In this article for the UK’s Energy Institute Fiona discusses the importance of board diversity and outlines some practical steps to improve it within energy companies.
“There is a body of evidence to show that greater gender diversity on boards could mean more attention will be paid to sustainability. It is one of the main findings of the report E&S-Friendly Boards by Diligent and the Esade Center of Corporate Governance, which compares the environment and social (E&S) performance of 5,295 companies in 50 countries with the activity and composition of their boards.
We have long known that a board’s age, gender and ethnic diversity is fundamental to an organisation’s financial and operational success. However, that essential link between board diversity and performance is something that many firms, including those in the energy sector, have failed to recognise.
Women on Boards UK’s recent report Hidden Truth About Diversity and Inclusion in the FTSE All-Share, shows that 50% of UK firms in the FTSE All-Share ex350 have no women in C-suite positions and only a quarter of boards have one director of colour. Annual data released by POWERful Women and PwC reveal the energy sector is lagging even further behind, with women occupying just 27% of all board seats (executive and non-executive) in the top c.80 largest UK energy employers and only 15% of executive director positions – up just 1% from 2021.
It is clear that a step change is needed. Here are four strategies to help boost board diversity.
Get everyone on board
The first stage is to make sure there is a consensus on your board. Recruiting for diversity requires a shift in mindset and approach, so it’s important that the existing board is aligned around both the moral and the business case for change. Without this consensus there is danger of tokenism.
Some pointers for making the case for change include companies with diverse boards are more profitable; gender diverse boards correlate with less excessive risk-taking and business failure; financial services regulators are encouraging diversity; shareholders and investors are increasingly positive about diversity, or even demanding it; and there’s an increasing reputational risk in a lack of diversity with customers and staff.
Create a shadow board
This is a new and emerging area of workplace inclusion initiatives. Shadow boards are designed to bring in younger leaders at the top strategic level, allowing for insight and challenges from these voices to push ambitions further and faster towards net zero and other sustainability targets.
Women on Boards UK and Renewable UK have just finished a project supporting young professionals who sit on their shadow board. The shadow board consists of a group of non-executive employees from Renewable UK member organisations including Siemens Gamesa, RWE and ScottishPower. The project has shown that shadow boards are effective at engaging a broad range of talent at a strategic level, with a high potential for lasting benefits to those professionals’ careers in the strategic skills learnt.
The key to success is offering shadow board members support and learning about how to engage effectively in a board environment.
Improve recruitment methods
It pains me to say, but one of the most popular methods for recruiting new board members remains referrals from existing board members. If we are ever going to make progress then it’s vital that boards look beyond their existing networks and actively create new opportunities for women, people of colour and other typically underrepresented groups.
Open recruitment will help to close the gap on board diversity, so ensure that you are advertising your role openly and transparently to bring in more diverse candidates. This is not about giving women or underrepresented groups preferential treatment. It is a shift in focus to turn off the spotlight on familiar types of non-executive and turn on the floodlights to the full range of talent who can add value to your board.
Make a visible commitment
Transparency and accountability go hand in hand and disclosure drives action. Your approach to diversity should be detailed publicly and include measurable targets and timescales. A published board diversity statement is not enough; it’s important to provide insights into the diversity of your board and your goals.
To stay focused on your dedication to diversity, monitor your progress regularly. Identify key metrics and publicly disclose your progress. This method will show commitment and hold the team accountable. Our recommendation is to set targets over a three-to-five-year time horizon and report annually on your progress.
Ultimately, the transition to net zero requires sustained, long-term commitment from the top of the organisation. Organisations must start to drive this change today.