In 2011 the EHRC commissioned Cranfield School of Management to carry out the first in-depth study to examine the corporate Board appointment process, how it operates in practice and the role of executive search firms (ESFs) in this process. A particular emphasis was placed on what was being done to make Boards more gender balanced. It followed the recent Davies Review which called upon executive search firms to take on a more active role in increasing gender diversity on FTSE boards.
In 2011 research showed that women were underrepresented on FTSE Boards with only 12.5 per cent of directors of FTSE 100 Boards and 7.8 per cent of directors of FTSE 250 Boards were women. Moreover, only 32 per cent of FTSE100 companies disclosed the number of women directors on their Boards. The business case for gender diversity on boards relates to four key dimensions
- improving performance
- accessing the widest talent pool
- being more responsive to the market
- and achieving better corporate governance
The report reveals that many chairmen and search firms recognise that gender diversity should be increased at board level. Search firms have introduced a voluntary code of conduct and had some success at getting more women on long lists. But when it comes to short-listing and appointing, successful candidates tend to be those who are perceived as ‘fitting in’ with the values, norms and behaviours of existing board members, who are largely men.
The report identified examples of good practice at executive search firms, but concludes that a more transparent, professional and rigorous approach to the selection process would allow chairmen and search agencies to appoint more female candidates and encourage more women to consider applying for roles as non-execs.
Duty bearers targeted, and their specific obligations (if any)
The duty bearers targeted were:
- SME’s (small and medium sized enterprises);
- Large employers
Main objective of the project
The main aim of the project is to set standards for fairness and transparency in non-executive appointments and for board appointments to always be made on merit, with the best qualified person getting the job.
The tools chosen were "Information and awareness raising’ and "Research". The EHRC commissioned Cranfield School of Management to carry out research into the new search code of conduct developed by the executive search firms working in the sector to highlight why women were under-represented on Boards.
Whilst the research revealed good practice amongst certain executive search firms (ESFs), it also revealed a lack of consensus with regards to the appointment process. To tackle this, the report makes recommendations including:
- as intermediaries in the executive labour market, executive search firms need to set clear definitions as to what is sought from board candidates, beyond their experience.
- executive search firms, chairmen and nomination committees need to review the interview process to make it more transparent, rigorous and professional.
- executive search firms need to invest more time into developing relationships with women in the pipeline who could become executive or non-executive directors later in their careers.
- executive search firms need to carry out regular reviews of the effectiveness of the voluntary code of conduct.
Other recommendations based on the evidence reviewed and the interview findings are:
- More transparency and documenting of best practice and initiatives around gender diversity by ESF’s are needed. Not all search firms invest the same effort into documenting and formalising best practice internally.
- Search firms, Chairmen and Nomination Committees need to pay additional attention to the interviewing practices employed during the appointment process. Some of the interviews conducted by Chairmen and other Board members in the appointment process lack rigour and are consequently focused on subjective aspects such as fit and personal chemistry. There is a need for more transparency, rigour and professionalism in the way that Chairmen and other incumbent board members conduct selection interviews.
- When assessing candidates, Chairmen and Nomination Committees need to shift the emphasis from prior experience to underlying competencies.
- ESFs need to invest more time into developing relationships with women in the pipeline. There needs to be a shift in the way that search consultants engage with (potential) female candidates.
- ESFs and Chairmen need to be more willing to take on developmental roles during the appointment process and beyond, in order to ensure that there are more women NEDs.
- Investors need to play a bigger role by putting pressure on companies to have gender-balanced Boards.
- Board openings need to be publicly advertised in order to increase the transparency of the appointment process
- There needs to be more emphasis on having women in executive roles. Several ESFs stressed that the executive and non-executive pipelines of female talent are closely related and argued that companies should support women’s careers in order to ensure that sufficient women come through at the top of their executive ranks.