In 2015, a study found there were more men leading FTSE 100 companies named John, David or Ian than there were women.
This dismal stat has helped motivate companies to push for change and move the dial on gender diversity.
Since then, female representation on boards for the FTSE 100 has increased from 23.5% to 39.1%.
Although board diversity is generally on an upward trend, there are still companies lagging behind.
The business benefits of board gender diversity
As companies work towards greater equality on boards, there’s a growing number of examples showing the benefits.
Diversity of thought means problems are looked at through a different lens. This can lead to fresh ideas, innovative solutions, and new insights. A board that’s representative of a company’s client base can also help better understand customers’ needs.
Studies show there’s a positive correlation between board diversity and company performance – as one increases, so does the other. For example, businesses with a significant representation of women at the board level are 25% more likely to achieve above-average profitability when compared to those with the least diverse boards.
Diversity can also help reduce risk. During the 2008 financial crisis, boards at banks with greater diversity tended to receive less fines for misconduct.
Diversity has become a crucial factor for both employees and customers when evaluating companies. Over three quarters of prospective employees consider diversity an important factor in their job search. Customers also tend to be more loyal to companies that demonstrate a commitment to addressing social inequalities.
How can fund managers encourage diversity?
Fund managers can engage with companies they invest in to hold them to account, using their bargaining power to push for positive change. They can meet senior managers at the companies they invest in to put their point of view across. But also use their votes to sway a company’s decision-making.
Some fund houses have policies or guidance to outline their expectations of the companies they invest in. This can include expectations that companies have a certain level of board diversity. This is often aligned with the 33% target that was initially set by the UK government to increase the number of women in senior leadership positions.
Engagement in action – two fund case studies
This article isn’t personal advice. If you’re not sure if an investment is right for you, ask for financial advice. All investments can rise and fall in value, so you could get back less than you invest.
Investing in these funds isn’t right for everyone. You should only invest if the fund’s objectives align with your own and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest and make sure any new investment forms part of a diversified portfolio.
Troy Trojan Ethical Income
The Troy Trojan Ethical Income fund is managed by Hugo Ure, who leverages the skills and expertise of Troy’s highly regarded equity income team. The team aims to shelter investors’ money from the worst stock market falls, while increasing its value and paying a rising income over the long term.
Ure avoids ‘sin stocks’, like those involved in armaments, tobacco, and alcohol. But he also carries out Environmental, Social and Governance (ESG) analysis on each company to fully understand all the risks. Where he feels improvements can be made, he’ll engage with the company.
Board diversity has been a key engagement topic for the team in recent years. The team engages with any company that has less than 30% female representation at board level. They also vote against the incumbent Chair of the Nominations Committee where any board fails to meet this requirement.
The team recently engaged with financial services data provider Experian to encourage board diversity improvements across gender, nationality and experience.
Since they started the engagement, Experian has added two women and a man to the board, replacing two men and a woman. This means the company now surpasses the 30% threshold. However, the Troy team still has concerns about the board’s diversity of nationality and experience.
This funds’ flexibility to invest in smaller companies and derivatives adds risk.
Find out more about Troy Trojan Ethical Income, including charges
Troy Trojan Ethical Income Key Investor Information
Royal London Sustainable Leaders Trust
Fund manager Mike Fox invests in UK companies that contribute positively to the environment and society, and align with a range of sustainable themes, including next generation medicine and hygiene, and wellbeing. Sectors that don’t provide a clear benefit to the environment and society, like tobacco producers, are excluded.
Last year, the team engaged with veterinary drug and products maker Dechra Pharmaceuticals. This was following press coverage of the CEO making controversial comments challenging diversity targets for boards.
The team communicated with the chairman, expressing their concern over the comments, but were underwhelmed with the company’s response. As a result, they abstained from voting on the chair’s re-election and reduced the fund’s stake in Dechra Pharmaceuticals.
The fund tends to invest in relatively few companies. This, combined with being able to invest in smaller companies, adds risk.
Find out more about Royal London Sustainable Leaders Trust, including charges
Royal London Sustainable Leaders Trust Key Investor Information
Want to learn more?
To find out about a fund’s approach to engagement on board diversity, most responsible funds produce a Stewardship, Engagement or Active Ownership report. You can usually find these on fund groups’ websites.
If you want to learn more about responsible investing more generally, explore our Responsible Investment Hub. It has everything from how to get started investing responsibly to helpful tips, and fund ideas.
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