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Major British companies have made decent progress in improving gender diversity on their boards. Their smaller peers let the side down.
To be sure, board composition is rarely a high priority in the early days of building a company. But UK growth companies will have to join forces if they want to attract more institutional money.
Finance Minister Jeremy Hunt wants pension funds to invest more money in UK growth companies – or “unlisted stocks” which (inversely) include companies listed on London’s small Aim market and the Acquis stock exchange.
It remains to be seen how much money flows from the so-called Mansion House agreement, which was 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 their larger counterparts in London's main market, and for good reason. They are also subject to less scrutiny on issues such as diversity.
For example, the FTSE Women Leaders Review tracks women's 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 per cent of board positions on FTSE 350 boards are held by women by the end of 2025.
But just under 16 percent of board positions at AEM-listed companies are held by women, according to consulting groups Indigo Independent Governance and Adidat, even if that represents an improvement on the previous year of 13.7 percent.
Gender diversity is just one way to ensure that boards do not fall prey to the dangers of groupthink. Boards must consider other factors such as race and socioeconomic background. However, gender is one indicator of whether a board is committed to a strong mix of skills, knowledge and experience, says Bernadette Young, co-founder and director of Indigo.
This may be a test of the extent to which institutional funds can take a pragmatic approach to such governance matters. Founder-led startup boards can experience low turnover when they are in growth mode.
Standards are already changing. The CBA last year updated its corporate governance rules for growing companies, recommending that boards should “understand and challenge” their diversity, including gender balance.
Other concerns have kept institutional investors away from UK small caps, including liquidity and a dearth of good research. Achieving basic governance standards – or even targets that need improvement – is at least within the power of boards to change.
nathalie.thomas@ft.com
