UK boards are changing dramatically

A one-year “snapshot” of UK boards has revealed a continuing trend of change, particularly when it comes to non-executive directors (NEDs).

The global governance consultancy firm Spencer Stuart compiled a report of boardroom changes in the top 150 companies listed on the FTSE index for 2021. 

The main points are:

• Women continue to make up the majority of new NED positions
• Newcomers to boards are, in general, more diverse
• Boards are the smallest they’ve been in ten years

Here’s a further breakdown.

A total of 264 new directors were appointed to the boards of 150 companies last year. This means that 18% of all directors in these companies are newcomers, the highest level seen since 2015. 

Counting just executive directors (EDs), the proportion of newcomers stands at 15%, while the proportion of non-executive directors (NEDs) stands at 22%. Individually, both are at the highest levels seen in five years.

52% of the NEDs appointed to the top 150 UK companies in the past year were women. 

It is a record-matching result for Britain, equalling the figure set in 2019 when new female NEDs outnumbered males for the first time in history. The figure had been steadily increasing for several years prior. 

Counting old NEDs as well as new, the proportion of women holding NED positions stands at 51%, the results said. 

This is quite impressive, considering that next door, the EU hasn’t reached 40% yet, and likely won’t do so until new thresholds come into force in 2026.

Granted, the EU is far more extensive – culturally, legally and economically – but the achievement of the UK in this context is still one to note.

Of the NEDs appointed in 2021, 19% are minority ethnic directors, and 48% are non-UK nationals. 

Both figures are significant increases. The same Spencer Stuart report from 2019 showed new NEDs were 11.5% minorities and 41.2% non-UK nationals. 

This trend towards greater diversity aligns with what most business analysts call for. For some time, their viewpoint has been that more diverse boards lead to better governance overall. 

The reasons usually given include:

• Diverse boards have a broader set of opinions, resulting in more rounded decision-making
• Diverse boards make great use of the global talent pool
• Diverse boards align closer to modern environmental, social and governance (ESG) values – which investors, consumers and politicians usually like to see.

Within the cohort of NEDs appointed in the last year, there is a category of people for whom this is the first NED role of their career. 

35% of newly appointed NEDs fit this bracket, which amounted to 98 people in 2021. 

Spencer Stuart says this percentage figure has remained “relatively constant” over the past few years. In other words, the desire for the newest new talent in Britain hasn’t shifted either way. 

Meanwhile, the proportion of first-time NEDs who are women has gone down from 57% to 43% – quite a significant jump. On the other hand, the proportion of non-national, first-time NEDs has climbed from 37% to 53%.

Britain’s average number of people on a board is now 9.9 – the lowest figure in a decade. 

In 90% of companies, the CEO and CFO sit on the board. Much of the remainder is usually filled by non-executive directors instead of executive directors.

9.9 board members is low by most analysts’ standards. 

No magic number for how many should sit on a company’s board exists. Indeed, most suggestions involve a large bracket of between 7 and 15. However, there are two generally accepted points to remember:

• Smaller boards get higher returns (by 8.5 percentage points) and better performance (by 10.85 percentage points) than larger ones. This comes from a frequently quoted GMI/Wall Street Journal survey carried out in 2014
• Larger boards naturally allow for more diversity and sharing of workloads. 

With the latest figures from the UK, the country looks to be making positive efforts in both efficiency (because boards are smaller) and diversity in numbers (because more women, minorities and non-nationals are selected). 

However, the UK has only reached its peak figures in some of these categories recently. Will they hold? This will be something to watch.

The latest figures suggest that the UK continues to make changes that align with some of the core values of ESG, particularly in the “non-executive director” category. 

In common with many other countries, the country lacks senior leadership positions like CEOs. Progress here is slow, but again, it is one to watch in the coming decade.

Myatt has written extensively on the importance of diverse boards and has listed his top ten reasons why diversity is good for boards and the companies they serve.