Unlock the Publisher’s Digest for free
Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
Large UK companies have made good progress in improving gender diversity on their boards. Their smaller peers are disappointing.
To be sure, board composition is rarely a top priority in the early days of building a business. But the UK’s growing companies will need to get their act together if they are to attract more institutional money.
Chancellor Jeremy Hunt would like pension funds to invest more money in the UK’s growth companies – or “unlisted shares” which (perversely) include companies listed on London’s Aim junior market and the Acquis exchange.
It remains to be seen how much money will flow from the so-called Mansion House Compact, signed by nine of the UK’s largest pension providers. But those who seek opportunities may bring with them higher expectations.
Smaller companies are subject to less stringent corporate governance rules than larger companies in London’s prime market, for good reason. They are also less scrutinized on issues like diversity.
The FTSE Women Leaders Review, for example, tracks female representation on the boards of the FTSE 350 and 50 of the UK’s largest private companies. The initiative has already achieved its goal of ensuring that more than 40% of FTSE 350 board seats are held by women by the end of 2025.
However, according to advisory groups Indigo Independent Governance and Addidat, just under 16% of board positions at publicly traded companies are held by women, although this is an improvement from 13.7% the previous year .
Gender diversity is just one way to ensure that boards do not fall prey to the dangers of groupthink. Boards should consider other factors such as ethnicity and socioeconomic background. However, gender is an indicator that a board is committed to a strong mix of skills, knowledge and experience, says Bernadette Young, co-founder and director of Indigo.
This could be a test of whether institutional money can take a pragmatic approach on such governance issues. Boards of young, founder-led companies can have low turnover when they are in growth mode.
Standards are already changing. Last year the Quoted Companies Alliance updated its corporate governance code for growing companies, which recommended boards “understand and challenge” their diversity, including gender balance.
Other concerns are keeping institutional investors away from UK small caps, including liquidity and a dearth of good research. Getting a vote on basic governance rules – or even on goals to improve – is at least within the power of boards of directors to change.
nathalie.thomas@ft.com