The Financial Reporting Council (FRC), the body responsible for the Corporate Governance Code, has published a discussion paper on board succession for executives and non-executives, including a section on diversity.
The FRC’s interest stems from the fact that the quality of succession planning is one of the most frequent issues highlighted as a consequence of board evaluation. The FRC also wants to address the Parliamentary Commission on Banking Standards’ recommendations on issues around director nomination; in its final report, the Commission commented that there is a widespread perception that some “natural challengers” are sifted out by the nomination process.
In this context, one of the key issues the FRC explores is diversity – how should a succession plan incorporate diversity objectives and what more can be done to encourage greater diversity in the boardroom?
The Corporate Governance Code was updated in 2010 – to introduce the need to consider gender when evaluating a board's effectiveness – and again in 2012 to require greater reporting about a board's policy on diversity generally. Now the FRC points to the benefit of diversity in avoiding "groupthink" in succession planning – conformity leading to poor-decision making. It also warns against the risks of unconscious bias, one example being a perceived concern that the success of the Davies' target of 25% women on FTSE 100 boards has resulted in less experienced individuals being appointed.
There is also a suggestion that the Code's reference to a nine years' tenure for independent non-execs needs to be looked at, as this may well hinder the increase in the number of women on boards.