Feature | ESG
How times change. In the 1990s, those pro- moting racial diversity in the workplace spread the message that we are all the same, so don’t be afraid of giving someone a seat in your boardroom who looks differ- ent to you. Two decades later and people with the same political ideals are pushing a completely different message.
They say that employing people because they are different, whether it be racial, gen- der, social background, beliefs or age, is a strength. In fact, research suggests that companies with a greater mix of people from different backgrounds in the deci- sion-making process could reduce risk and even generate superior returns. Indeed, in one such study last year McKin- sey, a consultancy, analysed more than 1,000 companies across 12 countries and found links between a diverse leadership team and financial performance. Its find-
But while the corporate world has made progress when it comes to including women, it still has work to do in represent- ing people of colour. Of the more than 1,000 directors working at the largest 100 companies trading on the London Stock Exchange last year only 84, around a mere 8.4%, were not white, according to the gov- ernment-backed Parker Review. This is moving in the wrong direction as 85 minorities held such a position a year earlier. So despite minorities making up 22% of university graduates, according to McKinsey, some of the largest companies listed in London do not have a single per- son of colour contributing to board meet- ings. There is a lot of work to do if the gov- ernment is to reach its target of every FTSE100 constituent having at least one ethnic minority director by 2021. Perhaps the leap in the number of female
“People are scared of change; it makes them uncomfortable,” Meggitt says. “That is why diversity has always been low, because people want to hang out and work with people who look, sound and think like them.
“Think about the logic: a bunch of people sitting in a room, all thinking the same are not going to come up with innovative ideas or the best decision,” she adds. “If you invest in a company, would you want that board to not challenge each other and just sit there in agreement?”
The stats are a snapshot of where it is
now, but not where it is going. Lottie Meggitt, Newton Investment Management
ings showed that those with a greater male/female mix in the boardroom have a 21% chance of producing above-advantage returns. The effect of having a greater cul- tural and ethnic mix at the executive level was even more impressive. Such compa- nies are 33% more likely to outperform financially.
“The performance uplift may not continue at the same rate, but it is still going to be there,” says Lottie Meggitt, a responsible investment analyst at Newton Investment Management. “What company can turn down that kind of competitive advantage?” So, are the results of surveys like this enough to drive improvements in leader- ship diversity? Indeed, almost a third of people sitting in FTSE350 boardrooms are women, according to the 30% Club. This is up from 9.5% when the gender diversity pressure group was launched in 2010.
executives is the result of a group promot- ing the cause. Or maybe it’s down to com- panies looking to repair their image after the everyday sexism scandal highlighted by the #MeToo campaign. Another factor could be that there is a wider pool to draw from. Three-quarters of Brit- ish mothers of school-age children now have a job, up from two-thirds (66%) 19 years ago, according to the Office for National Statistics. Perhaps the change of approach in promot- ing leadership diversity from “we are all the same” to “different is a benefit” was fuelled by the financial crisis. Terms like “herd mentality” and “group think” were thrown about as the consensus pointed to no one questioning a company’s strategy because those scrutinising the chief executive’s plan were all in his image and, therefore, think the same.
42 | portfolio institutional | November 2019 | issue 88
A change at the top could be the most effec- tive way of improving corporate cultures, but this has proved problematic. More women are part of the discussions into how companies are run than ever before, but the glass ceiling to the chief executive’s office is proving harder to crack. The number of female chief executives has not grown at the same rate as those holding non-executive roles. Indeed, there are only 15 companies in the FTSE350 that are not led by men. Alison Rose’s move into the chief executive’s chair at Royal Bank of Scotland in early November is likely to pro- vide a short-term bounce to the figure. News that Imperial Brands boss Alison Cooper is standing down and car auction- eer BCA Marketplace has agreed to be taken private means that soon there will be only be 13 female bosses leading the largest 350 listed companies in London – the same level as in 2009. There has not been much progress since Marjorie Scardino became the first women to lead a FTSE100 business when she took charge of Financial Times publisher Pear- son in 1997. Yet minorities have found it easier to get the top job. In the FTSE350, 16 companies are led by people of colour, despite them holding fewer executive roles than women. Many of these companies are based outside the UK, such as UAE-based private health- care company NMC (Prasanth Manghat), US cruise ship operator Carnival (Arnold Wayne Donald) and Mexican precious met- als group Fresnillo (Octavio Ortega Alv- idrez), which could help explain the mismatch.
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