There are encouraging signs in this regard though. This year’s AIM Awards will have a Diversity Champion Award for the first time, putting diversity and inclusion on the same footing as share performance and general corporate governance.


boardroom diversity but the fact that it improves a company’s bottom line as well. The FT reported that the most gender-diverse companies outperformed their regional competitors by 1.7%, while research by global consulting firm McKinsey is even more stark. Its research found that companies in the top quartile for gender diversity on executive teams were 25% more likely to have above-average profitability than companies in the bottom quartile, and this rose to 36% for those companies in the top quartile for ethnicity diversity. Poor diversity in leadership teams appears to have a direct correlation with poor financial performance: the research indicated that those companies in the bottom quartile for both gender and ethnic diversity were 27% more likely to underperform on profitability than all other companies McKinsey surveyed.


In addition, recent research by executive search firm Odgers Berndtson also found that 36% of the non- executive directors it surveyed discussed diversity and inclusion at their board meetings more than five times a year. Given that boards typically meet between seven and 10 times a year the fact that diversity and inclusion is discussed so frequently demonstrates its increasing importance.


UK Corporate Governance Code requirement


Premium listed companies are already required to consider diversity in board composition under various provisions of the 2018 UK Corporate Governance Code. These include:


• appointments and succession plans being based on merit and objective criteria, and promoting diversity;


• annual board evaluation considering its composition, diversity and how effectively members work together to achieve objectives; and


• the nomination committee overseeing the development of a diverse pipeline for succession.


Companies are expected to confirm the steps taken to achieve these objectives in their annual reports and include a description of their policy on diversity and inclusion, its link to company strategy and how it is being implemented.


Similarly, the Financial Conduct Authority’s corporate governance rules require that certain listed companies provide a corporate governance statement that contains a description of their diversity policy and how it has been implemented during the reporting period or, if no diversity policy is in place, an explanation as to why that is the case.


Conclusion


It’s not just investor pressure and regulatory requirements that underline the importance of


For more details: nicholasleriche@bdbpitmans.com • bdbpitmans.com businessmag.co.uk JULY/AUGUST 2021 9


Far from being simply a ’box-ticking exercise‘, done solely for presentational or regulatory purposes, boardroom diversity contributes to better financial performance. It is also fast becoming an essential feature of good governance – in the same way that more traditional indicators such as risk and audit issues or shareholder relations have been – and one which investors, customers and employees will not tolerate being ignored.


Nicholas Le Riche


Increasingly, a lack of diversity is also being seen as a lack of good governance, especially in the fragile economic environment we currently find ourselves in. A board with a broad range of backgrounds, experiences and viewpoints can avoid the ’group think‘ mindset that can dog less diverse boards and be alive to new ways of operating that can give a company a competitive edge. Without that diversity, companies can have weaker governance and a lower ability to spot potential risks.


In terms of positive steps that companies can take to improve boardroom diversity, Odgers Berndtson’s research found that those companies with diverse leadership teams frequently partnered with diversity and inclusion membership organisations in their senior recruitment processes so that they can stay connected with diverse talent. Another key consideration for companies in this area is to ensure that all employees are aware of the work that is being done on diversity and inclusion so that staff properly understand the company’s commitment to this issue.


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