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The economic case for diversity at a board level is clear, but too many firms still fall short 

Despite the increased focus on diversity, equity and inclusion, too many boards remain stuck in the past and are failing to meet equality targets. Fiona Hathorn and Margaret Franklin joined DiverCity podcast recently to discuss diversity at board level in financial services. 

Founder and CEO of Women on Boards UK, Fiona Hathorn advises a number of different boards and organisations. She also holds several advisory positions, including at the Financial Reporting Council and tech company Spktral, which helps organisations simplify the gender pay gap reporting process. 

Margaret Franklin, CFA, is the president and CEO of CFA Institute, where she promotes the highest standards of education, ethics and professional excellence in the investment profession. She has worked for 25 years in investment and wealth management, most recently as president of BNY Mellon’s wealth management advisory business in Canada. 

Evidence suggests that diversity in businesses produces favourable financial outcomes. The message appears to have been heard, with the FTSE 350 now averaging 33% of women board members.

There is still a way to go, Fiona points out. As government and regulators have been busy concentrating on the FTSE 350, the FTSE All-Share, containing the 600 largest UK-listed companies, is falling woefully behind. 

“What we found was quite shocking, because nobody’s been measuring and managing these companies,” says Fiona, who helped author a report – The Hidden Truth – which looks at diversity and inclusion across the FTSE All-Share. 

In the FTSE 350, 29% of executive teams are women, Fiona continues, while in the FTSE All-Share that falls to just 18% – “which is very, very poor”. 

There are ways to fix this, however. Margaret says: “We have to really go at what are the exclusion habits, processes and systems that exclude others from advancing. Because the higher you go in a decision-making framework, the more necessary diverse voices, experiences and perspectives become.”

There is more evidence of things moving in the right direction, albeit slowly. Seven years ago, when the Women in Investment Management initiative at the CFA Institute was launched, organisations wanted data to show that diverse teams were a benefit on a risk-return basis. Margaret says organisations are now clamouring for information on how to make their boards more diverse. 

The interest from organisations may be in part because of ESG requirements of listed companies, with diversity and inclusion fitting neatly under the ‘social’ and ‘governance’ umbrellas of the initiative. 

Margaret says it is at “everyone’s peril” not to accelerate diversity initiatives, adding: “I think a lot about the buyers’ club, which is the asset owners, pension plans, sovereign wealth funds and so forth. Those big pools of capital that have the clout and ability to ask for ESG because their beneficiaries, their clients, and the government are demanding it. 

“The investment construction perspective really demands that we think about diversity.”  

If firms are still unconvinced by the merits of board-level diversity, Fiona says they should look to the economic argument, for both the company and the wider economy. 

“It’s about economic growth, and economic growth is fuelled by our companies. It’s fuelled by the investment decisions they make, and if you want to make good investment decisions, you need to have the information in terms of diversity of thought to get the right products, to the right people to empower. 

“If you empower people, the economy grows and people in general feel better, and that’s the society that I want to live in.” 

We have a long way to go, with some companies still falling into the trap of ‘one and done’ when it comes to women on their board. But with the right initiatives, and the backing of major city players and the weight of the asset owners and stakeholders in play, the excuse for less – or no – diversity on boards must be diminishing and enlightened Chairs understand this.