individually ranking the current performance of the FTSE 350 companies. Legislative change to require increased publication of data would, obviously, increase this exposure further.

The recommendations

The review finds that “it is clear that the voluntary business-led framework to improve the number of women at the top of British business is working” and it is time to extend the focus beyond the boardroom.

The Review includes a set of five recommendations. The first is a call to action for FTSE CEOs and includes a target for the FTSE 100. The second asks Government to improve the disclosure requirements on listed companies. There are two supporting recommendations for investors and executive search firms and the fifth re-iterates the 33% target for Women on Boards.

Women on Boards
  • Voluntary Target - FTSE 350 companies should aim for a minimum of 33% women’s representation on their Boards by 2020.
  • More women as Chair, Senior Independent Director and Executive Director positions on boards of FTSE 350 companies.
  • All FTSE companies to take action
FTSE Women Leaders
  • Voluntary Target and CEOs to increase significantly the number of women in leadership positions.
  • All CEOs of FTSE 350 companies should take action to improve the under-representation of women on the Executive Committee and in the layer immediately below, the Direct Reports to the Executive Committee.
  • Appropriate data is required as the starting point, with a clear plan of action focussed on retaining, re-attracting and promoting women to leadership positions, to address gender imbalance, the significant under-employment of women and costly loss of women’s skills to UK business and the economy.
  • Combined Target: FTSE 100 companies should aim for a minimum of 33% women’s representation across their Executive Committee and in the Direct Reports to the Executive Committee by 2020.
  • Action for the Nominations Committee: The Chair of the Nominations Committee should take an active role in overseeing the progress made to improve women’s representation on the Executive Committee and the Direct Reports to the Executive Committee. At least once a year the Nominations Committee should review actions plans and assess progress.
  • Transparency: FTSE 350 companies should voluntarily publish details of the number of women on the Executive Committee and in the Direct Reports to the Executive Committee on an annual basis. This should be disclosed in the Corporate Governance section of the Annual Report and Accounts and/or on websites.
Government Reporting Requirements
  • Financial Reporting Council Reporting Requirements: As soon as is feasible, the FRC should amend the UK Corporate Governance Code so that all FTSE 350 listed companies disclose in their Annual Report and Accounts the gender balance on the Executive Committee and Direct Reports to the Executive Committee.
  • BEIS Disclosure of Gender Balance at Senior Levels: Current legislation requires companies to disclose the gender balance amongst directors, senior managers and employees within companies’ annual Strategic Report. The current definition of ‘senior managers’ does not easily lend itself to making clear comparisons between companies in order to assess progress on gender diversity. The Government should, as soon as possible, consider how best to clarify or supplement the definition of “senior managers” in current legislation requiring companies to disclose the gender balance among directors, senior managers and employees within companies’ annual Strategic Report. This is to achieve a more consistent metric and should be based on the Executive Committee or its nearest equivalent in each company, and Direct Reports to members of that committee.
Investors
  • Governance: Progress on gender balanced Boards and in the leadership ranks of FTSE 350 companies should be assessed as a key corporate governance issue when considering their responsibilities under the UK Stewardship Code.
  • Policy on Gender Balance: All institutional investors should have a clear process in place for evaluating disclosures and progress on gender balance for FTSE 350 investee companies at Board level, on the Executive Committee and in the Direct Reports to the Executive Committee. They should also have a clear voting policy on gender balance which could include voting against the re-election of Chairs, Nomination Committee Chairs and the Annual Report and Accounts, where insufficient measures are in place in investee companies to address gender imbalance.
  • Communication: Investors should discuss and engage with investee companies on gender balance in particular where progress has been slow and vote in accordance with their policy. They should also publicly disclose their voting records.
Executive Search Firms
  • Redouble Efforts: to increase the number of women on FTSE 350 Boards and apply skills in supporting clients to increase number of women on FTSE Executive Committees and in senior leadership positions.
  • Development of Voluntary Codes of Conduct: Executive Search firms should consider extending the Code of Conduct and Enhanced Code of Conduct to include the Executive Committee and Direct Reports to the Executive Committee.

“How to?”

The helpful section on “How to”, works around familiar headings of:

  • Measure the pipeline
  • Establish the business rationale and set a target
  • Create a limited set of initiatives to address the most critical pipeline pain points
  • Ensure line managers drive improvements, and
  • Regularly re-measure and refresh the programme.

The Hampton-Alexander review

Aims of the review

The review focussed on ensuring the very best of female talent make their way up the pipeline by removing barriers to their success, and by continuing to drive forward the momentum from Lord Davies’ work - which pushed the numbers of women on FTSE 100 boards up from 12.5% to 26%.

Executive layer and boards

The Hampton-Alexander focus is on representation on executive committees and Direct Reports to the executive committee in FTSE 350 companies. The review championed continued increases in the representation of women on boards across the FTSE 350.

Comments made in the announcement of the review suggest that:

  • While Lord Davies’ work has pushed numbers up, the pace of change has not kept up after the Davies Closing Report.
  • In order to meet the 33% target for FTSE 350 boards by 2020, a constant turnover is required and an appointment rate of one in three board positions going to women. Recently, turnover rates have decreased, with fewer people leaving and joining companies and the percentage of new appointments going to women over the past six months is dropping below the one in three required to meet the 33% target.
  • Progress in the executive ranks and in the executive pipeline remains very slow. Only 9.7% of executive directors in the FTSE 100 are women, dropping to only 5.6% in the FTSE 250.
  • Research shows that rigorous gender metrics and voluntary targets are effective tools that companies can use to redress their gender balance and achieve cultural change.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.