The Hampton-Alexander Review (the “Review”) has this month published a report and recommendations on improving gender balance in FTSE leadership. The Review’s report provides a progress report on women on boards of the FTSE 350 group of companies as at 1 October 2016 and builds on the work of the Davies Review, which was published in February 2011.

Background

The Davies Review was published with the aim of developing a business strategy to increase the number of women on the boards of UK listed companies and identified four key business reasons why companies should consider a balanced board:

  1. to improve corporate performance – a diverse board will be better able to make rounded decisions;

  2. corporate governance – evidence suggested that gender-balanced boards have a greater focus on corporate governance;

  3. to access the wider talent pool – at the time, around six in ten graduates in the US and Europe were women; and

  4. market responsiveness - companies need to understand their customers and the majority of women tend to make household purchasing decisions and make up around half the work force and are therefore likely to influence decisions in other areas besides consumer purchasing.

On 7 July 2016, the BIS announced an independent review on female representation at executive level in FTSE 350 companies and the Review’s terms of reference included considering options, to make recommendations and to work with the business community and others to improve the representation of women below the board in the senior layers of FTSE 350 companies and to champion work to continue improving the representation of women on FTSE 350 boards.

The Review’s report

The Review’s report builds on the work of the Davis Review in increasing the number of women on FTSE boards and its scope extends to improving the representation of women in leadership positions of FTSE 350 companies.

In the report, the Review has determined a set of five recommendations:

  1. Women on Boards – the FTSE 100 group of companies should aim for a target of 33% women’s representation on boards by 2020. This target is voluntary for FTSE 350 companies, but the report recommends that they should also aim for this percentage;

  2. FTSE Women Leaders – the FTSE 100 group of companies should aim for a minimum of 33% women’s representation across their Executive Committees and in the Direct Reports to the Executive Committees by 2020. FTSE 350 companies should take action to improve the under-representation of women on the Executive Committees and 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 and submit this data to the Review;

  3. Government Reporting Requirements – the Financial Reporting Council should amend the UK Corporate Governance Code to require FTSE 350 companies to disclose the gender balance on their Executive Committee and in Direct Reports to the Executive Committee in their annual report;

  4. Investors – all institutional investors should have a clear process for evaluating disclosures and progress on gender balance for FTSE 350 investee companies at board level, on the Executive Committee and in 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 and nomination committee chairs and also the annual report and accounts where insufficient measures are in place to address gender imbalance. Further, 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 responsibilities under the Stewardship Code; and

  5. Executive Search Firms – they should build on success so far and continue their efforts to increase the number of women on FTSE 350 boards and have a clear process for evaluating disclosures and progress. They are also asked to consider extending their codes of conduct to include the Executive Committee and Direct Reports to the Executive Committees.

Next Steps

The Executive Summary to the report indicates that the pace of increase of women on boards has slowed in the last twelve months and that there may be a degree of complacency with the FTSE 100 having reached the 25% target in 2015. However, it notes that businesses are increasingly aware of the value of diverse perspectives, although there is much more to do if companies are to harness the full extent of women’s skillset for the benefit of business and the UK economy.