“To achieve long-term success in a competitive international environment, companies need to draw upon a diverse range of perspectives and competencies that are relevant in a globalised business. A diverse board, therefore, sends a robust and positive signal to investors that companies are confronting this challenge.”
ABI Report on Board Effectiveness (September 2011)

The 30% Club believes that it is important for investors to take into account the proportion of women on boards, when considering company reporting and appointments to the board. Thirty per cent is the figure widely agreed to be when contributions of the minority group cease being representative of that particular group and start to be judged on their own merit – in other words, critical mass is achieved. We believe that once 30% is reached, the culture and practices of the board will have changed significantly and as a consequence, further progress towards true balance will naturally follow.

The 30% Club investor group
To this end, an investor group was set up under the 30% Club Steering Committee in November 2011. Membership currently comprises representatives from the following institutional investors: Aberdeen Asset Management, Aviva Investors, AXA Investment Managers, BlackRock, Co-operative Asset Management, Ecclesiastical Investment Management, F&C Asset Management, Hermes Equity Ownership Services, Jupiter Asset Management, Legal & General Investment Management, the Local Authority Pension Fund Forum, the London Pensions Fund Authority, Newton Investment Management and RPMI Railpen.

The purpose of the group is to help coordinate the investment community’s approach to the issue, in particular:

• to explain the investment case for more diverse boards;
• to encourage all investors to engage on the issue of board diversity with chairmen and management teams; and
• to consider the issue when voting on the Report & Accounts and the appointment and re-election of board members.

Why diversity matters for investors
While there is no shortage of reasons to support diversity on social and ethical grounds, a growing body of empirical evidence corroborates the intuitive argument that more diverse boards are more effective than ‘identikit’ boards in delivering better decision-making. A compelling outcome of Lord Davies’ review was the economic and business case for addressing the gender imbalance in the current structures of companies’ boards, which moves the debate away from a social issue to an urgent business imperative. A number of relevant and useful research papers can be found here listed under sources and acknowledgements.

This research, as well as common sense, indicates that more diverse boards will be more effective, and it is around the concept of board effectiveness that successful engagement can be undertaken. There are many consequences of a lack of diversity for board effectiveness, including a lack of appropriate representation and understanding of a company’s customers, workforce and geographic footprint, all key to successful delivery of strategy. Importantly, increased diversity on the board is likely to reduce the potential for entrenchment and groupthink, and will further widen the potential talent pool for appointments.

While we are strongly supportive of voluntary targets over quotas, we believe that it is important that investors actively oversee companies’ actions. We would encourage investors to engage with companies in the first instance. However, we believe that, over time, this oversight should extend to AGM voting in the event of inadequate board leadership.

As a general approach, this could involve voting action against FTSE 350 companies in two areas:

Directors (re)election – Board Chairman and/or Nominations Committee Chairman – the nominations committee should ensure that the board has the appropriate range and balance of skills, experience, independence and knowledge. The chairman of this committee shares a responsibility with the board chairman for ensuring that directors are appointed on merit, against objective criteria and with due regard for the benefits of diversity. Investors could consider not supporting the nominations committee chairman and/or board chairman of those FTSE 350 companies that still fall short of expectations.

Report & Accounts – Companies should include disclosure on their diversity policy and implementation (or make reference to disclosure elsewhere) in the Report & Accounts. Investors could consider withholding support on Report & Accounts resolutions if the diversity statement is not considered satisfactory (for example, if a statement does not include specific reference to a stated policy and/or actions regarding increasing diversity throughout an organisation) or there is no clear evidence that diversity is being sufficiently considered by the board. For examples of best practice disclosure, please see Women on Boards: Benchmarking early adopters of the Corporate Governance Code 2012 (Cranfield School of Management, November 2012).