Men from working-class backgrounds may be being pushed off Britain’s top listed company boards to make room for a new generation of better educated, better connected women, the governance regulator has warned.
The Financial Reporting Council said that the desirable trend to better represent women in boardrooms might be having the unintended consequence of pushing out men from lower socio-economic backgrounds.
The council said the latest statistics on board composition by gender and socio-economic status (SES) “could suggest that the increasing number of women is being achieved by appointing high SES women in place of low SES men”.
“In other words, we have to ask the question whether we are replacing one under-represented group with another,” it said in a landmark report into diversity in the boardrooms of FTSE 100 and FTSE 250 companies.
The report, conducted with the London Business School, illustrated the way company chairmen and headhunters are grappling with the pressure to create more diverse boards — by gender, race, age, nationality and class.
The report found fresh evidence that more women in the boardroom was associated with better future financial performance in terms of profits and higher stock market returns. [J4MB: Bullshit presentation of correlation as causation.]
It said there was less hard evidence [J4MB: Less than nothing?] for the financial benefits of more ethnic diversity in boards but said it was associated with more harmonious relations with shareholders, with less investor dissent.
The report found that while there was strong buy-in to the benefits of board diversity, most respondents cited personality type as the most important factor in creating more diverse and effective boards. Fifty-five per cent thought this most important, followed by gender (11 per cent), age/experience (10 per cent) and functional expertise (8 per cent).
Race and ethnicity was cited as the most important factor by just 1 per cent, while the class background of candidates scored 7 per cent.
The study found 28 per cent of directors came from a low SES background, compared with 48 per cent of the general population. It used factors such as whether the person was privately educated, whether they went to university, and the occupation of their parents to determine their SES score.
It quoted one FTSE 350 chairman with a low SES background describing how “bloody hard’” it was when he did not have the “correct accent”. Another director complained about the dominance in boardrooms of The Economist-reading class “who go to Davos and pat each other on the back”.
Looking at the years 2001-2019, the report found that FTSE 350 companies with at least one woman on the board on average produced a profit margin 3-5 percentage points wider over the next four years.
“Higher levels of gender diversity of FTSE 350 boards positively correlate [J4MB emphasis: Correlation is not causation. How many bloody times do we have to say this?] with better future financial performance (as measured by ebitda margin), with the effect being the strongest after three to five years.”
However, it also cautioned about difference between correlation and causation. [J4MB emphasis: There is NO causal link other than with performance decline.]
The FRC, which oversees the Combined Code that sets board standards, as well as supervising the audit profession, concluded that it was the responsibility of the chairman to drive inclusion. It also said regulators and companies need to collect more data on diversity.
Another recommendation was that board nomination committees should be diversely made up themselves to encourage hiring from a wider pool.
Sir Jon Thompson, chief executive of the FRC, said: “I want to see boards invest time and energy in making diverse appointments not to achieve a target but because it will have a positive impact on their business.” [J4MB: Bullshit.]
FTSE 100 companies have lifted female board representation from 4 per cent in 1996 to 36 per cent in 2020 in the wake of the Hampton-Alexander review. However, much less progress has been made on female penetration into the most senior executive roles. [J4MB emphasis: Well, that’s a bloody mystery, isn’t it?]
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