24 February was the day of the ‘big reveal’ for the Hampton-Alexander Review – the announcement of who amongst the FTSE 350 had met or missed the target of 33% women on boards (and the two levels below). All indications in the run-up to the 31 December 2020 cut-off were that the target would be met across the FTSE 350 as a whole and that has, indeed, turned out to be the case. The picture on a company by company basis is more mixed - 220 FTSE 350 boards (comprising 68 in the FTSE 100 and 152 in the FTSE 250) have met or exceeded the 33% target, with a further 15 committing to do so in the coming months.

The Hampton-Alexander Review was established five years ago, picking up the baton from the Davies Review and shining a light on female representation and gender imbalance on FTSE 350 boards and in senior executive positions. The Review’s stated aim was to ensure that talented women are recognised, promoted and rewarded. Its five recommendations focussed on increasing the number of women on boards and the two layers below, amending requirements for corporate disclosure and encouraging executive search firms to assist where possible.

Progress reports have been published annually, and expectations have been raised over time. Criticism has been levelled by Hampton-Alexander and the Investment Association not only at all-male boards (of which there are now none in the FTSE 350), but also at the “one and done” boards which have only one female director – a position described as “tokenistic”. In a sign of significant progress, the final Hampton-Alexander report reveals only 16 “one and done” boards, down from 74 at the end of 2018.

Having achieved a 100% overall pass rate against the previous targets, attention will now shift to whether a new set of targets is needed. The decision as to whether to commission a follow-up review rests with the government, but Sir Philip Hampton took the opportunity to highlight in the final report his recommendations for future progress. These included:

  • The presence of at least one woman amongst the four roles of Chair, CEO, Senior Independent Director and CFO;
  • The publication by companies of a gender pay gap report specifically covering their board and executive committee, to “shine a light on the pronounced structural subordination of women in most boards and executive committees”; and
  • An annual review by BEIS and the GEO with the Investment Association and other investor groups of any voting sanctions (eg ‘Red Top’ advice to shareholders) applied to listed companies which fail to meet the gender targets they have set.

The recommendations do not include an increased target for women on boards, although Sir Philip Hampton noted that some members of the Review’s steering group had favoured a recommendation of 40% for future female representation, and Denise Wilson (the Review’s CEO) commented that 33% is now generally viewed as a minimum (with gender balance being the real target).

Attention is increasingly focusing on a qualitative, as well as quantitative, assessment of the board and senior leadership roles that are being filled by women. It is clear that the increased female representation on boards is largely due to NED appointments, with only 14% of executive board roles in the FTSE 100 being filled by women. Progress is also slow in respect of female representation in Chair roles, with only 39 FTSE 350 companies being chaired by women.

Interestingly, even amongst the top-performing FTSE 100 companies for female board representation, the picture below board level is less positive – just over half of the top 20 companies failed to meet the 33% target for the two levels below the board.

The reputational impact of failing to meet the Hampton-Alexander targets may, of itself, provide sufficient incentive for any remaining laggards to strive for greater diversity. However, additional ‘teeth’ emerged recently in the form of the 2021 proxy voting guidelines issued by ISS. ISS says that it will generally recommend against the re-appointment of nomination committee chairs where a FTSE 350 company doesn’t meet the Hampton-Alexander standard of 33% of women on the board. Even in the absence of a further review being commissioned by the government, investor pressure of this sort will provide an ongoing incentive for boards to ensure that their diversity statistics improve.

One point recognised by the Hampton-Alexander team is the important and increased focus on other forms of diversity, beyond gender. A potential challenge for companies in the years to come will be juggling their efforts to achieve diversity on a broader basis and to meet a range of targets. An obvious example is the Parker Review targets, which require FTSE 100 boards to have at least one director of colour by 2021 and FTSE 250 boards by 2024. The most recent Parker Review report lamented the very slow pace of change in this area, and the work that remains to be done to achieve the targets set.

As we enter reporting season for companies with 31 December year ends, thought must be given to the statements made in the annual report around diversity. Emphasis is now placed on the importance of transparency and detail when it comes to a company’s diversity agenda. There is an expectation that companies will set out not just what they intend to achieve, but also how they will do so. We expect increasing focus by investors on companies’ reporting on diversity targets and progress, with a particular emphasis on what is being done to move the dial.