Changes to the UK Companies Act became effective this month, with important implications for workplace diversity

 

 

 

 

 

 

 


Blog by Thomas Colquhoun-Alberts
Knowledge Coordinator, Opportunity Now

 

The public debate around women on company boards galvanised by Lord Davies’ review in 2010 appears to have either stalled or widened, depending on who you talk too – and both perspectives may be right. On the one hand, business leaders who understand the value of workplace diversity argue for widening the debate. Sir Roger Carr, the outgoing Centrica chairman, BAE Systems chair designate, and keynote speaker at this month’s Women’s Business Forum annual meeting, has called on businesses to embrace diversity “in all its forms”, pointedly referring to ethnicity and sexuality.

On the other hand, progress has been stubbornly slow. Just 18 out of 292 FTSE 100 executive directors are women. Among the FTSE 250 it is worse. Not surprisingly, the debate is shifting focus from directorships as a whole to executive directors and the talent pipeline.

Cue amendments to the Companies Act. Effective this month, UK-listed companies must include in their annual reports a new Strategic Report that discloses, among other impacts, the company’s overall gender profile, in other words the total number of employees of either sex, as well as the breakdown at levels of directorships and senior managers.

No doubt some will bemoan the added monitoring burden. Yet we know from our diversity benchmark that organisations that measure and monitor their talent pipeline through a gender lens achieve faster promotion rates for woman than companies that don’t. These pro-active companies will benefit from the well-documented advantages associated with workplace diversity sooner than their competitors: for starters, higher employee engagement and performance, improved retention rates, better innovation and problem-solving, and better quality of services to an increasingly diverse and demanding customer base, all of which means a more attractive proposition for investors, improved corporate reputation, and greater public confidence.

The new reporting regulations won’t achieve these outcomes on their own. But by compelling businesses to monitor gender diversity in their talent pipeline, companies no longer have an excuse not to. More importantly, the savvy among them will seize the opportunity.

This is where the regulations are most significant, because the public reporting requirement sharpens competition between the UK’s largest businesses to improve their gender mix throughout their pipeline and ultimately their executive recruitment pool. Companies seeking to build reputations as employers of choice will report more widely, for example by comparing across different business units or with previous years. Once a gender-monitoring infrastructure is in place, it is not difficult to scale. One can easily imagine businesses broadening the remit of what they monitor and report, as Sir Roger recommends and many BITC members already do. And let’s not forget the transnational implications for (and advantages to) globally trading businesses listed in the UK.

Some will say I am being naïve and the new reporting requirements won’t make much difference. In the short -term, possibly not—although businesses ought to prepare for closer scrutiny by an already sceptical public. Looking further ahead however, the new regulations should be seen as an important part of the jigsaw and another avenue of activity through which the workplace diversity agenda is achieving critical mass.

A small but telling detail of this trend is revealed in the new regulations too. The regulations define a “senior manager” as an employee who “has responsibility for planning, directing or controlling the activities of the company, or a strategically significant part of the company”. The Financial Reporting Council’s (FRC) draft guidance on the new regulations advises that the new regulation’s definition is wider than the definition in both the International Accounting Standard and International Financial Reporting Standard applicable in the UK and Ireland. The point of the wider definition is to enable an analysis that, as the FRC puts it, “should enable shareholders to ascertain the number of persons of each sex who might, in due course, attain a position that would be classified [as director] or an equivalent position.” In other words, the definition of senior manager against which listed companies henceforth must report their gender breakdown should take into account where in the pipeline the role sits as well as progression routes available from there.

Requests for advice and guidance related to diverse pipelines are among the most frequent Opportunity Now receives from our members. They have also contributed to informing Opportunity Now’s forthcoming 28-40 Project, a ground-breaking study of women’s experiences in the workplace. The new public reporting requirements will spur this growing focus on the talent pipeline, and represents an invaluable opportunity for businesses to establish the monitoring processes and baseline data with which to diversify their workplaces and develop their talent.