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July 20, 2021

FRC: Diverse boards improve performance

By Joe Pickard

The UK’s Financial Reporting Council’s (FRC) highlights how diverse boards improve performance and company culture in its latest research Board Diversity and Effectiveness in FTSE 350 Companies.

The research, which was published in conjunction with London Business School Leadership Institute and SQW (a research provider on social and economic development), said that to maximise benefits boards should recognise that changes take time and diversity without active inclusion is unlikely to encourage new talent to the board.

The main findings of the research concluded that:

  • It is the responsibility of the chair of the board to drive inclusion.
  • Regulators and companies must focus on collecting more data on the types of diversity, board dynamics and social inclusion
  • the Nomination Committee itself should be diverse and have a clear mandate to work with search firms that access talent from wide and diverse pools.
  • The greater representation of women in the boardroom is reshaping culture and dynamics and benefiting businesses from a social justice as well as a performance perspective

 

FRC CEO Jon Thompson said: “The FRC wants to see companies which thrive in the long term and both benefit the economy, society and reflect its make-up. I want to see boards invest time and energy in making diverse appointments not to achieve a target but because it will have a positive impact on their business. The UK Corporate Governance Code makes it clear that boards appointment should promote diversity and we want to see nominations committees reporting on progress.

“I am pleased that this research supported the need for companies to set clear targets and report against them as a means to improving diversity, this is included in the Code but in many companies only set targets for gender or to a lesser degree ethnic diversity.  We support the researcher’s proposal that nominations committees should be diverse and have a mandate to work with executive search firms that will find talent from diverse backgrounds.”

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