CWS 3.0: July 9, 2014

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UK enhances ethics code to boost female board appointments

In a bid to support more female appointments to FTSE 350 boards of directors, U.K. Business Secretary Vince Cable launched an enhanced code of ethics for head hunters and executive recruiters.

The original code of conduct was launched in July 2011 and more than 70 firms have already signed up for the voluntary code. The enhanced code has been launched in response to an independent review that was conducted in February 2014, called the Sweeney review.

Under the original code, firms commit to:

Succession Planning. Search firms should support chairmen and their nomination committees in developing mid-term succession plans that identify the balance of experience and skills they will need to recruit for over the next two-to-three years to maximize board effectiveness.

Diversity Goals. When taking a specific brief, search firms should look at overall board composition and, in the context of the board’s agreed aspirational goals on gender balance and diversity, explore with the chairman if recruiting women directors is a priority on this occasion.

Defining Briefs. In defining briefs, search firms should work to ensure that significant weight is given to relevant skills, underlying competencies and personal capabilities, and not just proven career experience, in order to extend the pool of candidates beyond those with existing board roles or conventional corporate careers.

Long Lists. When presenting their long lists, search firms should ensure that at least 30 percent of candidates are women; and, if not, should explicitly justify to the client why they are convinced that there are no other qualified female options, through demonstrating the scope and rigor of their research.

Candidate Support. During the selection process, search firms should provide appropriate support, in particular to first-time candidates, to prepare them for interviews and guide them through the process.

Support Candidate Selection. As clients evaluate candidates, search firms should ensure they continue to provide appropriate weight to intrinsic competencies and capabilities, supported by thorough referencing, rather than overvaluing certain kinds of experience. Search firms should, as necessary, advise clients on how to run their interview processes to demonstrate the required rigor and professionalism and to avoid unconscious gender bias.

Induction. Search firms should provide advice to clients on best practice in induction and “on-boarding” processes to help new board directors settle quickly into their roles.

Embedding Best Practices. Search firms should ensure that best practices supporting clients on enhancing board gender diversity are well-documented and shared internally, and the adherence to the code is effectively monitored.

Signaling Commitment. Search firms should signal their commitment to supporting gender diversity on boards through their websites and marketing initiatives, as appropriate, and are encouraged to invest time into developing relationships with the pipeline of future female candidates. 

“Executive search firms are crucial to achieving gender diversity in both executive and non-executive roles," Cable said. “Recruiters can best show their commitment to this work by embracing this new enhanced code."

The amendments to the code include:

  • Search firms should, in collaboration with their clients, discuss each woman on the long list and aim to have at least one woman whom they would “strongly recommend” for the client to meet and put forward onto the short list of all executive searches for board positions.
  • The code, as it stands, should be considered to be the minimum standard and, as with the original code, search firms should work together and articulate the requirements of an upper tier to the code, including how assessment should be made as to whom should become part of a “supergroup.”
  • Throughout the interviews, there were numerous discussions relating to what happens at each stage of the search and hiring process, e.g. long list, short list and hire. Search firms should be encouraged to capture this information and to share their statistics with the government, as and when requested.
  • Through the analysis of the search firms’ websites, only 25 percent stated their commitment to the voluntary code, which is the final provision. Only 12 percent shared any data to show their success rates of hiring women to board positions.
  • Search firms should be more overt on their websites, marketing literature and when talking to clients about their commitment to the code.
  • Search firms should be encouraged to share their hiring data, as well as some narrative and case studies of successes.
  • Search firms are ultimately there to deliver the requirements of their clients. To this end all FTSE 350 companies should challenge the search firms further to deliver against the code’s provisions. Companies should include a statement in all search contracts or agreements clearly articulating they will comply with all aspects of the voluntary code and explain if unable to do so.
  • Some stakeholders continue to argue there are an insufficient number of “board ready” women out there with the required skills for a FTSE 350 board role. To support achieving the 2015 target, a database of women with the skills to take a FTSE 350 board position should be created.
  • Throughout the interviews there were a number of discussions regarding the 30 percent long list and “women-only shortlists.” There have been differing opinions as to the legality of requesting such lists as an appropriate means to redress the balance on boards. The Equalities and Human Rights Commission (EHRC) should create the appropriate guidance required.
  • There is limited visibility of the code and those interviewed found it difficult to find the code or details of the signatory search firms. To ensure this has clear prominence a section within the government (BIS) website should be created to publish the code, the signatories and case studies of how the code is working in practice.
  • The FRC UK Corporate Governance Code stipulates: “The search for board candidates should be conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the board, including gender.”