News in focus: Corporates take slow lane on sector non-executives

A year on from the publication of the Tyson Report, listed company boards remain as conservative and entrenched as ever. Patrick McCurry investigates why companies seem so reluctant to embrace change

In June last year, a government-sponsored report called for more diversity on company boards, so that they included more non-executive directors from non-traditional backgrounds, such as the voluntary sector.

But one year on from the Tyson Report, there seems precious little evidence that listed companies have made changes to the way they choose their boards.

So does this lack of progress suggest that commitment to 'corporate social responsibility' measures, such as board diversity, is simply window-dressing?

Certainly, the charity chief executives' organisation Acevo seems to have run into a brick wall in its attempt to push the process forward.

Stephen Bubb, head of Acevo, received only one reply to a letter to the top 250 FTSE companies, asking if they were interested in voluntary sector leaders as non-executive directors. The respondent asked not to be contacted again.

Questioning the commitment

Little wonder Craig Bennett, head of the corporate accountability campaign at Friends of the Earth, is sceptical. "I attend lots of company AGMs, and it's astonishing how uniform the boards are, with perhaps one woman among a crowd of white, middle-aged men with corporate backgrounds."

He adds that, compared with the voluntary sector, listed companies are remarkably rigid in the kind of people they appoint.

"The third sector can't be complacent, but we're a lot more diverse in terms of the people involved in managing and running our organisations," says Bennett.

But Chris Pierce, director of professional development at the Institute of Directors, feels more time is needed to implement change.

"Companies agree that more diversity is needed, but they're now waiting for more guidance from the Government about the implementation of the Tyson Report."

This cuts little ice with Bubb. "It's simply disingenuous," he insists.

The report on the recruitment and development of non-executive directors was led by the dean of the London Business School, Laura Tyson, at the invitation of the Department for Trade and Industry. Tyson's remit was to develop the ideas first raised in the Higgs Report on corporate governance.

The role of non-executive director is perceived as increasingly important given the high-profile corporate failures at companies such as Enron.

Non-execs are generally recruited from outside the company and are there to cast an independent eye over the company's affairs.

Tyson argued strongly that companies would benefit from recruiting a more diverse board, and that the non-commercial sector was "a promising source of non-executive director talent for UK companies".

Bubb couldn't agree more. "The sector is full of people with commercial experience - 30 per cent of our members came from the private sector. As well as business acumen, they bring a different perspective and an inquiring attitude.

"We need to change perceptions of the sector. Ian Townsend, secretary-general of the Royal British Legion, which has a £280m turnover, was at a City dinner recently and when he told someone there what his job was, they said 'oh, you do that part-time do you?' We need to make it clear that the voluntary sector is big business."

Pierce at the IoD says that the Tyson Report recommendations were not particularly prescriptive. "I know the Department for Trade and Industry is planning to issue further guidance to companies this year on how they can achieve greater diversity."

He stresses that changing the composition of a company board will be a long process: "The pace of change means boards are not going to change overnight."

Bypassing tradition

It's not just that companies need to decide whether they want a more diverse board, but that they must also be prepared to recruit non-executive directors in a different way than by word of mouth, or other traditional methods.

The Tyson Report led to hopes that companies would take advantage of specialist registers that include top people from non-commercial sectors.

Acevo made a list of its members available to companies following publication.

There are other initiatives, too. CFA, a headhunting firm specialising in the charity sector, has jointly launched an initiative called Independent Director Search to help companies recruit non-executive directors.

"We believe there are a number of outstanding people in the voluntary sector who could be non-execs," says CFA chief executive Richard Evans.

"These are people with good experience, who know how business works, and who can add value to a company either in terms of profitability or through CSR."

But, as with the IoD's Pierce, Evans stresses that it's a long-term process, and that it will take time for the corporate sector to change its ways of recruiting directors.

Headhunting limitations

Bubb recognises at least one of the flies in the ointment of progress.

"The headhunters are not being challenging enough. Instead of just giving boards lists of the usual suspects, they should be more prepared to say 'but what about this person?'," he says.

Some companies, such as BP, have long trumpeted their CSR commitment.

But a BP spokeswoman says: "It's difficult for us to comment on what we're doing about board diversity because it's a matter for the board itself to decide, and our board members are very hard to get hold of because they're such busy people."

She adds that following BP's merger with Amoco, its board is too big: "Rather than recruiting new board members, we're trying to slim the board down."

Pierce believes boards will eventually become more diverse, but that the process should not be carried out in a prescriptive way.

"We wouldn't want to see companies appointing people from the third sector just because it's seen as 'the thing to do'. Someone should only be appointed if the company is clear that the appointment will add to the board's skills."

He notes that the kind of diversity boards opt for will depend on their needs: "Some may want someone from the third sector, but for others the priority could be recruiting someone from the public sector, or from a particular cultural or ethnic perspective."

Friends of the Earth's Bennett, while supporting greater diversity, also has reservations about what board membership might actually mean for voluntary sector recruits.

"In the third sector we must be careful that if we get involved in company boards, we keep our independence. It should not affect our ability to scrutinise individual companies and the corporate sector generally on social and ethical issues."

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