“All white” boards and no plans to change? The problems in smaller listed firms

The UK's smaller public companies seem untroubled by the whiteness of their boards, where others who are represented appear to lack executive power, according to a new report

FTSE Small Cap 100, (SMC) and Alternative Investment Market (AIM) companies are stuck in a time warp and are dominated by white men at board level. In terms of diverse appointments, there was only “one net addition across both cohorts” in the last year, according to a new report by Company Matters.

Small listed companies and white men

The corporate administration services company collected data from the firms’ latest annual reports and found that white individuals dominated boards (96% of AIM UK 50 directors and 95% of SMC) while many firms had all white boards, (84% of AIM and 78% of SMC).

BAME and female board members

The number of all white boards among these firms was double seen in the FTSE 100, which despite facing fair criticism for its own lack of non-white boardroom representation, appears almost diverse by contrast where BAME representation sits at 11%. In terms of ethnic minority representation, the report only found three Black directors on AIM UK 50 boards, but none were executives. On the gender front, women were outnumbered by their male counterparts by almost 16:1 in these firms.

Women made up 33% of SMC boards, and it seemed a concerted gender equity drive was underway in 2020 where two-fifths of appointments were female. Currently, the state of gender representation across SMC boards puts its ahead of the FTSE 250. However female representation at director level among the AIM UK 50 is slightly behind at 20%. Although this was a 2% rise, this was largely attributed to the growing presence of female non-executive directors over executives.

The report found there was “no increase in female executive roles in either the AIM or FTSE Small Cap constituencies on a like-for-like basis,” which suggests that female board-level representation across these companies remains titular and where further appointments of women and ethnic-minorities in executive roles is what’s needed for their impact to be felt.

An absence of diversity goals

Aside from the current state of board-level diversity, are these companies doing anything to change the status quo? On this point, the report revealed that only two AIM UK 50 firms and seven Small Cap 100 companies “set measurable objectives for board diversity.” In fact, board diversity policies fell to 7% among Small Cap 100 firms, a 2% reduction from the year before.

The decline in setting diversity objectives seems surprising considering the existence of the UK Corporate Governance Code, where its adherents are expected to publish details regarding their current board-level diversity policies and set their intention to make future diverse appointments.

Considering the absence of ethnic minority and female board members and the evident lack of intention setting from firms, the report states that “further government mandates” including “new obligations on social diversity and mandatory ethnic pay gap reporting” could soon follow.

Speaking about the representation issues within smaller listed UK firms, Tracey Brady, Managing Director, Company Matters, Link Group said: “Change needs to happen, and it needs to happen at a faster pace than we’re currently seeing. The top FTSE 350 listed companies in the UK tend to dominate attention in the diversity debate. But they are not fully representative of UK corporate culture.

“There are more than a thousand smaller listed companies on the main market and AIM indices and tens of thousands of private companies. They employ far more people between them than the top FTSE 350 companies. They tend to be more domestically focused, meaning they reflect UK company leadership and the lived experience of the UK workforce much more than their very large, often global counterparts.

“If such large proportions of the population are not rising to the top because of their race, gender, or age, then huge pools of talent are going untapped, limiting the potential for individuals and the whole economy. As we look to a post-pandemic future, we will need to tune every aspect of fitness to Olympic standard to get the UK back on its feet. Making sure that UK business is reflective of modern society is an essential part of that. Only then can the economy truly go full speed.”

Commenting on the Company Matters findings, Alexandra Altinger, CEO, J O Hambro Capital Management, UK, Europe & Asia, said: “The findings are worrying, especially given the large number of people these businesses employ, and the need to have visible role models in senior leadership to help rectify imbalances and inspire young people from diverse backgrounds.

“Vitally, this report draws attention to an under-discussed issue in the wider UK corporate sector. The focus has historically been on the lack of diversity on the boards of FTSE 100 or FTSE 350 companies, but as we can clearly see from these findings, there is a much wider issue around leadership diversity in the many smaller listed companies.

“Diversity, as well as being a moral issue, is soon likely to become a financial and regulatory hurdle for businesses. As investors shift their focus to ESG, otherwise strong firms might find themselves let down by their failure to address diversity issues within their corporate governance strategy.”

Another report from 2020 revealed that gender representation on AIM 50 firms’ boards was “only slightly higher” than FTSE 350 firms a decade before. Considering this statistic and the state of ethnic minority and female board representation revealed in the previous report, it’s smaller listed firms that require urgent attention.

With smaller listed companies outnumbering the FTSE 350 on the UK stock market and employing significant numbers of people, these businesses require diversifying first and making it the norm across these organisations, making changes at board level is a good place to start.

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