Introduction
UK headlines have been dominated by news of the gender pay gap, placing the topic firmly on the Board agenda.
Tuesday 4th April was the deadline for UK companies with over 250 employees to submit their gender pay gap reporting data. Over 10,000 organisations in the UK have now publicly shared their data, with the final figure showing a 9.7% median pay gap. 78% of companies paid men more, many revealing a significant gap which is often attributed to too few women in the upper levels of the organisation.
The fact of the gender pay gap has been established. It is incumbent on Boards to respond and to ensure steps are underway to close that gap and to create greater gender balance in particular at senior levels.
Ambitious targets are being set: the FT has committed to gender pay parity by 2022, and the BBC has committed to contributor gender balance by 2019.
Fidelio has been ahead of the curve in supporting clients to report and narrow the gender pay gap. In 2017 shortly before the reporting requirements were introduced Fidelio hosted a Board breakfast with Ann Francke, CEO of CMI, on the implication of the gender pay gap for Boards. Ann has also contributed to Fidelio’s “A Seat at the Table” Programme for senior female directors emphasising the responsibility of the Board and leadership team to address what UK Prime Minister Theresa May calls a “burning injustice“.
Fidelio is committed to building Boards fit for the future and has an exceptional track record in increasing gender balance and diversity at senior levels. We are working with Boards internationally to achieve these goals. In this Overture we provide practical steps for Boards to ensure progress towards ambitious diversity targets and closing the gender pay gap through:
1. Evaluation at the Board and Executive Committee level
2. Development, including “A Seat at the Table” and Strengthening the Pipeline
3. Succession Planning, Search and Remuneration
1. Board and Executive Committee Evaluation: Board Evaluation has become a commonly used tool favoured by Chairmen, shareholders and regulators for increasing Board effectiveness. Evaluation also has a role to play in increasing diversity:
- An external Board Review offers the Chairman the opportunity to review current and future challenges, and to assess how well the composition of the Board and Executive team is aligned to navigate those challenges. For most organisations diversity is both part of the challenge and the solution. A rigorous Board Evaluation can provide the basis for targeted succession planning with an emphasis on increasing diversity.
- Evaluation also offers the opportunity to explore real and perceived obstacles to increasing diversity and closing the gender pay gap. The Board’s experience across other organisations can introduce fresh thinking on what can feel like intractable problems; and blind spots and unconscious resistance in the Board room can be identified and addressed.
- Given the benefits of Evaluation, we are also increasingly seeing this Board effectiveness tool cascaded to the Executive layer. The Executive Committee and direct reports are particularly important as lack of women at this level is frequently the major reason for a large gender pay gap. Evaluation enables Executives to identify how well they are positioned to close the gap; where the obstacles lie; and what fresh insight and expertise needs to be brought into the senior team if it is to tackle gender imbalance.
2. Development: Development of talented senior women is critical to building a healthy pipeline, as well as closing the gender pay gap:
- First and foremost Boards should receive good data on Development at the Executive level. If increased diversity is a priority, is resource being allocated to achieve this? Too often change is expected to happen on a shoe string. Equally tracking the appetite for and uptake of development by senior female executives within the organisation is a highly relevant indicator for Boards. If a return on investment is closing the gender pay gap and increasing diversity, the Board first needs a good understanding of the level and quality of the investment that is being made to achieve that goal.
- On that basis Boards should ensure development is targeted and relevant. There has been much emphasis on unconscious bias training but Iris Bohnet, Non-Executive Director, Credit Suisse, argues in “What Works” that the track record of influencing behaviour can be patchy. Instead she advocates focussing on processes and ensuring that these processes are fair and transparent. Development initiatives that will help to reduce the gender pay gap should meet these criteria. Practicality is also an advantage. Outcomes should be measurable.
- What works is the question which Fidelio’s “A Seat at the Table” Programme answers. Now in its sixth iteration this acclaimed Programme builds a pipeline of female CEOs and Chairs which will be critical to closing the gender pay gap. Its goal is to put women in the driving seats of their own Board careers and over 40% of former participants have taken on external Board roles and/ or moved to more senior executive roles within 12 months of attending.
3. Search and Succession Planning – and last but clearly not least the Board, typically through the work of the Nominations Committee, should have a good handle on the quality of Succession Planning for Board Members and senior leadership roles. In a UK context, recent FRC recommendations for the UK corporate governance code advocate much greater engagement by the Nominations Committee on this issue which Fidelio endorses:
- Succession planning and closing the gender pay gap will go hand in hand if there is a resolute focus on the future. All organisations are threatened by disruption or being disrupted. To survive or to maintain a competitive advantage, Boards and Executive Teams self-evidently require different skills and experience. By rigorously aligning the skill matrix to the strategic objectives, succession planning, often based on the findings of an Evaluation, enables a company to reach new talent pools including at a senior level.
- While each Search for a new Board or Executive Member is an opportunity to introduce greater diversity, we are seeing Chairmen shift away from viewing each Board appointment in isolation. Rather we are supporting Chairmen who are constantly establishing a universe of talented, diverse Directors who may in turn be introduced into formal Board processes in the future. Succession planning is becoming continuous and medium-term, particularly if it is to identify and successfully introduce different profiles whether internally or externally.
- At the Executive level, it is not the role of the Nominations Committee to micromanage the appointments process but prompted by the FRC in the UK, the Board should be gaining comfort that robust succession planning is in place for senior roles within the company. The diversity and strength of the pipeline has to extend quickly to senior roles. The Board cannot wait for graduate recruits to redress the gender pay gap.
- Gender pay gap reporting has identified Professional Services as one sector that is struggling to achieve greater gender balance at a senior level. One challenge in a partnership is that hiring is frequently devolved to individual partners. Surely a key function of a Board is to ensure that the needs of the organisation as a whole are not frustrated by the shorter term objectives of individual partners. The gender pay gap will require a concerted response and Boards have a duty to encourage this, not least through succession planning.
The gender pay gap is a political and business challenge that sits firmly on the Board agenda. In most organisations there are a number of obstacles to be overcome if the gap is to be closed. But these are not insurmountable and smart Boards will be seeing increased diversity as an answer to disruption and lack of trust. As we have set out in this Overture, Boards can adopt a number of tools and steps that are commonly used to promote greater Board effectiveness to close the gender pay gap.
Evaluation, Development, Search and Succession Planning can all be rigorously applied to ensure that the Board is thinking openly about opportunities to increase diversity including at senior level. Where the Board hits obstacles in its own thinking or within the organisation it is right to look externally for fresh perspective and insight. The Board too may benefit from focused and bespoke development. Closing the gender pay gap is a goal that Boards cannot afford to ignore. Smart Chairmen will have already concluded that failure to achieve greater diversity is in itself a source of disruption; and closing the gender pay gap denotes an effective Board that is fit for the future.
For further details on how Fidelio supports Chairmen to build highly effective Boards, please get in touch.