Efforts to improve female representation on U.K. boards has improved in recent years, but it is mainly non-executive roles where change has been more immediately made. For example, according to the New Financial report, Women in U.K. Financial Services 2016, women CEOs in the U.K. financial services sector still only account for 6 percent of the total—the remainder are dominated by the “male, pale, and stale” brigade.
Consequently, on Aug. 12, the Prudential Regulation Authority (PRA), the Bank of England’s body in charge of supervising regulation in U.K. financial firms, published an open letter—as a “gentle reminder”—of the important role that diversity plays in promoting good governance. It was also intended to nudge firms to remember the mandatory obligations they need to take to improve gender diversity in the boardroom.
The letter—issued on the back of the European Banking Authority’s (EBA) Report on the Benchmarking of Diversity Practices, which measures the progress firms have taken (or not) to redress male bias in the boardroom—warns firms that diversity is essential to ensure good corporate governance in the long term, and that “there is a risk that group-think undermines good governance in firms, leading to decisions which impact the safety and soundness of firms being arrived at without sufficient consideration of a broader range of viewpoints and perspectives.”
Strong words indeed—but mostly ignored, it seems. The publication of the EBA report on July 8—a month before the PRA issued its related press release—showed that just 15 percent of U.K. firms surveyed had a policy on promoting diversity in boards. This is despite the fact that capital requirement regulation (CRR) firms have a mandatory obligation under the General Organisational Requirements chapter of the PRA Rulebook to “put in place a policy promoting diversity on the management body,” as well as explain on their website how they comply with this requirement.
Furthermore, “significant” firms—both in terms of size and impact—are supposed to have a nomination committee (that excludes executives) that decides on a target for the number of women who will sit on the management body and that also ensures there is a policy to meet this target.
“Firms should consider diversity when recruiting members to the management body, and we are interested in how they have promoted diversity of the people who perform senior management functions,” says the PRA letter.
A Bank of England spokesman confirmed that the letter was a “direct response” to the EBA report—though it is not clear why the BoE took over a month to formally respond. The spokesman also confirmed that 100 percent of CRR firms should already have published diversity policies and that the PRA could follow up with enforcement action if firms persistently fail to devise and publish such policies. Any immediate action for non-compliance seems unlikely, however. “We prefer firms to follow our rules rather than take action against them,” said the spokesman.
While evidence suggests that financial services firms are more diversified with regard to age, educational, professional background, and professional knowledge/experience of different geographic markets, the EBA report makes for some disappointing reading. For example, based on data from the 873 firms in the sample, female boardroom representation is still very low, with 13.6 percent in the management function and 18.9 percent in the supervisory function.
“True diversity in some financial services businesses at board level—and indeed throughout the hierarchy—is not being achieved to the level we would like, but that’s not to say that these firms aren’t doing something about it.”
Kate Headley, Development Director, The Clear Company
Of 588 executive directors recruited by financial firms during 2014, less than one-fifth (19.39 percent) were women. Furthermore, in spite of the legal requirements introduced by the EU Capital Requirements Directive (CRD IV) that came into effect on Jan. 1, 2014, only one-third of institutions surveyed (35.5 percent) have adopted a diversity policy—and even those differed greatly between Member States. In the United Kingdom, just 15 percent of those sampled had such a policy in place.
Only two-thirds of those firms with a diversity policy promote gender diversity as part of it. Some institutions have set a target percentage for the under-represented gender—though in most cases these targets have not been met. Some firms even set the target at 0 percent within the adopted policy. Very often, institutions did not indicate a timeline within which they intend to achieve their target—or any target—outlined under a future policy.
Of the 30 European Economic Area countries surveyed (the EU 28 member states, plus Norway and Iceland), 10 countries—including the United Kingdom—have situations where men account for 90 percent or more of the executive management positions. (Greece is the highest, with 97.37 percent of executive positions taken by men, followed closely by Denmark and Germany at 96.08 percent and 95.18 percent, respectively) More than two-thirds (69.42 percent) of the total 873 institutions have no female executive directors.
Women in non-executive positions fare a little better (10 countries hit or exceed the arbitrary 20 percent threshold that many have set as targets, including the United Kingdom), but four countries still have men accounting for over 90 percent of roles on average—Malta, Slovakia, Portugal, and Cyprus. Only Iceland has more female non-executives than male counterparts (52.38 percent compared with 47.62 percent).
Finland and Norway have traditionally led the way with female representation both at executive and non-executive levels (Finland has 30.77 percent female executives and 24 percent female non-executives, while Norway has 27.07 percent and 35 percent, respectively). But a number of former Eastern bloc countries show that they are more progressive in terms of diversity than their western European counterparts. Bulgaria, for example, has 40 percent of executive roles taken by women, followed by Croatia with 32 percent, Lithuania with 29.41 percent, and Estonia and Romania each with 25 percent. Hungary, meanwhile, has the third highest proportion of female non-executives at 28.57 percent after Iceland and Norway.
Yet, despite financial services firms across the EU failing to comply with the law, don’t expect any hardline action from the EBA or any other supervisory authority. The EBA says that it will “continue to monitor” the development of diversity in management bodies and issue periodical benchmarking reports. It is also developing guidelines on the notion of diversity—over two and a half years after introducing the rules. The European Commission, the EU’s executive body, is also mandated to review the appropriateness of diversity benchmarking by the end of this year. No firms have been named or publicly censured for their failure to hit targets or even devise policies—and none will be for the time being.
EBA STATS ON DIVERSITY
The European Banking Authority (EBA), the umbrella standards setter for EU-based financial institutions, and national banking regulators across the EU are required to benchmark diversity practices within institutions’ management bodies.
At the same time, financial services firms are required by EU law to have a diversity policy in place, while “significant” firms must also set a target to increase the number of “the under-represented gender”—meaning women, for the main—in the boardroom, both on the executive and supervisory boards.
The executive summary of the EBA’s latest Report on the benchmarking of diversity practices states that 873 institutions across the EU and EEA supplied data, representing 14.3 percent of all eligible institutions.
The EBA found that despite the legal requirements, only a “limited” number of institutions have already adopted a diversity policy. Furthermore, the policies adopted differ significantly between member states, particularly regarding gender diversity targets.
More importantly, the actual level of gender diversity in the boardrooms of financial institutions is low. Women account for just 13.63 percent of executive positions in EU banks and 18.9 percent of all non-executive roles. Worse still, more than two thirds (69.42 percent) of institutions feature no female executive directors.
Presently, the EBA has not said that it intends to take any action against those firms that have not developed a diversity policy or set their own targets—it will simply continue to “monitor the development of diversity in management bodies and issue periodical benchmark studies” for the moment.
The European Commission is also mandated to review the appropriateness of diversity benchmarking by the end of this year.
The European Banking Authority’s (EBA) Report on the benchmarking of diversity practices can be found here.
The EBA/PRA drive is not the only diversity benchmarking initiative that has recently involved the United Kingdom or financial services firms. Regulations on mandatory gender pay gap reporting come into effect in the United Kingdom from Oct. 1 this year for companies with over 250 employees: They are due to make their first reports by April 30, 2018.
Elsewhere, a series of reports and reviews has made the case that diversity makes good business sense and that gender inequality at senior levels (or any level, for that matter) is unjustified. Jayne-Anne Gadhia’s report, Empowering Productivity, was published on March 22, 2016. It cites a number of research studies where the business case of having women in senior management positions has clearly been shown, including a 2012 Credit Suisse report, Gender diversity and corporate performance, that maintains the average return on equity of companies with at least one woman on the board was four percentage points higher than those companies with no female board representation. Moreover, research by management consultancy McKinsey from 2015, called Diversity Matters, reveals that companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their national industry medians.
More recently, on July 11 HM Treasury published the 72 signatories to its Charter for representation of women in senior management in financial services. The initiative has garnered strong support from the British Bankers Association (BBA), with CEO Anthony Browne saying that it wants “to help ensure the days of the old boys’ club are numbered.”
Also in July, the U.K. Government announced a new review on women in senior leadership roles. Led by Sir Philip Hampton, chair of pharmaceutical company GlaxoSmithKline, and Dame Helen Alexander, chair of business events and publishing company UBM, the review will focus on improving female representation in the entire FTSE 350 and raising the target to 33 percent of women on boards by 2020. The previous review by Lord Davies focused solely on the FTSE100 (though it helped to double the number of females on FTSE 100 boards from 12.5 percent to 26 percent).
However, research by law firm Simmons & Simmons suggests that achieving such results is not going to be easy. In order to meet the 33 percent 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. Unfortunately, the percentage of new appointments going to women over the past six months has dropped below this rate already. Progress in the executive ranks and in the executive pipeline also remains very slow. According to Simmons & Simmons, only 9.7 percent of executive directors in the FTSE 100 are women, dropping to only 5.6 percent in the FTSE 250.
Experts largely applaud efforts so far to raise the issue of women on boards, but the slow pace of actual boardroom appointments—particularly in the executive board—has disappointed some. “True diversity in some financial services businesses at board level—and indeed throughout the hierarchy—is not being achieved to the level we would like, but that’s not to say that these firms aren’t doing something about it,” says Kate Headley, development director at diversity consultancy The Clear Co.
“The fact that recently 72 firms signed up to a new government Charter designed to improve gender diversity in senior positions within financial services demonstrates a real dedication to addressing this issue, but more still needs to be done,” she adds.
Lief Anya Schneider, managing director of SBC London, a PR firm and corporate reputation specialist, is more cutting. “In the past, composing a financial services boardroom solely of white, heterosexual men was, regrettably, the norm and, disturbingly, increased trust. Today, it depletes it. Stakeholders of financial services companies are now used to more diverse boards and increasingly expect boards composed of all the talents available. Having a non-diverse board is now a risk,” she says.
“Long-established financial services firms that have not diversified are now shooting themselves in the foot,” adds Schneider. “Their competitors are coming across as fresher, more innovative, and forward thinking.”
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