There has been a significant drop in non-executive FTSE 350 board appointments, according to the latest annual Board Monitor Report UK 2023 from Heidrick & Struggles.
The report, by the global provider of executive search and leadership advisory services, blames the fall on the impact of ongoing economic uncertainty on board recruitment.
It highlights that while the number of women in positions of influence has reached a record high, progress on ethnic diversity remains stagnant.
There was a 23% decrease in new FTSE 350 board appointments in 2022, with only 342 appointments compared to 442 the previous year. The decline reflected the unpredictable operating environment faced by businesses amidst market volatility and a cost of living crisis.
Additionally, the data shows a shift towards appointing executives with prior public board experience, with only 28% of seats going to first-time public board directors, the lowest percentage since tracking began.
Retreat to the familiar
The report highlights a retreat to familiarity and traditional skill sets, favouring sitting executives (49%) over retired executives. Experience and age also played significant roles, as fewer directors under 55 secured board seats in 2022 (28% compared to 40% in 2021), while directors over 55 saw an increase in appointments (66% compared to 60% in 2021).
He said: “They also face the challenge of driving digital transformation and ensuring cybersecurity, not to mention the ‘basics’ of their job, namely to deliver returns to investors against a backdrop of inflation, geopolitical tension and weak consumer confidence.
“Given this backdrop, it is perhaps no surprise that boards have prioritised appointing experienced senior leaders with current, active experience at the top of business. Equally, it is essential that companies and boards continue to challenge their thinking, respond to a changing world and be future-focused by bringing new talent and perspectives into the boardroom.”
Stalled progress on gender
Despite the progress made in appointing women to positions of influence, as mandated by the Financial Conduct Authority (FCA) regulations, the overall percentage of women on boards has only increased by one percentage point, reaching 20%.
While a record high of 58% of board seats went to women in 2022, the average board composition across FTSE 350 companies as of January 2023 was only 41% women. This indicates that many companies are yet to reach the FCA target of having at least 40% women on boards by the end of 2025.
Alice Breeden, Co-Leader of the European CEO & Board at Heidrick & Struggles, emphasised the need for increased diversity to solve the systemic challenges businesses face. Breeden expressed concern over any regression towards traditional skills and experiences in uncertain times, urging boards to seek various backgrounds and capabilities to future-proof their organisations.
Ethic diversity falls flat
While progress on gender diversity has been observed, the report highlighted slower advancements in ethnic diversity. The percentage of board seats held by individuals from ethnic minority backgrounds increased by only 2% in 2022, reaching 24%. Furthermore, most board appointments, regardless of gender, still went to individuals of white ethnicity, with 72% of seats going to men and 76% to women. The report suggests that at this pace, it is unlikely to meet the FCA’s goal of having at least one director of a non-white ethnicity on each board.
The report also revealed a decrease in the share of seats for directors who are not British citizens, falling from 42% in 2021 to 31% in 2022, indicating a reversal in nationality trends.
Best in Class
Despite these challenges, the report highlighted the efforts of “Best in Class” boards, which actively seek directors with diverse expertise and a focus on sustainability. These boards also recognise the benefits of including younger directors to gain fresh perspectives and address emerging challenges. By fostering diversity beyond gender and bolstering sustainability acumen, these boards aim to effectively navigate the current economic storm.
As businesses continue to face uncertainty and navigate complex issues, the report underscores the importance of diverse representation on boards. Embracing a broader range of backgrounds, experiences, and knowledge can help companies find innovative solutions and ensure long-term success in a rapidly changing world.