Six steps to improved diversity across the board

Introduction

The Equality and Human Rights Commission’s guide How to improve board diversity: a six-step guide to good practice (the Guide) is a “must read” for all organisations that aspire to increase the representation of women in senior management. Although aimed specifically at board diversity, the overarching “six steps” are general and can be applied in any situation. Indeed, one of the six steps is to “increase diversity in your senior leadership talent pool”.

Particularly helpful are the actual practical examples of what companies and recruitment firms can and cannot do. Again, many of these are general and can, usefully, be translated into all situations.

For those in the financial institutions sector who have been immersed in the Gadhia report “Empowering Productivity: Harnessing the Talents of Women in Financial Services”, it is interesting to note that the Guide also specifically suggests that companies should: 

• establish clear board accountability for diversity
• [where the board reasonably thinks that a protected group is under-represented or faces disadvantage it can] set aspirational targets, and 
• monitor and report on progress in meeting diversity policy and targets.

Our view

The Guide is welcome additional guidance for organisations as to what, in practice, they can and cannot do to improve diversity within the workplace. The report itself noted that there is little knowledge of the range of positive action companies can take to encourage women to apply for roles or to help them gain skills to enable them to compete on merit on an equal footing with others and that there is little use of the "tie-break provision".

The Guide itself will, hopefully, serve to help plug the information gap. In addition, for those who are aware of the provisions but have been nervous of using them (for lack of clarity around what exactly can and cannot be done), the Guide provides further examples of what is and what is not lawful.

Why the need for the Guide?

The Guide follows the Commission’s inquiry and Report into how the FTSE 350, and the executive search firms they instruct, recruit and select people for board director roles (further detail is available here). In particular, the report noted a number of examples of potentially unlawful practices and companies not adopting “best practice”, which underlined the need for improved guidance.

Examples included:

• a large number of companies which had not set objectives or targets to increase the number of women on their board 
• role descriptions setting requirements (such as a preference for candidates of a particular sex or age) that would almost always be unlawfully discriminatory
• companies instructing their executive search firm specifically to find women, or set quotas for the number of women on a long or shortlist 
• almost a third of companies using personal networks did not use any other means of publicising a post
• female candidates being asked questions about balancing work and family responsibilities, implying stereotypical assumptions about their capabilities 
• most companies assessing "chemistry" and "fit" of candidates throughout the appointment process
• having little knowledge of the range of positive action companies could take to encourage women to apply for roles or to help them gain skills to enable them to compete on merit on an equal footing
• making little use of the "tie-break provision", a specific form of positive action which can be used to appoint a candidate from an under-represented group where there are two or more candidates who are equally qualified
• for most companies, their only action to encourage applications from women was telling their executive search firm to include women on the candidate list, and
• around half indicating that they had targeted specific women, asked for all-female lists, or for women to be included on the long or shortlists, which risks unlawfully discriminating against any better qualified male candidates.

The six steps

Making an appointment

1. Define the selection criteria in terms of measurable skills, experience, knowledge and personal qualities.

2. Reach the widest possible candidate pool by using a range of recruitment methods and positive action.

3. Provide a clear brief, including diversity targets, to your executive search firm.

4. Assess candidates against the role specification in a consistent way throughout the process.

Ongoing action to improve diversity

5. Establish clear board accountability for diversity.

6. Widen diversity in your senior leadership talent pool to ensure future diversity in succession planning.

Making an appointment

1. Define selection criteria in terms of measurable skills, experience, knowledge and personal qualities

• a nomination committee should lead the process for board appointments and make recommendations to the board.
• use a board evaluation to assess the current balance of skills, experience and knowledge on the board
• in light of this, prepare a role description and person specification for each appointment which define clear, measurable and objective criteria against which candidates will be assessed.

The Guide suggests that the following are likely to be unlawful discrimination:

• specifying that candidates must be in a particular age range or of a particular sex.
• "Previous FTSE experience" is likely to disadvantage those who are under-represented in FTSE companies (eg women and people from ethnic minorities), instead:
  • ask for the specific skills or experience needed for the role, such as relevant knowledge of corporate governance or experience of managing shareholder relationships
  • avoid subjective unspecified concepts such as "chemistry" or "fit", and
  • , identify the demonstrable skills or personal qualities required for an effective board member (eg commitment to company values, the experience of developing effective relationships and building trust, or the ability to question in a constructive way).

2. Reach the widest possible candidate pool by using a range of recruitment methods and positive action

• publicise a role widely, including using advertising and channels such as social media
• using an executive search firm with a track record of delivering a diverse range of suitable candidates may help increase diversity at the longlist stage
• when planning how to publicise an appointment, take into account any diversity targets set as a result of a board evaluation or as part of board policy, and 
• consider using positive action.

Examples of lawful positive action include:

• creating networks for executive women who aspire to non-executive board positions, and using these to identify potential candidates for specific board roles
• providing development opportunities for under-represented groups to help them build and demonstrate attributes companies look for in board candidates
• looking for potential candidates from other sectors, for example from the professions, such as law or accountancy, or the public, not-for-profit or academic sectors, and
• specifying in adverts that candidates from under-represented groups are encouraged to apply.

The Guide cautions against relying only on personal networks and word-of-mouth recruitment (which could lead to unlawful discrimination). However, it acknowledges that whilst cost considerations alone will not justify not advertising a role, a genuine concern that publicity about recruitment of a senior executive director or chair role will impact on a company’s share price may justify such a decision.

3. Provide a clear brief, including diversity targets, to your executive search firm

Ask the executive search firm:

• about their track record in delivering diverse candidates, and
• how they use positive action to secure a diverse pool of applicants.

The following might be lawful:

• asking an executive search firm to achieve a diversity target that supports the company’s diversity commitments (eg a longlist which contains a certain proportion of candidates from under-represented groups) provided that the diversity targets:
  • are based on a realistic, evidence-based assessment of available talent that could apply for the particular role
  • are supported by a fair selection process where suitably qualified candidates are compared on merit against the criteria set out in the role description, and
  • do not lead to positive discrimination (candidates from under-represented groups being preferred over other better qualified candidates).
• The search firm can:
  • extend their search into sectors or industries where, for example, women are well-represented in high-level roles
  • broaden their understanding of the criteria to include candidates with relevant expertise and experience from less traditional backgrounds, and
  • conduct a review process to check the quality of decision making before finalising long and shortlists where candidates from under-represented groups have been unsuccessful disproportionately at particular stages of the appointment process.

It would be unlawful for: 

• a company to instruct an executive search firm to find a female non-executive director to improve the gender balance on the board, or to provide an all-women shortlist, as this would require potentially discriminating against better-qualified men, and
• an executive search firm to include women on a longlist to fulfil a target by treating equally qualified male candidates less favourably unless there is enough evidence to enable the use of the tie-break provision.

4. Assess candidates against the role specification in a consistent way throughout the process

A formal, rigorous and transparent procedure for the appointment of new directors to the board will ensure appointments are made on merit (FRC, 2014, p.11, B.2).

• Assess every candidate in a consistent - but not overly prescriptive - way to limit any potential bias based on irrelevant factors.
• Assess candidates against the measurable requirements in the role description for skills, experience, knowledge and personal qualities, rather than more subjective factors.
• Avoid questions which may be based on stereotypical assumptions, for example about a female candidate’s work and family life balance.
• If relying on one-to-one interviews, selectors should meet to discuss individual assessments to ensure consistent standards. This will reduce the risk of bias based on irrelevant factors or stereotypes when making a final decision on the appointment. 
• Consider including external independent experts on the selection panel to ensure it is balanced and provides for different perspectives.
• Keep a paper trail explaining how each decision was reached to help demonstrate what objective and lawful steps have been taken to meet any diversity targets and to deal with any potential challenge from unsuccessful candidates. 
• The company may decide to use the positive action "tie-break provision". (However, it can only be used if two or more candidates are equally qualified - it will be more difficult for an employer to satisfy itself of this at the earlier stages of the recruitment process).
• Train those involved in selection on complying with equality legislation, unconscious bias and use of the tie-break provision.

The appointment process must not treat one candidate less favourably than another, or unjustifiably put candidates who share a protected characteristic at a disadvantage.

Ongoing action to improve diversity

5. Establish clear board accountability for diversity and targets

The board should satisfy itself that plans are in place for orderly succession for appointments to the board and to senior management (FRC, 2014, p.11, B.2).

Setting targets

The Guide suggests that the board:

• should have strategic oversight of diversity across the company.
• can set aspirational targets where it reasonably thinks that a protected group is under-represented or faces disadvantage, for example: 
  • to increase the percentage of people from ethnic minorities at board level or in senior management by a set date, or
  • to improve the retention of women returning to work after maternity leave by a percentage and set date, and
• should seek assurances from the executive team on performance in meeting diversity policy and targets.

Monitor and report on progress in meeting diversity policy and targets, including by:

• Ensuring annual reports describe the work of the nomination committee, including the process it has used in relation to board appointments. This should include a description of the board’s policy on diversity, any measurable objectives that it has set for implementing the policy and progress on achieving the objectives (FRC, 2014, p.12, B.2.4), and 
• Being accountable to shareholders on how the board is meeting its aspirational diversity targets, for example by reporting on it at Annual General Meetings and in individual meetings with shareholders.

6. Widen diversity in your senior leadership talent pool to ensure future diversity in succession planning

• Regularly review diversity in recruitment, development and retention strategies.
• Monitoring can help identify barriers preventing employees from progressing to senior roles and identify when and where employees in groups under-represented at senior levels in the company are being lost.
• Consider using positive action measures to encourage individuals from underrepresented groups to apply for roles or to help them gain skills which will enable them to compete on merit on an equal footing with others. These could include:
  • reserving places on leadership and training courses to prepare individuals to apply for leadership roles
  • providing programmes for people in particular under-represented groups to help individuals manage the specific barriers faced by that group
  • providing opportunities for individuals to observe board meetings or to join networks that might expose them to board opportunities, and 
  • offering flexible working at all levels of the company and flexible career paths to help retain people from under-represented groups.

Key resources

Report: The Equality and Human Rights Commission: Inquiry into fairness, transparency and diversity in FTSE 350 board appointments

How to improve board diversity: a six-step guide to good practice: The Equality and Human Rights Commission