In our board search and evaluation practice at Fidelio Partners, we’ve spent more than 10 years driving diversity and developing our own views on how to catalyse change throughout organisations both in the UK and internationally.
Experience and research have demonstrated that most companies aspire to greater diversity and, at the very least, recognise that diverse voices at the leadership table provide effective risk mitigation. Most companies also see that diversity and inclusion create significant benefit and opportunity.
While achieving diversity is aspirational, it is also far from easy. Focusing on enabling diversity creates a vital first step that too many companies overlook.
Fidelio is recognised in particular for our contribution to greater gender diversity; the knowledge and wisdom gained from moving the dial here is relevant to the ethnic diversity journey brought powerfully to our attention by the Black Lives Matter campaign.
The experience of the UK and Germany in increasing women’s representation at the top of companies provides a valuable case study into the process of enabling diversity. The countries have pursued very different approaches, which highlight what works, as well as what remains to be done.
The UK’s formal gender diversity journey started with the government-sponsored Davies Review in 2011, when women occupied just 9.5% of board positions in the FTSE 350. Legislation was debated, but the UK chose to work with business with voluntary targets and the threat of a binding quota if the needle didn’t move. By 2016 annual reporting of female representation on boards and executive committees – though voluntary – had become the norm, and the percentage of women on boards had increased to more than 20%.
The year 2016 also saw the start of the Hampton-Alexander Review, a successor initiative supported by the UK government. It set a target for 33% female representation on boards by 2020, but also on executive committees and direct reports to these. It reports annually to celebrate success and also to “name and shame”, and most of the FTSE 350 group are now on track to meet its targets by the end of 2020, though there were still 20 laggards after the first half of the year.
However, substantial work remains in increasing the pipeline of women at lower levels in organisations: fewer than half of the 350 companies appear likely to meet the target of 33% by the end of 2020 for their executive committees and direct reports, and many have a long road ahead of them.
German efforts to increase gender diversity at senior levels in business date back over 30 years, and in 2015 the Bundestag finally passed a ‘Law for the Equal Participation of Women and Men in Leadership Positions’, which came into effect in January 2016.
The law mandates that women occupy at least 30% of the positions on the supervisory boards of large quoted companies and other organisations, including all that have more than 2,000 employees – around 100 organisations. A further 3,500 smaller companies are obliged to set their own targets, and all are obliged to set targets for the management board and the senior positions one level below it. On the surface it would appear to have served its purpose, increasing female representation on supervisory boards to 35% by 2020.
However, the functioning of the law is complicated by a number of factors:
The two-tier German governance model plays a role – though the supervisory board has powers of appointment and dismissal over the management board and is to be “involved in decisions of fundamental importance to the enterprise”, in practice it is often distant, with real decision-making power vested in the management board. Women remain extremely under-represented at this level – the proportion of women on management boards was 6.3% in 2015 and just 11.2% in 2020.
Other cultural and financial factors contribute to the under-representation of women at senior levels in German business. There is still a strong cultural bias in favour of traditional gender roles, and German tax laws and insurance norms also favour the traditional ‘breadwinner’ model.
In summary, therefore, the German ‘Frauenquote’ has so far attained its specific goal of increased female representation on supervisory boards, but without changing the culture of business. It has failed to enable diversity by creating and sustaining a strong pipeline of women to occupy the leadership roles of tomorrow.
Progress so far on boardroom gender diversity in the UK and Germany holds some clear lessons for a more diverse and inclusive future:
Greater diversity and inclusion are imperative for business. Targets and goals are critical whether to promote increased gender balance or ethnic diversity. But there must be a pathway to achieving those objectives, and the first step is an honest and objective analysis as to where the obstacles lie. The second step is a willingness to embark upon the painstaking and long-term change that will create an open and inclusive culture in which all employees can flourish. The third is to track and monitor progress over months and years, and the final step is to communicate honestly and openly with all stakeholders who have an interest in diversity.
All business leaders have a role here. Black Lives Matter will not achieve its goals overnight and champions of gender diverse boards have had to wait decades for progress. But this is not a reason not to try. Achieving diversity depends upon all the small considered steps that enable its growth.
Gillian Karran-Cumberlege is founding partner of Fidelio Partners and leads the firm’s Board Practice. She is actively engaged in promoting greater board effectiveness through increased diversity