April to June 2019 Summary
This report reviews the FTSE 350 board appointments in the second quarter, April – June 2019 and follows our reports for the full year 2018 and Q1 2019. We again analyse the non-executive and executive director appointments to the FTSE 350 companies and explore the trends.
The FTSE 100 appointments in Q2 show a particularly interesting change in direction with, on the one hand, only 28% of the non-executive appointments being women and, on the other, 100% of the executive director appointments being women. This sharply reverses the trends over the previous 18 months.
We also take the opportunity in this report to look specifically at chairman appointments in the first half of 2019 and note that men absolutely dominate both the FTSE 100 chair appointments (100% male) and FTSE 250 chair appointments (90% male). Women remain scarce at the top of the FTSE 350 companies with 91% of the chairmen and 96% of the CEOs being men! There is no short term solution to this huge gender gap. There is a lot of work to be done at multiple levels to change this but perhaps the FTSE 100 executive director apointments in Q2 represent a green shoot. More on this below.
NON-EXECUTIVE DIRECTOR APPOINTMENTS
At the end of Q2 2019, there were 698 non-executive directors (including non-executive chairmen) on the boards of the FTSE 100 companies and there were 1,312 on the boards of the FTSE 250. Of the FTSE 100 NEDs, 39% were women and for the FTSE 250 it was 32%, again demonstrating that the gender diversity campaign in recent years has met its original targets, at least at the non-executive level.
During Q2, the FTSE 100 appointed 39 NEDs of which only 11 (28%) were women, a significant decline in the proportion of female appointments from the 53% overall in 2018 and the 50% recorded in our Q1 report. This is quite possibly a consequence of the FTSE 100 having already fully embraced the gender diversity challenge (as noted above) and an indication of possible saturation. These eleven women hold on average 2.6 public board appointments with six (55%) of them sitting on three public company boards (four of them hold four public company board positions); three of them also hold executive roles. To compare, the 28 men sit on an average of only 1.8 public company boards with only four (14%) of them more then two public company appointments and none on more than three.
It will be interesting to monitor this over the second half of the year.
In quite the opposite direction, the FTSE 250 appointed 65 NEDs, of which 40 (62%) were women, a marked uplift from the 2018 and Q1 2019 results. The FTSE 250 companies have been slower than the FTSE 100 to respond to the clamour for gender diversity. At the end of 2018, less than 30% of the FTSE 250 non-executive directors were women but with a 62% female intake in Q2, it is now clearly catching up.
EXECUTIVE DIRECTOR APPOINTMENTS
Readers will recall that our earlier reports highlighted the dearth of female executive directors across the entire FTSE 350. At the end of 2018, less than 10% of the FTSE 350 executive directors were women and Q1 2019 showed no significant shift in this mix. We made the point then that women may have more say in governance but men still run the companies. Looking at the appointments in Q2, however, perhaps we are starting to see some change.
In Q2 2019, the FTSE 100 companies made three executive director appointments to their boards. All three (100%) are women – Catherine Faiers at Auto Trader Group Plc, Stephanie Bruce at Standard Life Aberdeen Plc and Karen Witts at Compass Group Plc. As an aside, at 38, Catherine Faiers is the second youngest of all the Q2 FTSE 100 board appointments, next to the ex-Uber executive Jambu Palaniappan, who at only 33 years, has joined the Just Eat Plc board and is the youngest FTSE 100 board member (executive and non-executive) by five years.
The numbers might be small but they are meaningful, particularly when we can now say that almost 30% of the FTSE 100 executive director appointments in the first half of 2019 are women!
The FTSE 250, however, still has some work to do with only five out of thirty-two (16%) of the executive director appointments so far in 2019 being women and no discernible change between Q1 and Q2, in which only two out of thirteen appointments were women.
A FOCUS ON CHAIRMEN
While chairmen appointments during Q2 are included in the numbers above, a further breakdown and analysis of the appointments in the first half of 2019 presents some interesting findings in relation to this, the most critical of the board appointments. In our paper last year, “Corporate Governance Should not be a Numbers Game”, we were very critical of the box-ticking approach to measuring “good corporate governance”. We made the point that the correct approach to assessing “good” corporate governance also required an examination of those charged with the exercise of that governance. Very simply, the critical criteria for us are whether each of the directors is competent to serve, relevant to the company and able to work with other directors as a team. The key to this is, of course, the chairman. He or she is effectively in command of board appointments, responsible for drawing out each director’s contribution and orchestrating the board’s oversight of management in delivering shareholder value. Clearly, the selection of the right chairman is critical!
FTSE 100 Chairmen appointments
In the first half of 2019, the FTSE 100 made 10 chairman changes. Eight of those were external appointments and two, at Melrose and Smurfit Kappa, represented the elevation of longstanding board members to the chair.
All ten of these appointments were men. Of the 94 current chairmen of the FTSE 100 (six of them chair two each), there are only five women. This is not surprising given the historical (preHampton/Alexander) lack of gender diversity amongst the FTSE 100 boards and it will be interesting to see how it develops. It is relevant to note that of the FTSE 100 CEOs, only seven of them are women, almost the same proportion as for chairmen.
FTSE 250 Charimen appointments
As for the FTSE 100, the female representation amongst the chairmen ranks of the FTSE 250 companies is very low. Of the 231 chairmen, only 21 (9%) are women and that is only slightly less frightening than the fact that only 3% of the FTSE 250 CEOs are women (see our last report for more on this). In the first half of 2019 there were 21 non-executive chair appointments but only two of them women, Danuta Gray at St Modwen Properties Plc and Sue Inglis at Bankers Investment Trust Plc.
Interestingly and unlike the FTSE 100, the majority of these chairmen appointments were internal elevations. We explored this a little further and found a similar pattern in the full-year 2018 chair appointments with 50% of the FTSE 100 appointments versus 76% of the FTSE 250 appointments coming from then current board members. In the Governance report we published in 2018, we referred to the Ondra study of the underperformance of the FTSE 100 (measured in terms of total shareholder return) linking that to “board composition and governance, particularly non-expert board leadership”. During the eighteen year period covered by that study, the FTSE 250 far outperformed the FTSE 100. Morningstar Investment Management in February 2017 quantified this outperformance as “more than 100% over the past fifteen years”. It would be fascinating to see if there is any quantifiable advantage in appointing chairmen who are already familiar with the company through some earlier years of service on the board but at this point, we will simply mark the above as an interesting correlation.