To be honest, the majority of large US and UK boards are still “pale, male (and occasionally stale)”.

In the US, a Harvard Study in 2017 found that the S&P 1500 had only 10% of directors from an ethnic minority. Contrast this with the 2017 US population census, where 42% of the general population classified themselves as non-white. Common sense would suggest that company boards should reflect the general population, but what are the proven benefits of diversity?

According to a McKinsey study in 2018, companies in the top quartile for (a) gender diversity or (b) ethnic and cultural diversity were statistically more likely to experience above-average profitability than companies in the fourth quartile, (21% & 33% respectively). And I’m sure you won’t be surprised to hear, many other studies show similar results.

Harnessing broader diversity of experience, knowledge and skills leads to greater innovation and better decision-making.

Yet despite the benefits being widely heralded, many companies (including the asset management sector) have been slow off the mark in implementing meaningful policies and changing recruitment practices. In the UK, this has led to a variety of regulatory measures to deal with gender diversity.

But what about the companies that Kames invests in? And what about diversity in the broader sense?

At Kames we believe wider diversity is the goal that all companies should be aiming for, but, it can be difficult to measure how truly diverse a company is (due to lack of data). However, in our experience, companies that have good gender-diversity policies in place are generally cognisant of the need for greater diversity as well.

During 2018, we undertook an engagement programme with UK-listed companies that we identified as having poor female representation at board level. Specifically, we wanted to know whether there was a plan to address this issue at board and management level, and how they ensure all forms of diversity throughout the business. We had some very interesting discussions… including conversations with many company Chairmen who are enthusiastically seeking to improve matters.

Certain sectors e.g. technology, engineering and telecoms, suffer with a severe shortage of diverse job applicants at all levels. To address this, companies are reaching out to schools and universities to attract people into their industry at an early age with offers of internships and apprenticeships to a diverse mix of students. Other innovative solutions involved maternity return mentoring and targeted recruitment to attract women back into the workforce (this is a particularly difficult task for companies with employees in places like India for cultural reasons). Sponsorship of training opportunities for people with disabilities and mental health support to ensure good retention rates are other solutions.

The issue of diversity in our investee companies is by no means resolved. However, we were mostly reassured that there is progress being made. It is going to take time to have workforces that are more reflective of the overall population but most of the companies we spoke to had plans in place to get there. And for those who don’t? We will continue to try and push them along.

About the author

Miranda Beacham is Corporate Governance Manager in the ESG Research team. She is responsible for monitoring, engaging and voting of investee companies in line with our Responsible Investment Policy. She joined us in 1994 as a research assistant in the UK equity team and has 24 years’ industry experience*. Miranda studied Chemistry at Napier University and has the IMC professional qualification.

*As at 30 November 2018.

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