Diversity in the boardroom is an increasingly crucial issue for quoted companies, as Gillian Karran-Cumberlege and Emily Baker report.
The IR Society annual conference dealt with ‘Access, Board, Careers: An ABC of IR’. Continuing this theme, is the D of IR ‘Diversity’? Certainly the conference demonstrated the breadth of skills and attributes required to succeed in IR. Just as diversity has become a key theme in the board room, we argue it should also be on the agenda of IR professionals.
Quoted boards are under scrutiny to diversify and across Europe there are regulations and targets in place to promote gender diversity in particular. These range from binding quotas underpinned by legislation, for example in Germany and France, to voluntary targets such as those set by the UK Davies Report.
Beyond the obvious arguments of fairness, it is pleasing to see the business case being made for diversity. It is now generally accepted that diverse groups make better decisions; importantly there is also an increasing body of research, for example from Credit Suisse and McKinsey, demonstrating that companies with diverse boards outperform.
At board level we have seen progress. In 2015 FTSE 100 boards met the original Davies Report target of 25% female representation; a new target of 33% female representation for FTSE 350 boards rooms has been set for 2020. The new targets also focus on improving female representation at the executive layer where the picture is much less rosy. Currently female executive director representation stands at 9.7%3 in the FTSE 100; this statistic has proved particularly stubborn.
Why diversity matters for IR?
Just as diversity matters in the board room, it matters for IR. Shareholders care increasingly about the composition of the board and of employees; for example in this year’s AGM season L&G voted against four boards because they were insufficiently diverse and not taking steps to amend this4. If diversity matters to shareholders, it should also matter to IR directors.
Fidelio’s IR executive search practice is constantly analysing what makes a world class IR function. Our research tells us that diversity is a key component. IR has a vital role to play in establishing trust between management and investors and thereby contributing to valuation. The skills required to achieve this are multi-faceted: a high degree of financial literacy along with valuation skills; a strong communications capability, both written and verbal; the ability to influence; a strong grasp of the regulatory framework; mature judgement and the courage to speak truth to power.
While an individual IR officer cannot possibly embrace all these skills to such a high level, the reality is that at different points in the IR life cycle all these attributes will be needed. The IR officer who succeeds will be the one who has the flexibility of personality and skills to meet the challenge. Equally an IR team will be greatly more effective if different skills, experiences and profiles are represented. The head of IR has a clear mandate for diversity.
A second reason why diversity matters is that IR directors absolutely should be part of the senior executive pipeline. The complexity of the role and the insight it provides into shareholder thinking are of clear relevance for the board room. Yet relatively few IROs are making that step. Fidelio is of the firm opinion that IROs who champion diversity and also work hard to broaden and diversify their own skill sets and experience will be much better candidates for future board roles.
IR’s diversity score card
You may well argue that IR of all professions has a number of very successful women in leadership roles. And the author of this article certainly felt it was very possible for women to succeed at the top of large global IR teams, including in sectors such as an engineering. But Fidelio’s research suggests as you dig deeper the statistics are not as clear cut. 36% of FTSE 100 IR heads are female and if we look at the FTSE 20 this falls to 25%.
The figures at parallel organisations in the DAX are lower still. If we look across the larger teams we also see a disproportionate number of women in assistant roles rather than senior IR directors or deputy head of IR roles.
Fidelio certainly takes building a diverse pipeline to the board room very seriously. This is the thinking behind Fidelio’s A Seat at the Table Programme which supports talented female executives to succeed to the board room table and at the board room table. Similarly we urge the IR profession to take active measures to promote greater diversity of gender, ethnicity, age and experience. This is the responsibility as much of the individual IRO, as of the industry bodies like the IR Society, NIRI and DIRK.
So perhaps next year’s IR Society conference will extend to ABC and D and also provide a clear progress report on the IR diversity score card.
1 – "Gender Diversity and the Impact on Corporate Performance" Credit Suisse, 31 July 2012
2– Women Matter 2013 - Gender diversity in top management McKinsey, November 2013
3– www.boardsforum.co.uk/boardwatch.html - 13 May 2016
4– LGIM Annual Report Summary 2015
Published: 16 July, 2016