April 2004 - Boardroom diversity

One of the aims of the Higgs review of corporate governance, most of which has now been included in the UK Stock Exchange's combined code of best practice, was to broaden the pool of potential non-executive directors capable of serving on the boards of public companies.

A proposal by the review that London Business School should compile a list of potential candidates was quietly dropped. The result, I suspect, is that companies will not be rushing to recruit from outside the narrow confines of business. If anything, the demands of corporate governance may be restricting rather than promoting professional diversity.

Before these demands began to redefine the role of the board, non-executive directors were often recruited for their connections. Now more companies appear to be expecting previous experience in a senior executive or non-executive role. Peter Waine, director of Hanson Green, the specialist recruiter of non-executive directors, says that people outside business "simply don't come into the equation".

In the past 10-15 years, carrying out hundreds of searches for non-executive directors, he says he has been involved in no more than a handful of appointments involving people without business backgrounds. "Our clients cannot relate to a career that's non-business. They don't need to and they don't want to," he says.

This invites the question: would professors such as the late Sir Roland Smith, the man who as chairman of House of Fraser once told Tiny Rowland to "get your tanks off my lawn", or Sir Fred Halliday, chairman of Northumbrian Water, be recruited to a top board today?

Smith belonged to a generation of tough, combative chairmen in an era when contested takeovers were far more prevalent than friendly mergers. But it was also a time characterised by the kind of malpractice that led to successive reports steadily transforming the focus of the non-executive director from that of business supporter to business guardian.

Sir Derek Higgs believes that one of the most important qualities of the new generation of independent directors should be an ability and willingness to ask difficult questions. He has also been a strong supporter of able outsiders. So why couldn't media inquisitors such as the BBC's Jeremy Paxman or John Humphrys prove to be models for the role?

"They would be seen as too cerebral and not good team players because they are too questioning," says Amin Rajan, chief executive of the centre of Research in Employment and Technology in Europe. "The reality is that when people are considered for a board appointment the key question is not about experience but about the comfort factor. Do the chairman and the other board members feel comfortable about you?"

So how can those without private sector boardroom-level experience get to be a non-executive director? The answer would appear to be: "With difficulty". For now, at least, the boardrooms of large public companies are going to remain the favourite hunting grounds of search firms.

Most headhunters seem content to catch the familiar fish rather than trawl among the professions. A few barristers get noticed but rarely is the net extended to academia, the law, or professionals from medicine, sport, the arts or the media.

In fact there are few signs that anything other than demands in some companies for more diverse employment policies is going to change things. The best bet for serious prospective candidates may be to take some tuition in corporate governance requirements.

The London-based Independent Direction Directors Advisory Service (IDDAS) runs one-to-one tuition for prospective non-executives. Jonathan Cohen, one of the partners, says he would fit prospective candidates into three categories: "At one end there are those who want a couple of posts to fill their time between rounds of golf and at the other are those who have kept up their skills and their contacts at the top of the tree.

"The first category should stick to their golf and the third may not need any advice. But there is a large middle group of people - who have had senior roles - who would wish to embark, or who have already embarked, on a pluralist career. These are the people we think we can help most."

"But if you are going to go on a board there will be no use sitting on a remuneration committee if you don't know how an LTIP (long-term incentive plan) or a share option works. In future non-executive directors will need to demonstrate some evidence of continuous professional development."

Sara Murray, 35, is one executive who has used IDDAS to refresh her boardroom skills. Having founded and sold three companies, she wants to expand her board work. At present she is a non-executive director of Schering Health Care, the pharmaceuticals company.

"I'm not scared to say what I think," she says. "I'm a problem solver, reasonably bright, I know about the market and I'm well connected. I have a lot of energy and need somewhere to channel it."

Even so, she has encountered some prejudice, particularly among boards that she characterises as "stale, pale and male". She says: "I have seen three or four people who have commented on my age. Some will not look at you at all because they have a minimum age barrier of 45."

Her existing appointment, however, proves that some companies are now willing to look at younger people with entrepreneurial backgrounds. But this is still business dealing with business. There remains a kind of invisible barrier that prevents companies exploring other occupational streams. The argument we hear most - that people outside business simply cannot be expected to understand the workings of business - seems spurious in the extreme.

There is a stronger argument for non-executive directors to work their way up through the system, starting, perhaps, with a strategic health authority or leading charity board, before moving to a small or medium-sized company. Elizabeth Filkin, the former parliamentary commissioner forstandards, now a non-executive director of Jarvis, the engineering company, and of Stanelco, the radio frequency applications company, believes that public sector boards are good places to start for those wanting to go further.

Companies, she says, should recognise that large charities and public sector bodies have similar demands to those of business. "A university or a big charity is a business. They have a clear purpose, they run within financial constraints and they must operate within the law," she says.

How many times must this message be repeated if companies are to shake off their traditional conservatism and broaden their outlook? Sooner or later we may see a new kind of animal: the professional non-executive, devoted to no other purpose.

But must this new professional be bred from a single business clone? Board diversity should mean something more than a token woman.

Download as a pdf file