Diversity, Merit and Power in the C-Suite 9781509946563, 9781509946594, 9781509946587

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DIVERSITY, MERIT AND POWER IN THE C-SUITE This book explores the correlations of diversity and power in UK boardrooms and the difficulties inherent in truly merit-based appointments. From a distance, boardroom diversity is seen as a UK success story of recent years. A closer look at boardrooms reveals a more uncomfortable truth. The board can be split into tracks of power and diversity. Where there is a concentration in power, genuine diversity is much less prevalent. Using the FTSE 100, the book examines the appointment and retention of the most powerful positions in some of the world’s most powerful corporations. Diversity, merit and power are each defined and measured individually, then considered cumulatively, to provide fresh insights into the meaning of corporate power, who wields it and how it is obtained. This analysis is considered alongside the diversity narratives created by the FTSE 100 to frame their position on diversity. From this, the value of corporate ‘diversity speak’ is challenged, together with the regulatory requirements that result in its production. Those studying or practising corporate law or management and anyone with an interest in corporate power will find this in-depth assessment thoughtprovoking and informative. From the book’s original vantage point, suggestions are made as to how and why we might seek a more balanced distribution of power in the boardroom.

CONTEMPORARY STUDIES IN CORPORATE LAW Series editors: Marc Moore, Christopher Bruner Corporate law scholarship has a relatively recent history despite the fact that corporations have existed and been subject to legal regulation for three centuries. The modern flourishing of corporate law scholarship has been matched by some broadening of the field of study to embrace insolvency, corporate finance, corporate governance and regulation of the financial markets. At the same time the intersection between other branches of law such as, for example, labour, contract, criminal law, competition, and intellectual property law and the introduction of new inter-disciplinary methodologies affords new possibilities for studying the corporation. This series seeks to foster intellectually diverse approaches to thinking about the law and its role, scope and effectiveness in the context of corporate activity. In so doing the series aims to publish works of high intellectual content and theoretical rigour. Titles in this series The Law and Economics of Takeovers: An Acquirer’s Perspective Athanasios Kouloridas The Foundations and Anatomy of Shareholder Activism Iris H-Y Chiu Corporate Governance in the Shadow of the State Marc T Moore Reconceptualising Corporate Compliance Anna Donovan Corporate Opportunities: A Law and Economics Analysis Marco Claudio Corradi The Making of the Modern Company Susan Watson Court-Supervised Restructuring of Large Distressed Companies in Asia: Law and Policy Wai Yee Wan Activist Shareholders in Corporate Governance: The Australian Experience and its Comparative Implications Tim Bowley Investment Management, Stewardship and Sustainability: Transformation and Challenges in Law and Regulation Edited by Iris H–Y Chiu and Hans-Christopher Hirt

Diversity, Merit and Power in the C-Suite Eleanore Hickman

HART PUBLISHING Bloomsbury Publishing Plc Kemp House, Chawley Park, Cumnor Hill, Oxford, OX2 9PH, UK 1385 Broadway, New York, NY 10018, USA 29 Earlsfort Terrace, Dublin 2, Ireland HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2023 Copyright © Eleanore Hickman, 2023 Eleanore Hickman has asserted her right under the Copyright, Designs and Patents Act 1988 to be identified as Author of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2023. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication data Names: Hickman, Eleanore, author. Title: Diversity, merit and power in the C-suite / Eleanore Hickman. Description: Oxford, UK ; New York, NY : Hart Publishing, 2023.  |  Series: Contemporary studies in corporate law  |  Includes bibliographical references and index.  |  Summary: “This book explores the correlations of diversity and power in UK boardrooms, and the difficulties inherent in truly merit-based appointments. From a distance, boardroom diversity is seen as a UK success story of recent years. A closer look at boardrooms reveals a more uncomfortable truth. The board can be split into tracks of power and diversity. Where there is a concentration in power, genuine diversity is much less prevalent. Using the FTSE 100, the book examines the appointment and retention of the most powerful positions in some of the world’s most powerful corporations. Diversity, merit and power are each defined and measured individually, then considered cumulatively, to provide fresh insights into the meaning of corporate power, who wields it, and how it is obtained. This analysis is considered alongside the diversity narratives created by the FTSE100 to frame their position on diversity. From this, the value of corporate ‘diversity speak’ is challenged, together with the regulatory requirements that result in its production. Those studying or practising corporate law or management and anyone with an interest in corporate power will find this in-depth assessment thought-provoking and informative. From the book’s original vantage point, suggestions are made as to how and why we might seek a more balanced distribution of power in the boardroom”— Provided by publisher. Identifiers: LCCN 2023000030 (print)  |  LCCN 2023000031 (ebook)  |  ISBN 9781509946563 (hardback ; alk. paper)  |  ISBN 9781509946600 (paperback ; alk. paper)  |  ISBN 9781509946587 (pdf)  |  ISBN 9781509946570 (Epub) Subjects: LCSH: Chief executive officers—Great Britain.  |  Women chief executive officers—Great Britain.  |  Glass ceiling (Employment discrimination)—Great Britain.  |  Discrimination in employment—Great Britain.  |  Diversity in the workplace—Great Britain. Classification: LCC HD38.25.G7 H53 2023 (print)  |  LCC HD38.25.G7 (ebook)  |  DDC 658.4/00941—dc23/eng/20230106 LC record available at https://lccn.loc.gov/2023000030 LC ebook record available at https://lccn.loc.gov/2023000031 ISBN: HB: ePDF: ePub:

978-1-50994-656-3 978-1-50994-658-7 978-1-50994-657-0

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To Bo and Evie, with all my love.

vi

Acknowledgements

I

am very grateful to a number of superb friends and colleagues. In particular I owe much to Cheryl Thomas, Martin Petrin and Marc Moore. To Erika Corderra Adams, Jo Braithwaite, Roseanne Russell, Ruth Sealy, Iris Chiu and Akshaya Kalmanath I am thankful for invaluable support and advice. Phillipa Collins deserves a special mention for giving me the boost I needed to make it over the finish line. I am also very grateful to Ben Cunningham and Harry Hamilton Jennings for their help. Many thanks to my friends Karla Yates, Victoria Palin, Alice Kavanagh and Rhi Lavery for their messages, martinis and chocolate brownies. Without you cheering me along I almost certainly wouldn’t have finished. Special thanks to my parents, Ulrika and John Varnham, for their unwavering love and support and, for everything they do for me. Many thanks also to my parents-in-law, Ann-Marie and Peter. Everlasting love and thanks to my wonderful and very patient husband, Oli. There is no chance I would have started or finished this (and much else besides) without you.

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Contents Acknowledgements��������������������������������������������������������������������������������������vii List of Figures���������������������������������������������������������������������������������������������xv List of Tables���������������������������������������������������������������������������������������������xvii 1. Those Who Seek Power����������������������������������������������������������������������������1 1. Why the FTSE100 C-Suite?����������������������������������������������������������������2 1.1. The FTSE100���������������������������������������������������������������������������3 1.2. The C-Suite������������������������������������������������������������������������������5 1.2.1. Representation in Decision Making�������������������������������6 1.2.2. The Message Being Sent�����������������������������������������������7 1.2.3. Diversity Begets Diversity���������������������������������������������7 2. An Overview of the Book and Methodology��������������������������������������7 3. Limitations���������������������������������������������������������������������������������������9 3.1. Intersectional���������������������������������������������������������������������������9 3.2. Methodological����������������������������������������������������������������������10 4. Conclusion��������������������������������������������������������������������������������������12 PART I IN THEORY 2. C-Suite Diversity and its Antecedents�����������������������������������������������������15 1. A Brief Look at Board Diversity Progress�����������������������������������������15 1.1. Gender�����������������������������������������������������������������������������������16 1.2. Ethnicity��������������������������������������������������������������������������������20 2. Cultural Barriers to Diversity�����������������������������������������������������������22 2.1. Statistical Discrimination and Stereotypes�������������������������������22 2.2. Taste-based Discrimination����������������������������������������������������25 2.3. Differences in Demand�����������������������������������������������������������27 3. Practical Barriers: Pipelines and Networks���������������������������������������30 3.1. Pipeline����������������������������������������������������������������������������������30 3.2. Networks and Mentors�����������������������������������������������������������32 4. Environmental Factors��������������������������������������������������������������������34 4.1. Institutional���������������������������������������������������������������������������34 4.2. Remuneration������������������������������������������������������������������������36 5. Conclusion��������������������������������������������������������������������������������������40

x  Contents 3. Theories of Merit and Power�����������������������������������������������������������������42 1. What is Merit in the C-Suite?�����������������������������������������������������������42 1.1. Human Capital����������������������������������������������������������������������43 1.2. Social Capital�������������������������������������������������������������������������44 1.3. Cultural Capital���������������������������������������������������������������������46 2. A Conceptual Framework for C-Suite Power������������������������������������46 2.1. What is Power?�����������������������������������������������������������������������47 2.2. A Resource-based Theory of Power����������������������������������������48 2.3. Source of Power���������������������������������������������������������������������50 2.3.1. Conferred Power���������������������������������������������������������50 2.3.2. Appropriated Power����������������������������������������������������51 2.4. Differences in Access to Power Sources������������������������������������52 3. Conclusion��������������������������������������������������������������������������������������54 PART II IN PRACTICE 4. Diversity������������������������������������������������������������������������������������������������59 1. Collecting Diversity Data����������������������������������������������������������������59 1.1. The Dataset���������������������������������������������������������������������������60 1.2. A Note on the Categorisation of Gender and Ethnicity�����������61 2. Detail on Diversity��������������������������������������������������������������������������63 2.1. In the C-Suite�������������������������������������������������������������������������63 2.2. Diversity by Industry��������������������������������������������������������������66 2.3. In the Workforce��������������������������������������������������������������������68 2.4. Roles��������������������������������������������������������������������������������������69 2.5. Female Executives�������������������������������������������������������������������71 3. The Gender Pay Gap�����������������������������������������������������������������������73 3.1. What is the Gender Pay Gap?��������������������������������������������������73 3.2. Why the Gender Pay Gap?������������������������������������������������������76 3.3. A Pinch of Salt on the Pay Gap Statistics���������������������������������78 4. Conclusion��������������������������������������������������������������������������������������79 5. Merit�����������������������������������������������������������������������������������������������������80 1. The Appointment Process����������������������������������������������������������������80 1.1. Executive Search Firms�����������������������������������������������������������82 1.2. Internal Recruitment Methods������������������������������������������������84 2. The Merit Study������������������������������������������������������������������������������86 2.1. Sources����������������������������������������������������������������������������������86 2.2. Human Capital����������������������������������������������������������������������89 2.2.1. Education Merit���������������������������������������������������������89 2.2.2. Education – Subject Choice����������������������������������������91 2.2.3. Experience Merit��������������������������������������������������������92

Contents  xi 2.2.4. Professional Merit������������������������������������������������������94 2.2.5. Human Capital Summary�������������������������������������������95 2.3. Social Capital�������������������������������������������������������������������������96 2.3.1. University Institution Attended�����������������������������������96 2.3.2. External Appointments�����������������������������������������������99 2.4. Cultural Capital������������������������������������������������������������������� 100 2.4.1. Age�������������������������������������������������������������������������� 101 2.4.2. Nationality��������������������������������������������������������������� 101 2.4.3. University Alma Mater��������������������������������������������� 104 2.4.4. Public Profile������������������������������������������������������������ 104 3. Conclusion������������������������������������������������������������������������������������ 105 6. Power�������������������������������������������������������������������������������������������������� 107 1. Measuring Power�������������������������������������������������������������������������� 107 2. Structural Power���������������������������������������������������������������������������� 111 2.1. Title������������������������������������������������������������������������������������� 111 2.2. Remuneration���������������������������������������������������������������������� 112 2.3. Tenure��������������������������������������������������������������������������������� 113 2.4. Structural Power Findings����������������������������������������������������� 114 3. Ownership Power�������������������������������������������������������������������������� 115 3.1. Types of Ownership������������������������������������������������������������� 115 3.2. Ownership Power Findings��������������������������������������������������� 117 4. Prestige Power������������������������������������������������������������������������������� 118 4.1. Higher Education����������������������������������������������������������������� 119 4.2. Prior Board Experience��������������������������������������������������������� 121 4.3. Honours������������������������������������������������������������������������������ 121 4.4. Prestige Power Findings�������������������������������������������������������� 122 5. Conclusion������������������������������������������������������������������������������������ 123 7. The Framing of Diversity and Merit in the Boardroom������������������������� 125 1. FTSE100 Diversity Requirements: Then and Now�������������������������� 125 2. The Diversity Narrative Study������������������������������������������������������� 128 2.1. Definition of Diversity���������������������������������������������������������� 130 2.2. Company Appointment Policy���������������������������������������������� 135 3. Conclusion������������������������������������������������������������������������������������ 139 8. From Sweet Talkers to Deniers������������������������������������������������������������� 140 1. Who is Sweet Talking? Interpreting Annual Reports����������������������� 140 1.1. Method�������������������������������������������������������������������������������� 140 1.2. Findings������������������������������������������������������������������������������� 142 2. Assessing Statement Authenticity��������������������������������������������������� 144 2.1. The Evidence����������������������������������������������������������������������� 145 2.2. Why the Lack of Consistency?���������������������������������������������� 147

xii  Contents 3. Divergent Justifications for Diversity���������������������������������������������� 149 3.1. What are the Justifications?�������������������������������������������������� 149 3.2. Comparing the Stated Benefits of Diversity��������������������������� 150 4. Conclusion������������������������������������������������������������������������������������ 153 PART III CHOICES 9. Diversifying Power through Regulation������������������������������������������������ 157 1. The UK Corporate Governance Code is not Working��������������������� 157 1.1. Disclosure is Ineffective�������������������������������������������������������� 157 1.1.1. Transparency������������������������������������������������������������ 158 1.1.2. Enforcement������������������������������������������������������������� 159 1.1.3. Manipulation����������������������������������������������������������� 159 1.2. A Process Oriented Focus is Ineffective���������������������������������� 160 2. Making the UK Corporate Governance Code Work����������������������� 162 2.1. Participative Boards�������������������������������������������������������������� 162 2.2. Rethinking Independence����������������������������������������������������� 164 2.3. The Ontario Approach��������������������������������������������������������� 166 2.4. Increasing the Chairman’s Responsibilities���������������������������� 168 2.5. Bolstering Compliance��������������������������������������������������������� 169 2.6. Other Appointment Practices����������������������������������������������� 171 2.7. Or Should the UK Corporate Governance Code be Abolished?��������������������������������������������������������������������������� 171 3. Hard Law Remedies���������������������������������������������������������������������� 172 3.1. A Closer Look at Quotas������������������������������������������������������ 174 3.1.1. The Mediocrity Problem������������������������������������������� 175 3.1.2. Macro-economic Considerations������������������������������ 176 3.1.3. The Discrimination Problem������������������������������������� 177 3.1.4. Creating Tension������������������������������������������������������ 178 3.2. Is Affirmative Action a Necessary Evil?��������������������������������� 179 4. Conclusion������������������������������������������������������������������������������������ 180 10. A Holistic Approach���������������������������������������������������������������������������� 182 1. Role Segregation��������������������������������������������������������������������������� 183 1.1. Professional Segregation������������������������������������������������������� 183 1.2. Domestic Segregation����������������������������������������������������������� 185 2. Mentoring������������������������������������������������������������������������������������ 186 3. Corporate Culture������������������������������������������������������������������������� 188 4. Abuse of Power����������������������������������������������������������������������������� 191 5. Stewardship and Diversity������������������������������������������������������������� 193 6. Conclusion������������������������������������������������������������������������������������ 194

Contents  xiii 11. Conclusion������������������������������������������������������������������������������������������ 195 1. Diversity in the Boardroom has Three Tracks��������������������������������� 196 2. Higher Hurdles, Lower Rewards���������������������������������������������������� 197 3. Sweet Talking in the Annual Report����������������������������������������������� 198 4. The Way Forward?������������������������������������������������������������������������ 199 5. A Final Word�������������������������������������������������������������������������������� 200 Bibliography���������������������������������������������������������������������������������������������� 201 Index��������������������������������������������������������������������������������������������������������� 217

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List of Figures Figure 2.1  Total remuneration by role and gender����������������������������������������37 Figure 2.2  Total remuneration by role and ethnicity�������������������������������������39 Figure 4.1  ITV plc diversity data 2021 ���������������������������������������������������������61 Figure 4.2 Gender and ethnic distribution of the FTSE100 c-suite in 2016 and 2017 (%)������������������������������������������������������������������63 Figure 4.3 Proportion of companies with women in c-suite by industry 2017��������������������������������������������������������������������������66 Figure 4.4 Proportion of companies with women in c-suite by industry 2021��������������������������������������������������������������������������66 Figure 4.5 Percentage male and female by c-suite roles in 2016 and 2017 (averaged) and 2021������������������������������������������������������70 Figure 4.6  Number of women executives by role in FTSE100������������������������72 Figure 4.7 Mean gender pay and bonus gap distribution in FTSE100 in 2017�������������������������������������������������������������������������74 Figure 4.8 Mean gender pay and bonus gap distribution in FTSE100 in 2021�������������������������������������������������������������������������75 Figure 5.1  Percentage of each gender according to education merit score������89 Figure 5.2  Percentage of each ethnicity according to education merit score������ 90 Figure 5.3  Percentage of each merit score by role������������������������������������������91 Figure 5.4  Percentage of gender and ethnicity by subject choice��������������������92 Figure 5.5 Percentage of gender with different categories of board experience prior to current role������������������������������������������93 Figure 5.6 Percentage of ethnicity with different categories of board experience prior to current role���������������������������������������������������93 Figure 5.7  Percentage of each gender by professional qualifications��������������94 Figure 5.8  Percentage of each ethnicity by professional qualifications�����������95 Figure 5.9  Proportions of key professional background factors by gender�����95 Figure 5.10  Attendance at elite institutions by gender�����������������������������������97 Figure 5.11  Attendance at elite institution by ethnicity���������������������������������98 Figure 5.12 Percentage total of each gender in each role with 0, 1, 2 and 3+ current external appointments�����������������������������99 Figure 5.13  Age distribution of c-suite members���������������������������������������� 101 Figure 5.14 Count of companies according to number of nationalities in the c-suite���������������������������������������������������������������������������� 102 Figure 5.15  Non-British nationalities represented on c-suites���������������������� 103

xvi  List of Figures Figure 6.1 Percentage of each gender and ethnicity by structural power score������������������������������������������������������������������������������� 114 Figure 6.2  Distribution of ownership power����������������������������������������������� 117 Figure 6.3  Distribution of prestige power��������������������������������������������������� 122 Figure 7.1 Range of FTSE100 diversity definitions in 2021, 2017 and 2016��������������������������������������������������������������������������� 133 Figure 7.2 Categorised diversity policies of FTSE100 companies in 2021, 2017 and 2016�������������������������������������������������������������� 137 Figure 7.3 Percentage of each board diversity policy type in FTSE100 companies with women and without: 2021, 2017 and 2016��������� 138 Figure 8.1 Board diversity policies of the FTSE100 categorised 2021, 2017 and 2016��������������������������������������������������������������������������� 143 Figure 8.2 Proportion of companies with women in the c-suite and without in each category of diversity policy in 2016 and 2017 (averaged %)�������������������������������������������������������������� 145 Figure 8.3 Proportion of companies with women in the c-suite and without in each category of diversity policy in 2021������������� 146 Figure 8.4 Stated benefits of board diversity as specified in FTSE100 annual reports in 2021, 2017 and 2016��������������������������������������� 151

List of Tables Table 4.1 Proportions of men and women in the c-suite in 2016–17 and 2021�������������������������������������������������������������������������63 Table 4.2 Percentage of c-suite population that are men of colour and women of colour in 2016–17 and 2021������������������������������������64 Table 4.3  FTSE100 c-suite diversity profile (%)��������������������������������������������65 Table 4.4 Female participation statistics in FTSE100 by workforce element (%)���������������������������������������������������������������������������������68 Table 4.5 Percentage of each role occupied by men and women in 2016 and 2017 compared to 2021����������������������������������������������������������70 Table 4.6 Average percentage pay and bonus gaps of the FTSE100 in 2017 and 2021��������������������������������������������������������������������������74 Table 5.1  Sources of director data categorised by reliability��������������������������87 Table 5.2  FTSE100 Director data variables���������������������������������������������������88 Table 5.3 FTSE100 C-suite member entries in Who’s Who by gender and ethnicity������������������������������������������������������������������������������ 105 Table 6.1  Power constructs used in the study���������������������������������������������� 109 Table 6.2  Scores for c-suite title����������������������������������������������������������������� 111 Table 6.3  Scores for level of remuneration�������������������������������������������������� 112 Table 6.4  Scores for tenure in role�������������������������������������������������������������� 113 Table 6.5  Variables and scoring bands for ownership power������������������������ 116 Table 6.6  Scores for higher education��������������������������������������������������������� 120 Table 6.7  List of elite institutions��������������������������������������������������������������� 120 Table 6.8  Variables and scoring bands for prestige power���������������������������� 121 Table 6.9  Honours scoring������������������������������������������������������������������������ 121 Table 7.1  Professional and protected characteristics����������������������������������� 131 Table 7.2  Diversity policy categories���������������������������������������������������������� 136 Table 8.1 Categorisation of companies according to appointment policy and diversity definition and UK Corporate Governance Code 2018 compliance���������������������������������������������������������������� 141 Table 8.2 Company appointment policy categorisation according to adherence or compliance with the UK Corporate Governance Code 2018���������������������������������������������������������������������������������� 142

xviii

1 Those Who Seek Power

O

n a daily basis we are made aware of people who possess power over our lives and the lives of others. If you were asked to name five of the most powerful people in the world, I suspect the faces and names that would immediately spring to mind would consist largely of heads of state of large or wealthy countries. This would be unsurprising given that such heads of state have the welfare of populations, societies and economies within their purview. The exercise of their power is regularly brought to our attention as it has tangible impact upon our lives and the lives of global citizens, sometimes with catastrophic consequences. Russian President Vladimir Putin’s decision to start a war with Ukraine is a horrifying display of the concentration of power in the hands of one individual. His decisions have ramifications that reach right around the world. A typical list of who is perceived to be the world’s most powerful people may extend beyond politics into business. For instance, the list may contain some billionaire tech entrepreneurs such as Elon Musk or Mark Zuckerberg. Individuals such as these have power by virtue of their inordinate wealth, their far-reaching businesses and the platforms they have developed for themselves in the public eye. Naturally then, it would be unsurprising if your list of five individuals strayed into the world of business. What would be more surprising is if your list contained any women. According to Forbes, of the 75 most powerful people in the world in 2022, only five are women.1 People of colour (hereafter ‘POC’) are also less likely to feature on your list than white people.2 Although there is much that is contentious about the Forbes Power List, and many challenges could be made about how it is compiled, it does serve as a barometer of the people with whom power sits. This book is occupied with questions of corporate power. The central questions being: ‘Who is in possession of corporate power, and why’? Answering these questions necessitates an understanding of the demography of the c-suite and the board, and the institutional and regulatory context in which they are

1 ‘The World’s Most Powerful People’ Forbes (2018 ranking): www.forbes.com/powerful-people/ list/, accessed 9 November 2022. 2 Although it is not possible to categorise those on the Forbes list according to ethnicity due to a lack of information, a review of the list indicates that it is dominated by white people.

2  Those Who Seek Power operating. What appear to emerge from the answers reached are multiple boardroom diversity tracks delineating where diversity is to be expected and where it is not. A lack of power diversity is a problem that spans multiple professional boundaries. In the UK, the Fawcett Society reports on the diversity of power across sectors and industries, and finds that women are underrepresented in many important professions, including the House of Lords, Cabinet Ministers, local council leaders, Supreme Court justices and university professors.3 There is a particularly problematic lack of women of colour.4 The Fawcett Society Report claims that the professions in which women are least represented are FTSE100 CEOs (of which only 8% are women) and premier League football CEOs (of which only 5% are women).5 This book focuses on the FTSE100 c-suite, which includes not only the CEO, but also the Chief Financial Officer (CFO) and the Chairman.6 Power in corporations is a double-edged sword. In some respects, the smooth functioning of a corporation depends on a clear hierarchy of power because when there is one decision maker, decisions can be taken quickly. On the other hand, where more than one individual is involved in decision making there is the likelihood of more disagreement and disharmony. Decisions will likely take longer, as it is hard to come to an agreement. From this perspective, power concentrated in the hands of one individual may seem less dysfunctional than a board in which power is more balanced, but which is wracked with tension and disharmony. However, concentrated power has the potential to damage companies and the societies in which they operate. Homogenous exercise of power with limited challenge will restrain the scope and quality of outcomes and disadvantage those whose perspectives are not taken into account. Over time, this disadvantage becomes systemic. This chapter is dedicated to explaining the scope, objectives and limitations of this work. It begins with an explanation of the scope of the study and its importance. Section two provides an overview of the book and how it progresses. In the final section I describe some limitations of the study which deserve early consideration. 1.  WHY THE FTSE100 C-SUITE?

At a time when there is a suggestion that appetite for listing on the London Stock Exchange is in the process of decline,7 one might question the decision to make 3 Fawcett Society, ‘Sex and Power 2022’ (2022), 5: www.fawcettsociety.org.uk/sex-power-2022. 4 Michelle Gyimah and others, ‘Broken Ladders. The Myth of Meritocracy for Women of Colour in the Workplace’ (2022): www.fawcettsociety.org.uk/broken-ladders. 5 Fawcett Society (n 3) 5. 6 For more detail on this definition see section 1.2 below. 7 Lex (London Stock Exchange Group), ‘UK Financial Reforms/LSE: Bourses Are Battling to Stay Relevant’ Financial Times (20 July 2022); Nikita Koptyug, Lars Persson and Joacim Tåg, ‘Should We

Why the FTSE100 C-Suite?  3 FTSE100 companies the subject of a book. One might ask further questions about the subject of diversity given that in some respects boardroom diversity is considered a UK corporate governance success story.8 This section provides a number of specific reasons as to why attention in these areas remains highly relevant. Before launching into those I make the more general point that as long as we want corporations, in the UK and beyond, to exercise their power in a balanced and fair way, it makes sense to question FTSE listed companies and the UK framework within which they operate. The UK Corporate Governance framework has been used as a template and a benchmark in many jurisdictions and in this capacity, attention should be paid to its pitfalls. 1.1.  The FTSE100 In the introduction to the UK Corporate Governance Code 2018 it is stated that ‘successful and sustainable businesses underpin our economy and society’. The FTSE100 are the 100 largest companies listed on the London Stock Exchange. They are largely UK companies (as makes sense given the jurisdiction in which they are listed), but many of them are multinational. The combined value of the FTSE100 is over £2 trillion; they employ over 6.8 million people worldwide, operate in over 150 countries and many of them are global household names (BP plc, GlaxoSmithKline plc and HSBC Holdings, to name a few).9 In terms of economic contribution, in 2020 these 100 companies alone contributed 11.3% of all Government tax receipts that year (amounting to £84.1 billion).10 Unsurprisingly, corporations of this size have enormous and wide-ranging impact. The scope of this study does not extend to the FTSE350 because the core theme of corporate power is embodied much more emphatically by the FTSE100. Aside from the economic contribution the FTSE100 make to the government coffers, their contribution to society, in terms of providing jobs, products and services, enables many people to lead comfortable lives. However, the power the FTSE100 have, enables them to impose negative externalities on societies and the environment, for example through their contributions to greenhouse gas emissions. They can also impose serious negative externalities on ­individuals as a consequence of irresponsible, unethical or even illegal corporate decision making, such as was the case when Carillion collapsed, leaving Worry about the Decline of the Public Corporation? A Brief Survey of the Economics and External Effects of the Stock Market’ (2020) 51 The North American Journal of Economics and Finance 101061. 8 ‘FTSE Women Leaders Review 2022’, https://ftsewomenleaders.com/wp-content/uploads/2022/ 05/2021_FTSE-Women-Leaders-Review_Final-Reportv1_WA.pdf. 9 ‘FTSE 100 Stocks Listed in London’ (2018). 10 The Hundred Group of Finance Directors, ‘2020 Total Tax Contribution Survey for the 100 Group’ (2020): www.pwc.co.uk/tax/assets/pdf/total-tax-contribution-100-group-2020.pdf.

4  Those Who Seek Power billions in unpaid debts11 or when P&O bosses flouted trade union laws by firing 786 members of staff.12 The discretion afforded to the managers of FTSE100 companies provides them with the opportunity to diverge from a foundational paradigm of company law, ie that the company acts for the benefit of its members.13 The size of FTSE100 companies means that management have responsibility for deciding on how large sums of money are spent, and their importance to the UK economy affords them influence in political spheres. Divergence from norms of shareholder wealth maximisation would be a positive thing if power were used to further the interests of other stakeholders, but the possibility remains for management to diverge in furtherance of their own interests, to the detriment of the company and the other stakeholders, including society. Not only can powerful CEOs manoeuvre the company according to their own personal interest but powerful CEOs may also influence a firm’s appetite for undertaking risky ventures.14 Again, risk taking itself is not a bad thing and is necessary for a successful business. However, decisions that can impose negative externalities on others should be subject to substantial scrutiny. In theory the space between what the executive directors may want to do with the company and what they should do (from a corporate law perspective) is where the board of directors comes in. Problems arise in circumstances where the balance of power between the board and executive favours the executive, as this allows powerful individuals to push through decisions according to their own interests and desires. There are other very large companies in the UK that have significant power but are not listed on an exchange. The top 100 private companies made £237 billion in sales in 2020 and accounted for 3% of the UKs workforce.15 By virtue of their company status, they do not have public shareholders, but they do have an impact on society through employment, their effect on the environment and their strategic and operational decision making. Some of the largest private companies are household names such as Dyson, JCB, Heathrow and Bet365. The latest government-backed initiative to increase leadership diversity is seeking to go beyond the FTSE350 and include the largest 50 private companies within the scope of its targets of 40% women on the board and leadership positions by 2025.16 The rationale for including private companies is to ‘help

11 ‘House of Commons Business, Energy and Industrial Strategy and Work and Pensions Committees. Carillion Report’ (2018): https://publications.parliament.uk/pa/cm201719/cmselect/ cmworpen/769/769.pdf. 12 ‘P&O Ferries Scandal: Was Sacking 800 Staff Legal?’, Financial Times (18 March 2022). 13 The Companies Act 2006 s 172. 14 Ana M Sariol and Michael A Abebe, ‘The Influence of CEO Power on Explorative and Exploitative Organizational Innovation’ (2017) 73 Journal of Business Research 38. 15 ‘Top Track 100 – Britain’s Top 100 Private Companies ∣ Insights ∣ Linklaters’ (5 July 2020): www.linklaters.com/en/insights/publications/2020/july/top-track-100-britains-top-100-privatecompanies, accessed 3 August 2022. 16 ‘FTSE Women Leaders Review 2022’ (n 8) 11.

Why the FTSE100 C-Suite?  5 strengthen the regulatory approach, as well as bringing diversity expectations in the leadership of large private companies in line with public listed companies, and encourage further progress across British business’.17 For these reasons and more it would be ideal if these companies could have been included within this study of power and diversity. This was not possible because the type and amount of available information for private companies is inconsistent with that which is available for FTSE listed companies. This situation may change with the expansion of scope of the UK Corporate Governance Code 2018, and there are important reasons why it should, given the growing importance and relative power of these large private companies. 1.2.  The C-Suite It is not the companies themselves that wield the power concentrated within corporations, it is the individuals who make the decisions: the executive directors, of whom the most senior are those that also sit on the board. Corporate boards consist of a majority of non-executive directors, who may or may not be considered independent and who work for the company on a part-time basis, primarily in a monitoring capacity. With the exception of the Chairman, these individuals are not the subject of this power study, setting it apart from the vast majority of academic work, governmental and industry reports on the subject of boardroom diversity. A much smaller proportion of the board are considered executive directors. Executive directors work full-time in a management capacity and include the Chief Executive Officer (CEO), Chief Financial Officer (CFO) and any other board executives there may be. These are the main decision makers and, when combined with the Chairman, constitute what is referred to in this book as the c-suite. The Chairman is a non-executive director but is considered here to be among the most powerful individuals in a corporation. Chairmen have been included within the meaning of ‘c-suite’ because, as the individual with responsibility for the functioning and effectiveness of the board, they play a central role in board decision making. The presence of executive and non-executive directors creates sub-divisions in the board. Executives are also known as insiders and non-executive directors as outsiders as a consequence of the nature of their full-/part-time employment and the difference in their roles and responsibilities. For non-executive directors the UK Corporate Governance Code does not provide any minimum time commitment requirements, although the Walker Review 2009 (which related to financial institutions) recommended a minimum of 30–36 days per year.18 17 Ibid. 18 David Walker, ‘A Review of Corporate Governance in UK Banks and Other Financial Industry Entities: Final Recommendations 26 November 2009’.

6  Those Who Seek Power It is thought that time commitments are increasing and are likely to exceed the Walker review minimum19 but even if it were doubled, a non-executive director will not nearly be so intrinsically involved with the company as the full-time board executives. Board executives are where the corporate decision-making power and influence is concentrated. Being full-time employees of the company, board executives have access to information not easily available to the non-executive directors. This makes it possible for strategies to be formulated by executives and then presented to the board ‘almost as a fait accompli’.20 Ultimately, although the board of directors can act as a counter-balancing power to the concentrated power of the c-suite, there are structural and behavioural reasons why the balance of power typically favours the c-suite (these will be discussed in other parts of the book, particularly Chapter six). One could question the significance of non-diverse c-suites, particularly given the well publicised progress made at board level. The FTSE100 have met the board diversity targets which started at 25% women on boards, then moved to 33%.21 Although this is welcome progress, the focus on non-executives (as is the effect of a focus on the board more generally) misses the point. The nonexecutives do not have the same level of power as the executives. The power wielded by the c-suite of the FTSE100 is considerable, unelected and has the potential to impact huge proportions of the national and international population. Diversity of the board and diversity of power in the form of the c-suite are different problems of differing magnitudes. I offer three reasons why the question of diversity of corporate power matters. 1.2.1.  Representation in Decision Making To the extent that the decisions of the c-suite impact upon the lives of large numbers of people, it must be questioned how representative the c-suite is, when compared to the population. This issue relates to concerns about the quality of decision making. Decisions made by individuals with similar backgrounds and perspectives risk neglecting the needs of people of other backgrounds. Even where there is diversity on the wider board this may not be enough to challenge any lack of diversity of decision making, particularly in relation to issues which are unclear and contentious. One wonders what would be different if there were more diverse c-suites in terms of gender, ethnicity and 19 Korn/Ferry Institute, ‘What Makes an Exceptional Independent Non Executive Director?’ (2008): www.kornferry.com/content/dam/kornferry/docs/article-migration/NED_report_lowres.pdf. 20 Gavin J Nicholson and Geoffrey C Kiel, ‘Can Directors Impact Performance? A Case-based Test of Three Theories of Corporate Governance’ (2007) 15 Corporate Governance: An International Review 585. 21 Sir Philip Hampton and Dame Helen Alexander, ‘Hampton-Alexander Review. FTSE Women Leaders’ (November 2016): assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/613085/ftse-women-leaders-hampton-alexander-review.pdf; ‘FTSE Women Leaders Review 2022’ (n 8).

An Overview of the Book and Methodology  7 socio-economic background. For example, it seems less likely that there would be the corporate convergence we are seeing around economic ideas that women’s empowerment means mobilising women of the Global South as sales agents for listed companies of the Global North.22 1.2.2.  The Message Being Sent A second important reason to look at the homogeneity of corporate power is because of the picture it creates. That the most powerful positions are filled by people with little variety in fundamental characteristics provides a strong message about who does and can have power. The phrase ‘seeing is believing’ rings true for so many and research supports the idea that role models impact aspirations.23 It is true in so many fields and has been wonderfully highlighted by women’s football in the UK. The fact that children can see women playing football, and being good at it, goes a long way to get more girls playing football, and more people supporting women’s football. 1.2.3.  Diversity Begets Diversity Thirdly, and at a more micro level, it is clear that where there are women in the top job, the boards of those companies are likely to be more diverse. According to Deloitte’s global report the average proportion of women on boards was 19.4% when CEOs are male, but when the CEO is female, the average proportion of women on boards is 33.5%.24 It may be the case, though there is no evidence of this yet, that the proportion of POC on boards would increase where there were more POC with the CEO role. This phenomenon is encapsulated by the phrase ‘diversity begets diversity’.25 2.  AN OVERVIEW OF THE BOOK AND METHODOLOGY

The chapters of this book are divided into three Parts: one theoretical, one empirical and one forward looking. Part I sets out the background and 22 Roseanne Russell, ‘Women and the “Business” of Human Rights: The Problem with Women’s Empowerment Projects and the Need for Corporate Reform’ (2022) 7 Business and Human Rights Journal 84. 23 Nilanjana Dasgupta and Shaki Asgari, ‘Seeing Is Believing: Exposure to Counterstereotypic Women Leaders and Its Effect on the Malleability of Automatic Gender Stereotyping’ (2004) 40(5) Journal of Experimental Psychology 642; Ioana M Latu and others, ‘Successful Female Leaders Empower Women’s Behavior in Leadership Tasks’ (2013) 49 Journal of Experimental Social Psychology 444. 24 Deloitte, ‘Women in the Boardroom. A Global Perspective’ 7th Edition (2022), 13: www2. deloitte.com/global/en/pages/risk/articles/women-in-the-boardroom-seventh-edition.html, accessed 3 August 2022. 25 Alison Cook and Christy Glass, ‘Diversity Begets Diversity? The Effects of Board Composition on the Appointment and Success of Women CEOs’ (2015) 53 Social Science Research 137.

8  Those Who Seek Power theoretical foundations of the study. This begins in Chapter two, which explains and comments on what is known about board and c-suite diversity. It considers the barriers that have contributed to the lack of diversity in c-suite power that is seen in FTSE100 companies and elsewhere. These barriers include the cultural (eg statistical and taste-based discrimination), practical (eg availability of mentoring relationships) and environmental (eg the gender say gap – meaning the difference between the platforming of male and female voices). Having set out the theory and evidence gathered so far on the lack of power diversity, Chapter three develops a novel framework within which to consider c-suite diversity. This framework is based on the two lenses of merit and power. Merit is considered from a human capital perspective. The chapter explains what this means, how this can be applied to the c-suite to better understand both what merit has come to mean in practice, and who is in the c-suite. The second side of the framework is based on a conception of power as control of resources and the freedom to use them. The chapter analyses what power means in the context of the board and the c-suite and how this can help us understand who holds power and why. These concepts underpin the empirical analysis conducted in Part II. Part II takes a multifaceted empirical look at the demography of the c-suite of the FTSE100 and how this is presented to the public. The concepts of diversity, merit and power each frame the objective of the empirical research in one chapter and provide differing angles from which to analyse the issues. Chapter four begins the empirical assessment and analysis process with a look at the diversity of corporate power in relation to both gender and ethnicity. Diversity is considered from a statistical perspective within the company and within specific roles, including CEO, CFO and Chairman. The gender pay gap provides an important aspect to this statistical data and analysis. Chapter five applies the human capital framework discussed in Chapter 3 and gathers information on the varying levels of human, social and cultural capital in the c-suite. Diversity factors are considered alongside the professional, educational and background characteristics of the members of the c-suite in order to assess the meaning of merit and who is deemed to have it. In Chapter six the lens of power is applied and broken down into three separate types of power: structural, ownership and prestige. Proxies for each of these factors are measured in order to score each member of the FTSE100 c-suite according to the power framework. An analysis of this information provides further insight into who holds corporate power and why. Chapters seven and eight continue along an empirical vein but instead of focusing solely on the c-suite individuals, they present data on each company’s publicly stated position on diversity. Narrative data about how appointments are made and how diversity is defined are extracted from FTSE100 annual reports, then coded and compared to reveal patterns and similarities in the FTSE100 approach to the presentation of board diversity. Chapter six develops the analysis of Chapter five regarding company diversity and appointment policies by overlaying the data gathered in the preceding chapter with the diversity findings

Limitations  9 from Chapter two. This reveals insights into the authenticity of the diversity and appointment claims made in the annual reports. The final Part of the book – Chapters nine and ten – is written in the light of the conclusions drawn about c-suite diversity, merit and power and the public presentation of this, as developed in the preceding chapters. It begins in Chapter nine with an analysis of the merits and demerits of regulatory methods that are employed or associated with diversifying corporate power in the UK. Chapter ten takes a more holistic view of progression in diversifying power in the UK. It critically considers options from within and beyond the corporation for seeking to diversify opportunities to reach positions of power. These include mentoring, role segregation and corporate culture changes. The final Chapter eleven concludes the book by drawing together the various threads of each chapter into three cohesive conclusions, as well as some thoughts on the future of power diversity in the FTSE100 c-suite and beyond. 3. LIMITATIONS

Just as I have highlighted what is important about this study and what it does, it is also important to draw attention to what this study does not do. 3.1.  Intersectional The statement that ‘black women’s experience will always be forcibly fragmented before being subjected to analysis, as those who are “only interested in race” and those who are “only interested in gender” take their separate slices of our lives’, makes a powerful point about some major pitfalls of gender and ethnic diversity research.26 I read these as words of caution to any person writing about the experiences of others. With that in mind I am acutely aware that, as a white woman, privileged in many ways, I do not speak for all women. Harris has argued, and I agree, that ‘women’s experience’ cannot be separated out from other aspects of women’s identity such as their ethnicity, socio-economic status and sexual orientation to name just a few aspects of a person’s identity.27 Consequently there is no such thing as ‘women’s experience’ and to claim that there is, is to essentialise. In any discussion about gender or about ethnicity there is a danger of essentialising. I acknowledge that in categorising people according to gender and ethnicity there is an extent to which I am breaking down individuals into

26 Angela P Harris, ‘Race and Essentialism in Feminist Legal Theory’ (1990) 42 Stanford Law Review 581, 589. 27 Ibid 588.

10  Those Who Seek Power fragments of themselves. However, I wish to clarify that I do not seek to represent any single group’s experience. My aim is to look at what is true of c-suite demography at three specific moments in time (2016, 2017 and 2021). From that standpoint the objective is to try to understand better what the antecedents to the status quo are. Despite this caution and awareness, there is an unavoidable element of discussion about the impact of the status quo on different groups of ‘fragmented’ individuals. In order to avoid essentialising all women to mean white women, Harris suggests it is necessary to consider the question of identity according to the relevant context.28 When looking at the experiences of women of colour I am making a comparison with the experiences of white women, white men and men of colour at the current point in time and in the corporate management context, but with a view to how this has been changing in recent history. My range of personal experience is limited by my personal characteristics. I do not know what it is like to be a woman of colour, or a man of colour, or a man, or in FTSE100 management. The list is almost endless. When I talk about any of these groups, I am not assuming that everyone within a particular group has similar experiences. Nevertheless, I think it is sometimes necessary to look at differences between groups so that an understanding can be formed as to whether they may experience difference in treatment or opportunity. Doing so in this study raises important questions, such as in relation to the evidence that women of colour are drastically underrepresented in the c-suite. Work should be done on the lived experience of individuals in these positions. In particular, qualitative research in this area would be invaluable. However, that is not the nature of this work. The context of this book is not a feminist commentary but a corporate governance discussion about who runs corporations and why. I do not seek to create a hierarchy of oppression or try to speak on behalf of any of the groups of individuals in the study. I am empirically studying, analysing and discussing the impact and effect of regulation aimed at diversity and the structures of power within corporations. I do so whilst acknowledging that the subjects in the study do not fall into just one category and the categories do not represent everything about the people that are in them. 3.2. Methodological The data gathered for the empirical aspect of this study has limitations in certain specific respects. The most problematic limitation arises from the small numbers of women and, in particular, POC in the c-suite of the FTSE100. When conducting analysis, conclusions that relate to the data for men are much more robust



28 Ibid

611.

Limitations  11 because there are over 350 of them in the study. In comparison there are only 36 women and 16 POC (men and women). There is sufficient data to comment on possible trends in respect of men, and to a lesser extent for women. However, in many instances, there are simply too few POC to carry out any analysis of the data that goes much beyond a simple count of the numbers. Of course, this in itself is a finding of note and is supportive of the need to address the diversity in the c-suite. Related to this statistical challenge, it must be acknowledged that numbers and proportions can only tell us so much and will only get us so far. Kamalnath takes the view that this statistical focus ‘means that other types of diversity issues will be neglected and that there will be no efforts directed towards removing systemic barriers faced by diverse candidates’.29 I agree with the sentiment behind this statement. There is much more that needs to be done than keep a track of the numbers. However, I view diversity in the boardroom and the c-suite statistics as a starting platform from which we can launch into the other aspects of diversity. That is why fresh statistical data has been gathered for the purposes of this study. Ideally, a study into the diversity and characteristics of the corporate board would involve a survey directly with the individuals of interest. However, given the high-profile nature of these individuals and the difficulties in gaining access to them, there was not a realistic possibility of gaining data that were sufficiently comprehensive to enable a reliable analysis. A common alternative approach in research of this nature is to use a facility called BoardEx, a database of global board members. This database was not used because of cost and because much of the data needed here was not available through that service. Another methodological limitation relates to the narrative study discussed in Chapters five and six. In extracting narrative data from annual reports and coding them by hand there is an element of subjectivity as to how different phrases should be coded. The impact of this limitation is nevertheless minimal, as I carried out all of the coding and therefore the same subjectivities would have applied consistently. Rules for coding were as clear and extensive as possible whilst allowing there to be an appropriate number of categories to enable comparison. Although there are programmes that can be used to automatically code data of a qualitative nature, the relative size of the narrative data gathered meant that coding by hand was a reasonable choice which allowed me to get to know the data in such a way as benefited my overall insight into the project. It was necessary to collect the data manually because of its diffuse nature and the variety of ways in which annual reports provide the relevant information. Annual reports are a challenging source for automated data extraction.

29 Akshaya Kamalnath, The Corporate Diversity Jigsaw (Cambridge, Cambridge University Press, 2022) 136.

12  Those Who Seek Power As a consequence of the inconsistency in availability, location and structure of information in annual reports, automating data collection is likely to be more time consuming to set up than collecting the data manually. For example, an investment firm that needed to extract financial information from annual reports set up an extraction system with a data analytics company, but the time needed to prepare the data for extraction was excessive.30 This was the case despite the focus of the extraction being financial as opposed to narrative. In this study, automation of the data collection process was not feasible as much of the data to be extracted is narrative, contextual and inconsistently presented. 4. CONCLUSION

There is a notable element of self-congratulation about diversity in corporate boardrooms in the UK at present. The progress of diversity on the board is important and is worthy of celebration. However, to assume that diversity on boards is all but solved is to conflate two distinct issues, and in doing so, overlook the more significant issue – diversity of power. It is the power issue upon which this book seeks to weigh in, and I have begun the process here by introducing the concept of power, the scope of the study, its method and its limitations. In much of the board diversity discourse, the fact that the board has several clear divisions of responsibility is not considered. Management and decision making is more accurately described as the role of the executive. Therefore, when board diversity is presented as having improved and having been almost resolved, there is a perception that corporate decision making is no longer the purview of a homogenous group. That is a misrepresentation. So long as the positions of greatest power in corporations are largely filled by white men there remains a problem which is in many respects more significant than the board diversity issue we have all been preoccupied with. Plato is attributed with the saying that ‘only those who do not seek power are qualified to hold it’. This succinctly encapsulates the idea that power-hungry people are the most likely to abuse or misuse their power. Diversity of the board will not help mitigate abuse and misuse of power as much as taking positive action to diversify power is likely to. The space between where we are with power diversity, where we may want to be, and how to traverse the gap, is the subject of this book.

30 Mark Clark, ‘Financial Data Extraction from Annual Reports’, Infrrd (24 June 2020): www. infrrd.ai/blog/automated-data-extraction-from-annual-report, accessed 15 July 2022.

Part I

In Theory

14

2 C-Suite Diversity and its Antecedents

T

his chapter contains two sections. The first section sets out the background of c-suite diversity in the FTSE100, highlighting what is known about the issue and what has been done so far. On the basis that there remains an issue with the diversity of the c-suite, the second section considers some of the reasons why diversity progression is limited. Though some of this ground is well-trodden from an academic discussion standpoint, it is necessary to retrace it in order to lay the foundations for the empirical studies in Part II. A new framework for considering the progression of diversity is developed, drawing on literature from management, psychology, sociology and law, which help to develop the following categories of barriers: cultural, practical and institutional. 1.  A BRIEF LOOK AT BOARD DIVERSITY PROGRESS

Action has been taken, both nationally and internationally, to make boards more diverse. This has received much attention, from industry, governments, the media and the academe.1 For the most part the focus has been on the board as a whole, without special attention on board executives. This framing overlooks the larger problem of diversity in the c-suite. Though the c-suite is the focus of this study, it is helpful to understand what has been targeted and achieved on the broader board thus far. Considering gender and ethnicity separately, these actions are discussed below.

1 For example see ‘FTSE Women Leaders Review 2022’: www.ftsewomenleaders.com/wp-content/ uploads/2022/05/2021_FTSE-Women-Leaders-Review_Final-Reportv1_WA.pdf, 78; Deloitte, ‘Women in the Boardroom. A Global Perspective. 7th Edition’ (2022): www2.deloitte.com/global/en/ pages/risk/articles/women-in-the-boardroom-seventh-edition.html, accessed 3 August 2022; Green Park, ‘Business Leaders Index 2021 FTSE 100. A Review of the Gender and Ethnocultural Diversity Composition of the UK’s Most Senior Leadership’ (10 August 2021): www.raceequalitymatters. com/green-park-business-leaders-index-2021-ftse-100/; Akshaya Kamalnath, The Corporate Diversity Jigsaw (Cambridge, Cambridge University Press 2022); Tommy Stubbington, ‘FTSE 100 Told by Business Minister Kelly Tolhurst to Improve Ethnic Diversity on Boards’ The Times (24 February 2019).

16  C-Suite Diversity and its Antecedents 1.1. Gender Over 10 years ago the government commissioned Lord Davies to review the issue of boardroom gender diversity.2 The Davies Review set a target of 25% women on FTSE100 boards by 2015.3 Since the Davies Review, it is commonly thought that gender diversity in the boardroom has greatly improved. Indeed, the number of women on FTSE100 boards has increased from 12.5% in 2011,4 to 39.1% in 2022.5 All-male boards within this group have been eliminated.6 The original target of 25% was achieved and replaced with a 33% target which has now also been largely achieved.7 The ‘anticipated final stage’ of the gender diversity drive is for there to be 40% women on boards and senior leadership teams in the FTSE350 by 2025.8 This new goal now includes the board, the executive committee and their direct reports, and thereby goes considerably further than the previous targets which focused solely on the board. There are already 15 companies in the FTSE100 and 30% of companies in the FTSE250 that have met or exceeded this 40% target.9 This progress is encouraging and provides a source of hope for gender parity. However, there are reasons to be cautious before celebrating. For example, the average tenure of women on boards is nearly two years shorter than for men or, put a different way, men stay in their positions on average 35% longer than women.10 This is not just a problem in the UK, but globally. The global average board tenure for men is 7.6 years, whereas for women it is 5.5 years (compared to 3.6 years for women in the UK).11 There are other concrete indications that progress on the wider board has deflected attention away from the much slower progress made in the c-suite. Women accounted for only 9.7% of the FTSE100 c-suite in June 2018, virtually unchanged from the previous three years.12 By June 2021 the proportion of female executive directorships was 13.7% showing a rise of a little over 1% per year. According to Green Park, at this rate it will take until 2059 to reach gender parity in the FTSE100.13 The findings of the FTSE Women Leaders

2 Lord Davies of Abersoch, Women on Boards (February 2011): https://ftsewomenleaders.com/ wp-content/uploads/2015/08/women-on-boards-review.pdf. 3 Ibid. 4 Lord Davies of Abersoch, (n 2) 8. 5 ‘FTSE Women Leaders Review 2022’ (n 1). 6 The Female FTSE Board Report 2015. Putting the UK Progress into Global Perspective (Cranfield University School of Management, 2015) 21. 7 Lord Davies of Abersoch, Women on boards: 5 year summary (Davies review) (October 2015) https://ftsewomenleaders.com/wp-content/uploads/2015/11/Davies-Review-Five-year-SummaryOct-2015.pdf 7. 8 ‘FTSE Women Leaders Review 2022’ (n 1) 24. 9 Ibid 8. 10 Deloitte (n 1) 189. 11 Ibid 11. 12 Female FTSE Board Report 2018: Busy Going Nowhere with the Female Executive Pipeline (Cranfield University School of Management, 2018) 14. 13 Green Park (n 1) 6.

A Brief Look at Board Diversity Progress  17 Review reiterate the sluggishness of change, stating that the gender diversity of the c-suite ‘remains flat and stubbornly low’.14 The lack of women in c-suite jobs suggests a lack of sincere engagement with the objective of a genuinely diverse corporate leadership. One interpretation could be that companies are willing to address diversity issues for public relations reasons and as a result of investor pressure, but they do this by appointing non-executive directors and without diversifying any of the seats of real corporate power. In the 2017 Female FTSE Board Report, the progress of diversity at CEO level was described as ‘glacial’.15 It has picked up its glacial pace slightly but it is still lagging. Common consensus among boards, executive search firms and other related parties has converged around the view that focus should turn to the number of women executives.16 To some extent this has already started.17 Among companies in the FTSE350, the homogeneity of the c-suite is similar to that of the FTSE100.18 Research in 2018 found there to be no more women CEOs than there were 10 years earlier in 2008.19 In the FTSE250, the proportion of female executive directors dropped from 7.7% to 6.4% between 2017 and 2018.20 By 2021 this proportion had risen to 11.3%, so a larger increase than in the FTSE100, but with further to go. The UK is not alone in this lack of leadership diversity. The situation in Australia has been similar.21 In the US research has shown that ‘82% of the firms with all-male executive officers found places for women on their boards but not at the top of their management teams’.22 The US survey was significantly bigger than the UK one with a sample of 2946 of the largest US companies.23 Given the differences in the sample and lack of clarity as to which companies were

14 ‘FTSE Women Leaders Review 2022’ (n 1) 8. 15 The Female FTSE Board Report 2017: Women on boards, back on track? (Cranfield University School of Management, 2017) 15. 16 Ibid 37. 17 Sir Philip Hampton and Dame Helen Alexander, ‘Hampton-Alexander Review. FTSE Women Leaders’ (November 2016): assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/613085/ftse-women-leaders-hampton-alexander-review.pdf. 18 The FTSE 350 is an index of the largest 350 companies in the UK, as listed on the London Stock Exchange. 19 Rosamund Urwin, ‘Drive for more female chief executives stalls’ The Times (3 June 2018): www. thetimes.co.uk/article/drive-for-more-female-chief-executives-stalls-v8wsn7zwz, accessed 3 November 2022. 20 The Female FTSE Board Report 2018 (n 12). 21 Alice Klettner, Thomas Clarke and Martijn Boersma, ‘Strategic and regulatory approaches to increasing women in leadership: Multilevel targets and mandatory quotas as levers for cultural change’ (2016) 133 Journal of Business Ethics 395. 22 Susan Reed, ‘Corporate boards are diversifying. The c-suite isn’t’ The Washington Post (4 January 2019): www.washingtonpost.com/outlook/corporate-boards-are-diversifying-the-c-suiteisnt/2019/01/04/c45c3328-0f02-11e9-8938-5898adc28fa2_story.html?noredirect=on&utm_ term=.046e745b62e3, accessed 3 November 2022. 23 Deloitte, ‘Women in the Boardroom. A Global Perspective’ 5th edition, (2017) 71 www2. deloitte.com/content/dam/Deloitte/my/Documents/risk/my-risk-sdg5-women-in-the-boardroom-aglobal-perspective.pdf.

18  C-Suite Diversity and its Antecedents included in the US study, comparing UK and US statistics should be carried out with awareness of this difference. The percentage of women chairs in the US was marginally better than the UK in 2014, at 3.7% compared to 3.1% in the UK.24 However, in 2021 that proportion had increased to 5.8% in the US, whereas in the UK there were 10.1% women chairs in the FTSE100.25 These gains, whether in the UK or in the US, pale in comparison to the gains made in respect of the board more generally. Speaking on the issue of women in power, the European Women’s Lobby has stated: ‘we are in danger of creating a two-speed system, where one half of the boards meet demands for greater gender balance and the other half run the company’.26 One of the underlying questions of this book is whether or not there is a two-speed system for board diversity in the UK, with the first speed being non-executive and the second being executive. Just as actual diversity of boardrooms varies between jurisdictions, action taken in relation to it also varies. You would be hard pressed to find board diversity studies that do not reference Norway, often seen as the forerunner in this field. Norway now falls behind the UK in terms of senior leadership gender diversity, but it nevertheless remains frequently cited as an example of boardroom diversity success since it was the first to introduce a 40% quota in 2006.27 Quotas have been put in place in many countries including Columbia, India, Malaysia, Kenya, Austria, Belgium, France, Germany, Greece, Iceland, Italy, Spain, Sweden and Israel.28 In October 2022, the EU adopted a proposal (10 years after it was initially raised) of a 40% quota for women on the boards of large companies by 2026.29 Other measures to tackle the board diversity issue include Germany’s government-sponsored cross-sector initiative ‘Chefsache’,30 Japan’s year of paid paternity leave for both parents31 and corporate disclosure based regulations, as in the UK and New Zealand.32

24 Ibid. 25 Deloitte (n 1). 26 European Women’s Lobby, ‘Women on Boards in Europe from a Snail’s Pace to a Giant Leap?’ (February 2012): www.womenlobby.org/IMG/pdf/ewl_report_women_on_boards_in_europe_27_ february-2.pdf, 16. 27 Silke Machold and others, Getting Women on to Corporate Boards: A snowball starting in Norway (Cheltenham, Edward Elgar Publishing 2013). The Norwegian quota is discussed in more detail in Chapter 9 of this book. 28 Deloitte (n 1). 29 European Commission, Communication from the Commission to the European Parliament pursuant to Article 294(6) of the Treaty on the Functioning of the European Union concerning the position of the Council on the adoption of a directive of the European Parliament and of the Council on improving the gender balance among directors of listed companies and related measures. COM/2022/534 final. 30 ‘Chefsache’ initiative-chefsache.de/en/initiative-chefsache/about-the-initiative/, accessed 4 November 2022. 31 Vsudha Gupta and others, ‘Accelerating Gender Parity: What can governments do?’ (28 January 2019) McKinsey & Company. 32 ‘New Zealand’s Exchange: diversity statistics’: www.nzx.com/regulation/diversity_statistics, accessed 3 August 2019.

A Brief Look at Board Diversity Progress  19 Nevertheless, even in Norway and other jurisdictions where diversity progress seems positive, there remain questions about the authenticity of progress. In France, for example, the average percentage of women on the board in 2017 was 40%, but there were only 2.7% women chairs.33 In 2022, the proportion of women on boards in France was 43.2% and the proportion of female chairs had increased to 9.8% and 9.7% of CEO roles.34 Though this is a significant improvement it remains low, especially when you consider France is the highest ranked country for boardroom gender diversity.35 In comparison to some jurisdictions, Europe is a haven for board diversity. In Qatar, for example, in 2021 only 1.2% of board seats were occupied by women, with none in CEO, CFO or Chair roles.36 11 countries in the study had boards comprising less than 10% women.37 When the research for this book began in 2016, the UK remained subject to an EU target for women’s representation set at 40%, which was 7% higher than the UK target of 33%.38 At that time, Seierstad et al suggested that the motivation for change in the UK stemmed from European pressure to change and a ‘desire to get the EU off their backs’.39 The advent of Brexit led to a concern that the UK would no longer keep up the pace of change in corporate diversity, given the EU would no longer be able to exert the same level of pressure. The possibility of a downturn in the number of women appointed post Brexit was also raised on the basis that industries would face turmoil, and leadership will want to take fewer perceived risks (ie by continuing to appoint white men).40 This hasn’t been seen in practice, or at least not yet. In 2021, the UK was ranked second place (in a comparison with ‘peer countries’) for its board gender balance, only falling behind France.41 Particular pride is taken in this ranking because this position was obtained through voluntary measures, as opposed to quotas which were used in the rest of the top six ranking countries. It is interesting to note that in the global board diversity rankings produced by Deloitte, the UK does not feature in the top five countries.42 The reason for this is that the Deloitte ranking considers 509 companies in the UK, looking well beyond the FTSE100 which the FTSE Women Leaders report focuses on.43 33 Deloitte (n 23) 76. 34 Deloitte (n 1) 15. 35 Ibid 123. 36 Ibid 15. 37 Ibid. 38 Ibid 58. 39 Cathrine Seierstad and others, ‘Increasing the Number of Women on Boards: The role of actors and processes’ (2015) Journal of Business Ethics 1. 40 Kalyeena Makortoff, ‘Retail Boss fears for boardroom diversity in post Brexit downturn’ The Independent (12 March 2017): www.independent.co.uk/news/uk/home-news/post-brexit-downturnraises-fears-for-boardroom-diversity-a7625371.html accessed, 4 November 2022. 41 ‘FTSE Women Leaders Review 2022’ (n 1) 39. 42 Deloitte (n 1). 43 ‘FTSE Women Leaders Review 2022’ (n 1) 39.

20  C-Suite Diversity and its Antecedents Looking ahead, it is likely that the combined effect of Brexit and the Covid 19 pandemic will have an impact on the position of women in the workforce. Many women bore the brunt of the additional caring responsibilities in the Covid 19 pandemic and many lost their jobs.44 This is likely to impact the pipeline of talent but how this will translate to the c-suite will not be known for some time. 1.2. Ethnicity In recent history gender has been more of a barrier to work than ethnicity.45 In the US, from 1950 to 2000, occupational segregation by ethnicity declined more than gendered occupational segregation.46 However, in terms of the top business jobs, there appears to be little improvement in the representation of POC in the upper echelons of the FTSE 100. A study conducted by Engage (a board-level networking and support platform for ethnic minorities) reported that 71% of those surveyed felt their ethnicity had impacted their career.47 Unfortunately, there is a dearth of research on this issue, especially when compared with the abundance of gender-based research. This may be because the scarcity of POC in the top jobs makes any detailed analysis difficult.48 However, attention to this topic has increased and, in a similar vein to the Davies Review, a 2016 report by Sir John Parker (‘the Parker Report’) investigated the ethnic diversity on UK corporate boards. The Parker Report recommended that FTSE100 corporate boards have at least one minority ethnic director by 2021.49 In a report released in 2022 it was revealed that this target had nearly been met by the deadline with only 94% compliance.50 Two years after the Parker Report, in 2018 there were 10 POC holding c-suite positions in the FTSE100; amounting to just 3.3% of the total possible positions.51 A 2021 study found ‘no change in representation for black

44 Lauren Billi and others, ‘Women and Girls Left Behind: Glaring Gaps in Pandemic Responses’ (UN Women 2021). 45 Irene Padavic and Barbara F Reskin, Women and Men at Work (Thousand Oaks CA, Pine Forge Press 2002) 73. 46 Ibid. 47 ‘Engage Survey Reveals Boardroom Ethnicity Gap’ (18 July 2016) www.harveynash.com/engage/ news-and-events/news/engage-survey-reveals-boardroom-ethnicity-gap.asp, accessed 9 July 2018. 48 Business in the Community, ‘Race to the Top: the place of ethnic minority groups within the UK workforce’ (2008) 11. 49 Sir John Parker and The Parker Review Committee, ‘A Report into the Ethnic Diversity of UK Boards’ (2016): www.boardapprentice.com/wp-content/uploads/2016/11/Beyond-One-by-21-PDFReport.pdf, 8. 50 Sir John Parker and The Parker Review Committee, ‘Improving the Ethnic Diversity of UK Boards’ (2022) https://assets.ey.com/content/dam/ey-sites/ey-com/en_uk/topics/diversity/ey-what-theparker-review-tells-us-about-boardroom-diversity.pdf. 51 Green Park, ‘Leadership 10,000 (2018)’ (January 2019): www.green-park.co.uk/insights/ leadership-10-000-2018/ 4.

A Brief Look at Board Diversity Progress  21 executive leaders over 8 years’.52 This contrasts poorly with population data. In the most recent UK census, 19.5% of the population self-identified as an ethnic minority.53 In the 50–64 age bracket (the age range many board executives are likely to fall into) the population percentage identifying as ethnic minority falls to 8%.54 The disparity between board and population representation is likely to grow as the portion of the population who are POC exhibits the highest rate of growth in a growing population.55 But, despite the proportion of POC in the UK increasing,56 the shortfall in the representation of POC in top jobs does not appear to be reducing.57 Some research suggests that for POC, the prospects of improvement at executive level are actually declining.58 Women of colour suffer the greatest disadvantage in terms of representation in the boardroom and in occupations more generally.59 In the US in 2020, August 3rd was Black Woman’s Equal Pay Day, marking the date to which a Black woman needed to work into 2020, on top of 2019, to be paid the same amount as a white male counterpart was paid for 2019 alone.60 This is after controlling for education, years of experience and geographical location. Yap and Conrad describe this as the ‘sticky floor’ problem, meaning that it is harder for POC to move beyond the more junior roles.61 This can be compared with the well-known ‘glass ceiling’ issue commonly associated with gender more generally and representing the inability for women to rise up the corporate hierarchy beyond an invisible barrier.62 Having set out the background to board and c-suite diversity in the UK, the next section describes some of the main antecedent factors to this status quo.

52 Green Park (n 1) 9. 53 Office for National Statistics, ‘2011 Census analysis: Ethnicity and the Labour Market, England and Wales’ (2014): www.ons.gov.uk/peoplepopulationandcommunity/culturalidentity/ethnicity/ articles/ethnicityandthelabourmarket2011censusenglandandwales/2014-11-13, accessed 9 April 2019. 54 Scarlett Brown, Elisabeth Kelan and Anne Laure Humbert, ‘Opening the Black Box of Boardroom Appointments: women’s and men’s routes to the boardroom’ (KCL and Sapphire Partners Report, 2015): www.sapphirepartners.co.uk/pdf/Opening%20The%20Black%20Box-Soft%20copy.pdf, 6. 55 Policy Exchange, ‘A Portrait of Modern Britain’ (May 2014) www.policyexchange.org.uk/ publication/a-portrait-of-modern-britain/ 26. 56 Business in the Community (Race for Opportunity), ‘Race at the Top: a review of BAME leadership in the UK’ (June 2014). See EquallyOurs, ‘Race at the Top: a review of BAME leadership in the UK’ (27 June 2014): www.equallyours.org.uk/race-at-the-top-a-review-of-bame-leadership-in-theuk/, accessed 4 November 2022. 57 Business in the Community (n 48) 5. 58 Green Park (n 1) 4. 59 Margaret Yap and Alison M Konrad, ‘Gender and Racial Differentials in Promotions: Is there a Sticky Floor, a Mid-level Bottleneck, or a Glass Ceiling?’ (2009) 64 Journal of Industrial Relations 593, 609. 60 Holly Corbett, ‘Black Women’s Equal Pay Day Equals An Extra 214 Days Of Work’ Forbes (31 July 2021): www.forbes.com/sites/hollycorbett/2021/07/31/black-womens-equal-pay-day-equalsan-extra-214-days-of-work/, accessed 21 July 2022. 61 Yap and Konrad (n 59). 62 See for example Marianne Bertrand and others, ‘Breaking the Glass Ceiling? The Effect of Board Quotas on Female Labour Market Outcomes in Norway’ (2014) 86 The Review of Economic Studies 191.

22  C-Suite Diversity and its Antecedents 2.  CULTURAL BARRIERS TO DIVERSITY

Societies develop over time, creating norms of behaviour and culturally engrained attitudes.63 This can lead to two forms of discrimination: (1) overt, taste-based discrimination; and (2) statistical discrimination, based upon stereotypes.64 Both can impact access to opportunities. These norms also lead to a third cultural barrier – that of differences in demand that impact upon participation in opportunities. 2.1.  Statistical Discrimination and Stereotypes According to the theory of rational choice, employers looking to appoint someone to fulfil a certain role will only consider those most likely to help them achieve their objective.65 This is likely to be maximisation of profits.66 The theory of statistical discrimination (also known as ‘second generation bias’67) notes that employers do not have perfect information about profit maximisation, and so they will often rely on their own beliefs and perceptions to make their decisions.68 For example, if employers believe men are more productive than women, they will use these observable characteristics in place of any direct or factual information about productivity or efficiency.69 These decision-making shortcuts are known as heuristics. Such discrimination may be unintentional, but that does not make it any less damaging. Statistical discrimination typically arises from stereotypes.70 According to social identity theory, because boards are predominantly made up of white males, directors will be defined according to that image ‘reinforcing group boundaries which exclude non-directors, non-whites and women, who normally only enter the boardroom as service providers’.71 Social role theory suggests that 63 Cass R Sunstein, Free markets and social justice (Oxford, Oxford University Press 1999); Kenneth J Arrow, ‘What Has Economics to Say about Racial Discrimination?’ (1998) 12(2) The Journal of Economic Perspectives 91, 96; Cass R Sunstein, Free Markets and Social Justice (Oxford, Oxford University Press 1999). 64 Gary S Becker, The Economics of Discrimination (Chicago IL University of Chicago press 2010). 65 John Scott, ‘Rational Choice Theory’ in Gary Browning, Abigail Halcli and Frank Webster (eds), Understanding Contemporary Society: Theories of the Present (Sage Publications 2000) 126–138. 66 Whilst there are nuances to and debate surrounding this objective, it remains the main focus of much of corporate law and related scholarship. 67 Herminia Ibarra, Robin Ely and Deborah Kolb, ‘Women Rising: The Unseen Barriers’ (2013) 91 Harvard Business Review 60. 68 Edmund S Phelps, ‘The Statistical Theory of Racism and Sexism’ (1972) 62(4) The American Economic Review 659. 69 Arrow (n 63) 96. 70 Stereotypes affect decisions in various ways, a more detailed discussion of which can be found in Chapter 4 of this book. 71 Val Singh and Susan Vinnicombe, ‘Why So Few Women Directors in Top UK Boardrooms? Evidence and Theoretical Explanations’ (2004) 12 Corporate Governance: An International Review 479, 484.

Cultural Barriers to Diversity  23 boards are ‘bound by roles related to gender, derived from consensual societal beliefs about the attributes of women and men’.72 Even though the unconscious intention is to preserve the space for in-group members, the effect is the same as if the intention had been to exclude non-group members.73 Both women and ethnic minorities feel the impact of this, women of colour especially.74 On one level the persistence of the resistance to diversity movements stems from the idea that there are natural differences between men and women, cultures and ethnicities.75 There are numerous ideas about gender differences including research that suggests women lack certain managerial skills such as task orientation and aggression,76 are less confident than men77 and are more risk averse than men.78 Research has found that, while the high-risk roles may be selected by fewer women than men, those who do select them do not differ from their male counterparts in their risk appetite.79 This contrasts with research claiming there are natural differences in aversion to risk between men and women who serve on boards.80 Much of the research supporting the idea of fundamental differences, even that of a scientific nature, is founded on concepts of appropriate roles that have become social norms.81 Research has shown that shareholders respond negatively to the appointment of women CEOs.82 This was, at the time, partly attributed to media focus on extraneous information such as family, when appointments were made to women.83 There has been an increase in the number of women CEOs since that study was carried out, but the rise has been very slow 72 Charlotte Villiers, ‘Achieving Gender Balance in the Boardroom: Is It Time for Legislative Action in the UK?’ (2010) 30 Legal Studies 533, 538. 73 Mark Granovetter, Getting a Job: A Study of Contacts and Careers (Chicago IL. University of Chicago Press 1995) 173. 74 Yap and Konrad (n 59). 75 Sabina Nielsen and Morten Huse, ‘Women Directors’ Contribution to Board Decision-making and Strategic Involvement: The Role of Equality Perception’ (2010) 7 European Management Review 16. Rosabeth Moss Kanter, Men and Women of the Corporation (New York Basic Books 1977) 312. 76 Gary N Powell and D Anthony Butterfield, ‘The “Good Manager”: Did Androgyny Fare Better in the 1980s?’ (1989) 14 Group & Organization Studies 216. 77 Dale Griffin and Amos Tversky, ‘The Weighing of Evidence and the Determinants of Confidence’ (1992) 24 Cognitive Psychology 411. 78 Paola Sapienza, Luigi Zingales and Dario Maestripieri, ‘Gender Differences in Financial Risk Aversion and Career Choices are Affected by Testosterone’ (2009) 106(36) Proceedings of the National Academy of Sciences U.S.A. 15268, referenced in Trang Doan and Mai Iskandar-Datta, ‘Does Gender in the C-Suite Really Matter?’ (2021) 36(1) Journal of Accounting, Auditing & Finance 81. 79 Renée B Adams and Vanitha Ragunathan, ‘Lehman Sisters’ (January 2017) Available at SSRN 3046451. 80 Jiekun Huang and Darren Kisgen, ‘Gender and Corporate Finance: Are Male Executives Overconfident Relative to Female Executives?’ (2013) 108 Journal of Financial Economics 822; Maurice Levi, Kai Li and Feng Zhang, ‘Director Gender and Mergers and Acquisitions’ (2014) 28 Journal of Corporate Finance 185. 81 Sunstein (n 63) 47. 82 Peggy M Lee and Erika Hayes James, ‘She’-e-os: Gender Effects and Investor Reactions to the Announcements of Top Executive Appointments’ (2007) 28 Strategic Management Journal 227, 237. 83 Ibid 238.

24  C-Suite Diversity and its Antecedents and when women get to the CEO role, they typically hold it for considerably less time than men, and are paid less. Pointing to natural differences deflects responsibility for promoting and engendering diversity away from corporations. For example, in an analysis of the childhoods of Australian CEOs, a number of divergences in the childhood habits of men and women were identified, resulting in different levels of human capital.84 The article suggested that this meant it was for society to address the disparity and not business, thereby absolving corporations from responsibility.85 This perspective fails to address the possibility that there are ways to define and measure human capital that are missed if seeking to identify difference.86 It is convenient for those who benefit from the status quo to view it as the natural order of things. The status quo is not the natural order but a consequence of a series of choices. Stereotypical views of gender and ethnic roles can also restrict behaviour, such as in the ‘double bind’ scenario;87 specifically, the femininity/competence bind, where femininity is associated with incompetence so that in order to project competence, non-feminine traits must be exhibited. However, nonfeminine traits in women are often negatively perceived. Research shows that women in boardrooms were stereotyped as ‘men in skirts’, ‘aggressive’ or ‘ineffective’ according to how much they spoke up during meetings.88 Ely examined the effect of gender demography within companies and found that women working in male-dominated firms had to choose between changing their behaviour or the possibility of a promotion.89 Eagly described it as follows: because of the double bind, people may resist a woman’s influence particularly in masculine settings. Sometimes they resist because they think she lacks communion, so they don’t like her. Sometimes they resist because they think she lacks competence, so they don’t respect her.90

The result is fewer senior women and the reinforcement of notions regarding a supposed deficiency in women’s attributes. Such attitudes are not only damaging at a gender relationship level, but also between women can breed resentment where it is thought that those who have been successful have become so by abandoning their own gender.91 84 Terrance W Fitzsimmons, Victor J Callan and Neil Paulsen, ‘Gender Disparity in the C-suite: Do male and female CEOs differ in how they reached the top?’ (2014) 25 The Leadership Quarterly 245 260. 85 Ibid 263. 86 Human capital is discussed in detail in Chapter 5 of this book. 87 Judith G Oakley, ‘Gender-Based Barriers to Senior Management Positions: Understanding the Scarcity of Female CEOs’ (2000) 27 Journal of Business Ethics 321, 325. 88 Ibid. 89 Robin J Ely, ‘The Power in Demography: Women’s Social Constructions of Gender Identity at Work’ (1995) 38 Academy of Management Journal 589, 625. 90 Alice Hendrickson Eagly and Linda L Carli, Through the Labyrinth: The Truth about How Women Become Leaders (Boston MA, Harvard Business School Press 2007) 102. 91 Ely (n 89) 626.

Cultural Barriers to Diversity  25 Experience and knowledge of the homogeneity of image and behaviours of employees has resulted in women, particularly women of colour, performing ‘mental gymnastics’ of changing something about themselves to fit into a workplace such as ‘their language, topics of conversation, hairstyle, their name or what they eat at work’.92 Much research has been undertaken as to why women and ethnic minorities are not as often found in leadership positions. Some interesting and even surprising reasons have been posited that emanate from people’s subconscious understandings and could be considered a form of statistical discrimination. For example, it has been suggested that women and POC are less likely to be considered for leadership positions because God is conceptualised as a white man.93 More surprisingly, US research has shown that some black male CEOs may also be subject to a version of the double bind as a consequence of their ‘baby faces’.94 This is known as the ‘teddy bear effect’, and contrasts with research that suggests a baby face was a liability for white men in positions of leadership.95 The theory posits that black males benefit from a baby face because it acts as a disarming mechanism. Supposedly this ‘mitigates feelings of anger, envy or resentment among whites who might otherwise feel threatened by powerful black men’.96 These double bind theories suggest that, in order to get ahead, women have to appear more like men, black men have to appear more like white men and God needs to be viewed as less white and male. 2.2.  Taste-based Discrimination Becker labels the differential treatment of individuals for reasons that concern particular characteristics, such as race or gender as ‘taste discrimination’.97 Such discrimination appears to be prevalent at many levels. For example, US public opinion polls from 1953 to 2006 showed that every year male bosses were preferred to women by a very large margin.98 Discrimination extends far beyond the appointment process into everyday work-life experience. These experiences

92 Michelle Gyimah and others, ‘Broken Ladders. The Myth of Meritocracy for Women of Colour in the Workplace’ (Runnymede Trust and Fawcett Society 2022): www.fawcettsociety.org.uk/brokenladders, 11. 93 Steven O Roberts and others, ‘God as a White Man: A Psychological Barrier to Conceptualizing Black People and Women as Leadership Worthy’ (2020) 119 Journal of Personality and Social Psychology 1290. 94 Robert W Livingston and Nicholas A Pearce, ‘The Teddy-Bear Effect: Does Having a Baby Face Benefit Black Chief Executive Officers?’ (2009) 20 Psychological Science 1229. 95 Leslie A Zebrowitz and Joann M Montepare, ‘Appearance DOES Matter’ (2005) 308 Science 1565. 96 Livingston and Pearce (n 94) 1234. 97 Becker (n 64) 14. 98 Eagly and Carli (n 90).

26  C-Suite Diversity and its Antecedents include fear of negative stereotypes or judgements about their interactions99 and the need to work hard to counter these judgements.100 Discrimination can be considered taste-based even where the tastes are indirect. For example, an employer who is acting on the tastes of his other employees in not appointing ethnic minorities is inflicting taste-based discrimination.101 Research suggests that this discrimination particularly impacts black women.102 In a 2022 survey of over 3000 women of colour, 75% reported having experienced racism in the workplace of which 45% said it had affected their ability or desire to stay in their role ‘a great deal’ or ‘quite a bit’.103 Whether direct or indirect, taste-based discrimination can be distinguished from statistical discrimination because of its overt reliance upon personal characteristics as a cause for differential treatment. In contrast, statistical discrimination is subconscious and often stems from a desire to preserve opportunities for members of one’s own ethnic and gender group. Arrow questions the existence of such discrimination in corporations at all, on the basis that attributing ‘taste’ to a non-human entity is problematic.104 I argue that the actions of corporations are the aggregation of the actions of individuals associated with that corporation and as such, taste-based discrimination is possible. Taste-based discrimination is hard to eliminate because it is easy to disguise. A company may choose to hire John Smith over Jane Smith because of their gender but the reason claimed may be ‘merit’ or ‘fit’. This is not helped by appointment processes being typically very opaque. In investigating discriminatory intent cases in the US, Edelman discovered that organizational processes and structures such as appointment policies and procedures, or unconscious bias training ‘become proxies for non-discrimination because discriminatory intent is unobservable and difficult to prove’.105 On this basis, it is arguable that the appointment of women to precarious ‘glass cliff’ positions is an example of taste-based discrimination.106

99 Claude M Steele, Steven J Spencer and Joshua Aronson, ‘Contending with Group Image: The Psychology of Stereotype and Social Identity Threat’ (2002) 34 Advances in Experimental Social Psychology 379. Referred to in Robin J Ely, Irene Padavic and David A Thomas, ‘Racial Diversity, Racial Asymmetries, and Team Learning Environment: Effects on Performance’ (2012) 33 Organization Studies 341. 100 Laura Morgan Roberts, ‘Changing Faces: Professional Image Construction in Diverse Organizational Settings’ (2005) 30 Academy of Management Review 685. 101 R Øystein Strøm, ‘Gender Discrimination before Mandated Quotas? Evidence from Norway: 1989–2002’ (2015) 31 Scandinavian Journal of Management 303, 305. 102 James R Elliott and Ryan A Smith, ‘Race, Gender, and Workplace Power’ (2004) 69 American Sociological Review 365. 103 Gyimah and others (n 92) 8. 104 Arrow (n 63) 195. 105 Lauren B Edelman and others, ‘When Organizations Rule: Judicial Deference to Institutionalized Employment Structures’ (2011) 117 American Journal of Sociology 888. 106 Michelle K Ryan and S Alexander Haslam, ‘The Glass Cliff: Evidence That Women Are Overrepresented in Precarious Leadership Positions’ (2005) 16 British Journal of Management 81.

Cultural Barriers to Diversity  27 Historically taste-based discrimination has been evident on a wide scale. In 2004, research showed that in job applications, applicants with ‘white sounding’ names received a significantly higher response rate than those whose names had suggested the applicant was of an ethnic minority.107 Such experiments have been repeated several times and in different jurisdictions – all with similar results.108 There is evidence to suggest that this particular discriminatory practice has diminished in recent years.109 This is likely a consequence of diversity monitoring, but although this can help get a balanced portfolio of interviewees, when it comes to who is appointed, this becomes harder to regulate. Taste-based discrimination may also be in operation within the financial markets, as research suggests that investors devalue companies with women on the board.110 Specifically, research found that ‘companies with at least one woman on their board were valued at 121% the book value of their assets, while those with all male boards were valued at 166% the book value’.111 In contrast, research on the Italian stock market on the day when board gender quotas were mandated, revealed increases to the value of firms who would need to add more women in order to comply.112 This was despite no information being available as to the identity of the women to be appointed. Clearly discrimination is highly context dependent. 2.3.  Differences in Demand Norwegian research claims that the difference between the participation of men and women in the boardroom, prior to the implementation of the 2006 quota in Norway, was not attributable to discrimination.113 The difference was attributed to women ‘self-selecting’ careers that ruled them out of the running for the boardroom. There are thought to be numerous ways an individual may selfselect away from top jobs. One argument is that women choose not to seek out 107 Marianne Bertrand and Sendhil Mullainathan, ‘Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination’ National Bureau of Economic Research Working Paper 9873 (July 2003). 108 See for example: Magnus Carlsson and Dan-Olof Rooth, ‘Evidence of Ethnic Discrimination in the Swedish Labor Market Using Experimental Data’ (2007) 14 Labour Economics 716; John L Cotton, Bonnie S O’neill and Andrea Griffin, ‘The “Name Game”: Affective and Hiring Reactions to First Names’ (2008) 23 Journal of Managerial Psychology 18; Leo Kaas and Christian Manger, ‘Ethnic Discrimination in Germany’s Labour Market: A Field Experiment’ (2012) 13 German Economic Review 1. 109 Rajeev Darolia and others, ‘Race and Gender Effects on Employer Interest in Job Applicants: New Evidence from a Resume Field Experiment’ (2016) 23 Applied Economics Letters 853. 110 S Alexander Haslam and others, ‘Investing with Prejudice: The Relationship between Women’s Presence on Company Boards and Objective and Subjective Measures of Company Performance’ (2010) 21 British Journal of Management 484, 486. 111 Ibid 492. 112 Christopher Groening, ‘When Do Investors Value Board Gender Diversity?’ (2018) 19(117) Corporate Governance: The International Journal of Business in Society 60. 113 Strøm (n 101) 310.

28  C-Suite Diversity and its Antecedents high-profile jobs because they are naturally more risk averse than men.114 The support for this claim is limited.115 Another self-selection argument is premised on gendered appetite for competition. Nierderle et al found that women were less likely to put themselves forward for jobs in a competitive selection scenario.116 However, if these self-selection issues are gender-based, women of colour should not be more disadvantaged than white women in terms of promotion prospects. Evidence strongly suggests that they are.117 Self-selection decisions are often based upon social norms that perpetuate the diversity problems, and they do not constitute a reason to merely accept a difference in demand between genders and ethnicities. For women and POC, experience of discrimination (statistical or taste-based) is likely to affect choices from very early in their lives. Where the likelihood of achieving certain careers is minimal, there may seem little point in investing the time and effort in the relevant education. The self-selection of careers is an issue that may affect women more than POC.118 It is claimed that POC respond to discrimination in appointments by casting their net wider in their job search but that women have a relatively narrow pool of job types to which they will apply.119 On a general level, this could be a consequence of women being accepting of their expected role in society and challenging it only minimally. For POC, there are many respects in which racism has meant they have had to work harder for the same things as white people and as a consequence of this may have become more persistent and adaptable. Tone from the top is also important. It is unlikely to be a coincidence that where employers are male dominated with few women role models, women’s level of ambition is lower.120 If women or POC were able to identify with or recognise their own values in what they see above them, their career progression might be more swift.121 According to Sealy et al, ‘women express a need to see ‘someone like me’ above them, in order to believe in their own chances’.122

114 Sapienza, Zingales and Maestripieri (n 78). Renee B Adams and Tom Kirchmaier, ‘Making It to the Top: From Female Labor Force Participation to Boardroom Gender Diversity’ (February 2013) ECGI – Finance Working Paper 347/2013: www.research.manchester.ac.uk/portal/files/38007478/ FULL_TEXT.PDF. 115 Renée B Adams and Patricia Funk, ‘Beyond the Glass Ceiling: Does Gender Matter?’ (2012) 58 Management Science 219, 220. 116 Muriel Niederle, Carmit Segal and Lise Vesterlund, ‘How Costly Is Diversity? Affirmative Action in Light of Gender Differences in Competitiveness’ (2013) 59 Management Science 1, 2. 117 Yap and Konrad (n 59) 612. 118 Devah Pager and David S Pedulla, ‘Race, Self-Selection, and the Job Search Process’ (2015) 120 American Journal of Sociology 1005, 1030. 119 Pager and Pedulla (n 118). 120 Ruth Sealy and Val Singh, ‘The Importance of Role Models and Demographic Context for Senior Women’s Work Identity Development’ (2010) 12 International Journal of Management Reviews 284. 121 Klettner, Clarke and Boersma (n 21), 404. 122 R Sealy, B Hawkins and R Searle, ‘Precarious Selves: Women’s Leadership Identity Emergence.’ (British Academy of Management, 5 September 2017).

Cultural Barriers to Diversity  29 Relatedly, empirical research shows that the presence of influential women on a board significantly affects the appointment opportunity of other women.123 This supports the idea that the board appointment process depends on a variety of factors, including the availability of mentors and role models, but also that ‘diversity begets diversity’.124 Far from being purely theoretical, this can be seen in practice. Donald Arnold, a man of colour and the CEO of Carnival corporation (listed on both the FTSE100 and the NYSE in 2017), changed “7 out of 9 senior leaders, 4 of which were replaced by women and one BAME individual”.125 Another prominent self-selection argument relates to family norms. Swedish research indicates that women directors have fewer children than is typical of women in the general population.126 In the US, across industries and professions, motherhood does not reduce women’s participation in the workforce, but it does impact women’s position.127 This has been described as ‘society’s failure to accommodate to the realities of its workforce rather than a signal of mothers’ true preference’.128 When viewed from a father’s perspective, even if parental leave is available to them, a working culture that frowns on taking it may well prevent them from sharing these duties. Japan has the ‘most generous paid paternity leave in the world’ but this does not prevent it from being vastly underutilised by men because it is felt to be unacceptable.129 In the UK, shared parental leave is an option but the uptake of this is around 2%.130 Framing the statistical career differences between genders as being based on preference is unhelpful if both genders are not faced with the same choices. It disregards the evidence showing that the opportunities to choose paths leading to a particular type of career are less available,131 more restricted132 and less

123 Alison Cook and Christy Glass, ‘Diversity Begets Diversity? The Effects of Board Composition on the Appointment and Success of Women CEOs’ [2015] 53 Social Science Research 137–47, 143. 124 Cook and Glass (n 123). 125 Carmine Gallo, ‘The Nine Words That Took This CEO from Poverty to the Top of a $48B Company’ Forbes (13 May 2018). By 2021 Carnival Corporation was no longer part of the FTSE100. 126 Adams and Funk (n 115) 228. 127 Heather Boushey, ‘“Opting out?” The Effect of Children on Women’s Employment in the United States’ (2008) 14 Feminist Economics 1. 128 Marta B Calás and Linda Smircich, ‘Feminist Perspectives on Gender in Organizational Research: What Is and Is yet to Be’ in D. Buchanan and A. Bryman (eds.) The Sage handbook of Organizational Research Methods (London, Sage Publications 2009) 246, 254. 129 Vsudha Gupta and others, ‘Accelerating Gender Parity: What Can Governments Do?’ McKinsey & Company, 28 January 2019, 2. 130 ‘New ‘Share the Joy” Campaign Promotes Shared Parental Leave Rights for Parents’ (12 February 2018) www.gov.uk/government/news/new-share-the-joy-campaign-promotes-shared-parental-leaverights-for-parents, accessed 3 November 2022. 131 Amy J Hillman, Albert A Cannella and Ira C Harris, ‘Women and Racial Minorities in the Boardroom: How Do Directors Differ?’ (2002) 28 Journal of Management 747, 750. 132 Vicki Schultz, ‘Telling Stories about Women and Work: Judicial Interpretations of Sex Segregation in the Workplace in Title VII Cases Raising the Lack of Interest Argument’ (1990) 103(8) Harvard Law Review 1749, 1830.

30  C-Suite Diversity and its Antecedents supported133 for women and POC. Preference terminology is only helpful in so far as it relates to disempowered preferences. This is something to be rectified, not accepted. The preference discourse was considered in US research examining gender discrimination cases where the court found the woman’s exclusion from non-traditional jobs was a matter of choice and not discrimination.134 The research argued that the preferences attributed to women by the courts excluding them from non-traditional jobs, were the courts’ validation of sexist views and an inaccurate portrayal of women.135 Such stereotypes and perceived work orientations persist.136 3.  PRACTICAL BARRIERS: PIPELINES AND NETWORKS

3.1. Pipeline The pipeline of talented women and POC is commonly referred to as the main barrier to their greater representation in the boardroom.137 In 2015 there was a 9% gap in the number of employed working age women when compared with working age men in the UK.138 Since then the employment rate for women has increased.139 Self-selection issues aside, the pipeline concern cannot be justified on the basis of this 9% gap. The gender gap in the c-suite and the board is considerably larger. The Chair of the Institute of Directors, has called the claim that it is difficult to appoint women and ethnic minorities to boards ‘a lie’.140 The pipeline concern is typically framed as a threat to meritocracy, ie if the pipeline of diverse talent (be that women or ethnic minorities) is not of the right standard, companies may end up replacing competent men with mediocre women and POC. There is little evidence to support the ‘threat to meritocracy’ argument. In contrast, some argue that lack of diversity is helping mediocre men remain in positions over more competent, more diverse candidates.141

133 Elliott and Smith (n 102). 134 Schultz (n 132). 135 Ibid 1840. 136 Vicki Schultz, ‘Taking Sex Discrimination Seriously Denver University Law Review 2014 Symposium: Revisiting Sex: Gender and Sex Discrimination Fifty Years after the Civil Rights Act’ (2013) 91 Denver University Law Review 995. 137 Villiers (n 72) 539. 138 Women’s Business Council, ‘Maximising Women’s Contribution to Future Economic Growth – Two years on’ (July 2015) www.womensbusinesscouncil.co.uk/wp-content/uploads/2017/02/DfEWBC-Two-years-on-report_update_AW_CC.pdf. 139 Women’s Business Council, ‘Five Years on Progress Report’ (November 2018) www.womens businesscouncil.co.uk/wp-content/uploads/2018/11/WBC_Progress_Report_2018-1.pdf. 140 Jasper Jolly, ‘Big Firms Lying about Female and Minority Directors, Says Top Business Chief’ The Guardian (8 March 2019). 141 Timothy Besley and others, ‘Gender Quotas and the Crisis of the Mediocre Man: Theory and Evidence from Sweden’ (2017) 107 American Economic Review 2204.

Practical Barriers: Pipelines and Networks  31 According to the 2015 Davies Review there are ‘plenty of credible, experienced women willing and capable of serving on British boards. The big hurdle to overcome was getting them appointed’.142 Similarly, a US survey shows that there are many women, ‘ready, eager and capable of serving as effective board members’.143 In order to help counteract the perception of the struggling pipeline, Cranfield School of Management report regularly on ‘100 Women to Watch’, and describe the ‘broad and deep female talent pool’.144 Similarly, the Davies Review group also produce a report that showcases a selection of women serving on boards or ready for appointments, from a variety of career paths.145 For POC, there are projects which provide support and guidance as well as access for corporations to an array of suitable candidates. These include the Network for Black and Asian Professionals,146 the Black British Business Awards147 and Race for Opportunity.148 Empirical evidence also casts doubt upon the pipeline argument. A 2010 study of 4,143 MBA graduates who were, at that time, employed in for-profit companies, reported that women lagged behind men in advancement, compensation and career satisfaction despite being equal in number to, and sometimes surpassing men in graduation.149 In the UK in 1994 there were more women than men graduates from business and administrative studies courses.150 A person who graduated in 1994 would likely be in their mid-to-late 40s in 2022, a common age to be part of the c-suite. From a US perspective, in 1986 31.1% of MBAs were awarded to women, almost 20% higher than a decade before.151 Given the evidence against the ‘pipeline argument’, and the many statements refuting it as an issue, it should no longer be used as a justification for lack of diversity on boards.

142 Lord Davies of Abersoch (n 2) 18. 143 Hugh MJ Colaco, Paul Myers and Mindell Reiss Nitkin, ‘Pathways to Leadership: Board Independence, Diversity and the Emerging Pipeline in the United States for Women Directors’ (2011) 8 International Journal of Disclosure and Governance 122, 140. 144 See for example Patricia Pryce and Jacey Graham, ‘100 Women to Watch 2015’; Patricia Pryce and Jacey Graham, ‘Cranfield 100 Women to Watch Supplement’ (2018). 145 Davies Review Group, ‘Inspirational Women in Business’ (February 2015) www.ftsewomen leaders.com/wp-content/uploads/2015/08/inspirational-women-in-business.pdf. 146 ‘Network for Black and Asian Professionals’: www.nbp.org.uk, accessed 12 Novermber 2018. 147 ‘The Black British Business Awards’ www.thebbbawards.com, accessed 27 July 2019. 148 ‘Race for Opportunity’ www.race.bitc.org.uk accessed 27 July 2019. 149 Women’s Business Council (n 139). Nancy M Carter and Christine Silva, Pipeline’s Broken Promise (New York Catalyst 2010): www.catalyst.org/wp-content/uploads/2019/01/Pipelines_Broken_ Promise_Final_021710.pdf, 3. 150 D Scott DeRue and Susan J Ashford, ‘Who Will Lead and Who Will Follow? A Social Process of Leadership Identity Construction in Organizations’ (2010) 35 Academy of Management Review 627. 151 Craig A Peterson and James Philpot, ‘Women’s Roles on US Fortune 500 Boards: Director Expertise and Committee Memberships’ (2007) 72 Journal of Business Ethics 177, 194.

32  C-Suite Diversity and its Antecedents 3.2.  Networks and Mentors Networks are a more convincing reason for the lack of board diversity. Networks are key to career progression and this applies widely, not just at board level. Granovetter’s classic work on the impact of social networks in finding jobs demonstrates that those who have broader and deeper networks have more career choices and achieve more desirable positions.152 Networks form a central part of a person’s social capital (discussed in Chapter five), which will be considered as part of the appointment process. In 2013, Gaughan found that those gaining their first FTSE100 appointment invariably had a large network of connections, indicating that they were well known and with an established reputation.153 A US study found that women believe that the development of a network is the single most important factor in attaining a board position.154 Unfortunately, there remains what is often described as the ‘old boys’ network’ at the top echelons of UK business.155 Some argue that its presence serves to ‘preserve and enhance rewards for males at the top’.156 Social cohesion theory suggests appointment to board positions is influenced by a candidate’s ability to contribute to the network and while that network remains dominated by white men it is hard for women and POC to penetrate it.157 Research by Ibarra suggests that, from a gender perspective, the problem is partly due to difference, as women split their friendships and their work resource networks, whereas men combine them, and men are simply better at developing useful professional contacts.158 I would suggest these findings would not be replicated if men and women were equally represented in senior positions. There are processes designed to combat the ‘old boys’ network’. The UK Corporate Governance Code requires boards to have nomination committees, constituted mainly from independent non-executive directors (NEDs).159 However, a study found that, despite the presence of nomination committees, 55% of board members felt that it was the CEO who had the most influence on nominations, with the committee having limited impact.160 This study is over

152 Granovetter (n 73) 95. 153 Mary Gaughan, ‘A Conceptual Framework for Reputational Capital Development: An Exploratory Study of First-Time FTSE 100 NED Appointees’ PhD Thesis Cranfield University School of Management (2013). https://dspace.lib.cranfield.ac.uk/handle/1826/8450. 154 Colaco, Myers and Nitkin (n 143) 124. 155 Oakley (n 87) 328. 156 Oakley (n 87). 157 Singh and Vinnicombe (n 71) 485. 158 Herminia Ibarra, ‘Homophily and Differential Returns: Sex Differences in Network Structure and Access in an Advertising Firm’ [1992] Administrative Science Quarterly 422. 159 Financial Reporting Council, UK Corporate Governance Code (July 2018), Provision 17. https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UKCorporate-Governance-Code-FINAL.PDF. 160 Jay W Lorsch and Elizabeth MacIver, Pawns or Potentates: The Reality of America’s Corporate Boards (Boston MA, Harvard Business School Press 1989).

Practical Barriers: Pipelines and Networks  33 30 years old, but more recent research continues to support the existence of the old boys’ network and its impact on the nomination process.161 Beyond the boardroom, networks serve as forums in which race and gender are used to rank network members.162 This is due to the underrepresentation of women and POC in certain fields of employment and their overrepresentation in lower status jobs. This impacts upon the ability of women and POC to access the necessary networks to improve their job status and reinforces the stereotypes regarding what these groups want and can achieve.163 According to Granovetter: Blacks are at a disadvantage in using informal channels of job information not because they have failed to develop an informal structure suitable to the need, but because they are presently underrepresented in the structure of employment itself. If those presently employed in a given industry or firm have no black friends, no blacks will enter those settings through personal contacts.164

Mentors are also considered important in gaining a board position. Research on Australian CEOs has shown that mentors appear to be more instrumental for women than men.165 Lloyds Banking Group introduced a sponsorship programme in 2017, pairing women with influential leaders.166 These women were five times more likely to get promoted than women who weren’t on the programme.167 However, UK research suggests that 40% of men have mentors compared to only 11% of women.168 It has been claimed that men are more comfortable mentoring men and that the mentoring relationship is more effective where the parties have things in common.169 Research following the Harvey Weinstein scandal and resulting #MeToo movement suggests that ‘almost half of male managers are uncomfortable participating in a common work activity with a woman, such as mentoring’.170 When men do mentor women, it is 161 For example Annie Pye, ‘The Importance of Context and Time for Understanding Board Behavior: Some Lessons from Social Capital Research’ (2004) 34 International Studies of Management and Organization 63; Annie Pye and Andrew Pettigrew, ‘Studying Board Context, Process and Dynamics: Some Challenges for the Future’ (2005) 16 British Journal of Management S27. 162 Elliott and Smith (n 102) 368. 163 Alexandra Kalev, ‘Cracking the Glass Cages? Restructuring and Ascriptive Inequality at Work’ (2009) 114 American Journal of Sociology 1591, 1592. 164 Granovetter (n 73) 133. 165 Terrance W Fitzsimmons, Victor J Callan and Neil Paulsen, ‘Gender Disparity in the C-Suite: Do Male and Female CEOs Differ in How They Reached the Top?’ (2014) 25 The Leadership Quarterly 245, 261. 166 Sir Philip Hampton and Dame Helen Alexander (n 17) 19. 167 Ibid. The success of this programme must be tempered by an understanding that the women who were sponsored had been those identified as talented. This raises questions as to who does the identifying and what criteria they use. It is also worth considering whether these ‘talented’ women might have been promoted anyway. 168 Brown, Kelan and Humbert (n 54) 19. 169 Susan Athey, Christopher Avery and Peter Zemsky, ‘Mentoring and Diversity’ (2000) 90 American Economic Review 765, 766. 170 ‘What men and women are feeling in the wake of the widespread media reports of sexual harassment’ (LeanIn, January 2018): www.leanin.org/sexual-harassment-backlash-survey-results/#keyfinding-1, accessed 24 April 2018.

34  C-Suite Diversity and its Antecedents thought they offer less psychosocial support than when mentoring men.171 Sticking to mentors and mentees of the same gender or ethnicity is known as type-based mentoring.172 It may perpetuate the current level of diversity in the upper ranks of business. Many companies have mentoring programmes, but their effectiveness is open to question.173 More senior men than women, combined with a male reluctance to mentor women, results in a bottleneck. Resolving this reluctance seems unlikely while the media continue to frame women as intentionally victimising innocent men. Tarana Burke, the founder of the #MeToo movement (intended to empower and support women) claims the movement is being framed as a gender war, or a witch-hunt against men.174 This growing atmosphere of fear is detrimental to male–female mentoring relationships. 4.  ENVIRONMENTAL FACTORS

4.1. Institutional There is a body of research exploring the effect of institutional systems on change in boardroom diversity levels. Terjesen and Singh found that, globally, ‘countries with higher levels of female representation in legislature, senior officials and managers, are more likely to have women on their corporate boards’.175 A negative correlation was found between a longer history of elected women officials and women on boards, suggesting that time could breed complacency when it comes to diversity.176 Research comparing 36 countries claims women in politics is an antecedent to, and has a strong correlation with, women on boards in that country.177 US research has found that companies with headquarters in States considered more progressive, with policies intended to protect women’s freedoms of choice and from discrimination, have more women on their boards.178

171 Patricia Gabaldon and others, ‘Searching for Women on Boards: An Analysis from the Supply and Demand Perspective’ (2016) 24(3) Corporate Governance: An International Review 371. 172 Athey, Avery and Zemsky (n 169).Gabaldon and others (n 171). 173 Alexandra Kalev, Frank Dobbin and Erin Kelly, ‘Best Practices or Best Guesses? Assessing the Efficacy of Corporate Affirmative Action and Diversity Policies’ (2006) 71 American Sociological Review 589. 174 Tarana Burke, ‘Me Too Is a Movement Not a Moment’ (November 2018): www.ted.com/talks/ tarana_burke_me_too_is_a_movement_not_a_moment?language=en. 175 Siri Terjesen and Val Singh, ‘Female Presence on Corporate Boards: A Multi-Country Study of Environmental Context’ (2008) 83 Journal of Business Ethics 55, 57. 176 Ibid 59. 177 Gérard Akrikpan Kokou Dokou and others, ‘Influence des facteurs culturels sur le développement des potentialités entrepreneuriales. Le cas comparé d’entrepreneurs français, marocains et djiboutiens ayant vécu en France’ (2021) 38 Gestion 2000 41. 178 Yannick Thams, Bari L Bendell and Siri Terjesen, ‘Explaining Women’s Presence on Corporate Boards: The Institutionalization of Progressive Gender-Related Policies’ (2018) 86 Journal of Business Research 130.

Environmental Factors  35 Considered more generally, up to 50% of the variation between nations regarding the proportion of women on boards is attributable to national institutional systems, ie national economic, legal and cultural systems.179 Culturally, occupations are segregated according to gender, and despite increases in women’s workforce participation, the lines of segregation remain robust. According to Padavic et al: despite World War II, the women’s liberation movement, antidiscrimination laws and affirmative action, the most common occupations for women at the turn of the twenty first century were almost identical to those that employed women in 1940.180

As will be shown in Chapter four, there are echoes of these lines of segregation even once women get into corporate management, given the proportion of women who are in human resources roles across the FTSE100 and FTSE350. Seierstad et al found that the chances of a successful ‘women on boards’ initiative depended upon the existence of political support from several political factions.181 Success is most likely when political support is combined with a discourse based on both business and societal interests. Similarly, Iannotta et al found that institutions were highly determinative of the level of boardroom diversity. In particular welfare, labour and cultural institutions reinforce or undermine gender equality progress.182 Changes that aim to increase the number of women in the workplace will have minimal impact if no concomitant changes are made to welfare and cultural institutions. Relatedly, research has been conducted into the platforming of female voices, as compared to male voices. In recent years, an organisation called Man Bites Dog began highlighting this platforming difference, and calling it the ‘gender say gap’. Man Bites Dog claims that even though women are more likely to have degrees and work in ‘high status professions’ they continue to be outnumbered ‘4-1 in conferences and up to 5-1 in the media’.183 This is not just a business issue; it has been raised in relation to the media, politics, marketing and advertising, public relations, business and the arts. The objective of the ‘gender say gap’ campaign is for the affected professions ‘to measure the diversity of the expert authorities they elevate as thought leaders and set targets for change’.184

179 Johanne Grosvold and Stephen Brammer, ‘National Institutional Systems as Antecedents of Female Board Representation: An Empirical Study’ (2011) 19 Corporate Governance: An International Review 116. 180 Irene Padavic and Barbara F Reskin (n 45) 65. The occupations referred to are secretary, office worker, food preparation, school teaching and cashiering or bookkeeping. 181 Cathrine Seierstad and others, ‘Increasing the Number of Women on Boards: The Role of Actors and Processes’ (2017) 141 Journal of Business Ethics 289. 182 Michela Iannotta, Mauro Gatti and Morten Huse, ‘Institutional Complementarities and Gender Diversity on Boards: A Configurational Approach’ (2016) 24 Corporate Governance: An International Review 406, 413. 183 Man Bites Dog, ‘The Gender Say Gap’ www.manbitesdog.com/the-gender-say-gap/, accessed 2 September 2022. 184 Ibid.

36  C-Suite Diversity and its Antecedents 4.2. Remuneration From an economic perspective it is clear that monetary incentives are different between genders and ethnicities. UK research shows that women stop earning for their work on 4 November each year, when compared to the year-round wages of men.185 In the US women are not only paid less but receive fewer perks, such as leave for training and education, and this applies not just to women at the top but throughout business.186 According to Catalyst, differences in salary cannot be ascribed to differing aspirations between genders or to parenthood.187 The gender pay gap persists through all levels of work and business. Adams et al use it as a proxy for the pervasive discrimination within the labour market.188 For instance, countries with a smaller gender pay gap fared well in terms of women’s representation on boards.189 One potential cause for this could be the correlation between pay and perception of ability. Where individuals are paid the same for the same work, there may be a perception of parity of ability that will be reflected in promotion prospects and could therefore filter upwards towards the boardroom. A discussion of the gender pay gap can be found in Chapter four.190 There is less data on the ethnicity pay gap because companies are not currently required to report on it, though the possibility that they will has been under consultation since 2019.191 It is a complex issue due to the range of ethnicities and the categorisation of people. At a workforce level, it is reported that in the UK ‘Bangladeshi and Pakistani households earn about a third less on average than the median for white families’.192 For black African families the difference is about a fifth less than the median white family.193 Inevitably the message received from consistently being paid less for the work you do will have an impact on the value you believe your work is worth. This will have an impact on self-selection for certain jobs. At a c-suite level there is also a remuneration gap. We know this because the report of the remuneration committee, within each company’s annual report, provides a wealth of information. Not only does it disclose exactly what the c-suite and the board are paid, but it also discloses the break-down between fixed salary and variable remuneration. The levels of remuneration vary enormously across the FTSE100 and although this will have much to do with corporate performance

185 Fawcett Society, ‘Gender Pay Gap Briefing’ (November 2014): www.fawcettsociety.org.uk/ Handlers/Download.ashx?IDMF=3cacb2e0-08e3-4538-bd01-3b2007b64bcc. 186 Oakley (n 87) 324. 187 Carter and Silva (n 149) 3. 188 Adams and Kirchmaier (n 114). 189 Terjesen and Singh (n 175) 59. 190 See Chapter 4, section 3. 191 www.gov.uk/government/consultations/ethnicity-pay-reporting, accessed 19 July 2019. 192 Jim Pikard, ‘How Big Is Britains Ethnic Pay Gap’ The Financial Times (11 October 2018). 193 Ibid.

Environmental Factors  37 and the industry sector, in looking for trends in the rates of pay between roles, genders and ethnicities, a number of questions are raised. As part of this study, data on the remuneration for each member of the c-suite in 2016 and 2017 was gathered. After having grouped the subjects according to gender, ethnicity and role, the remuneration could be analysed.194 Figure 2.1 below shows the mean total remuneration by role and gender and Figure 2.2 displays mean total remuneration by role and ethnicity. Both figures relate to 2016 and 2017. Figure 2.1  Total remuneration by role and gender

4,000,000

Mean total remuneration

3,000,000

2,000,000

1,000,000

0 female

male GENDER

CEO

CFO

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CXO

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194 These results are set out here and not as part of the broader diversity study in Chapter 4 because of their relevance to differing incentives for genders and ethnicities to seek c-suite appointments.

38  C-Suite Diversity and its Antecedents As Figure 2.1 shows, once women attain board seats their mean remuneration, across all roles, is substantially lower than it is for men. In market terms, the indication is that men are perceived to be more valuable than women when in the c-suite. The reality may have a number of explanations but these must fall into one of the following three categories of reason: (1) there is an actual competence difference between genders; (2) there is a perceived competence difference between genders; or (3) for reasons unrelated to actual or perceived competence, women are unable to negotiate for the same level of pay as men in similar situations. As for the first explanation – that of a gender difference in competence – research seeking to link CEO gender and corporate performance has had mixed findings.195 But corporate performance does not necessarily correspond with CEO competence. Research by Dwivedi et al asked ‘what are the factors that determine success for women CEOs’ and they found that ‘the long tenure of the male predecessor and the insider origin of the female successor are both enablers of female success.’196 Neither factor is necessarily related to competence or merit. The majority of the women CEOs in this research sample were external appointees. If the ‘glass cliff’ theory (whereby women are appointed to precarious positions) is true, any results of a share price to gender analysis would be skewed.197 More research is needed here. The second potential explanation for the remuneration differential between genders is that there is a perceived difference in competence between men and women. Regarding perception of competence, women are at a disadvantage when assessed on a typical understanding of merit because it is based on a concept of human capital that favours men and because its inherent flexibility allows human biases, which again favour men, to enter into the decision-making process.198 If remuneration is linked to merit, the status quo of remuneration suggests that men are perceived to have more merit than women in all roles. This is either true or: (a) remuneration is not linked to perceived merit; (b) merit is so ill-defined as to create inconsistency in pay; or (c) women are paid less than men for the same work. Regarding (a), research suggests that the link between merit and remuneration is questionable and that cronyism plays an important role in determining levels of remuneration.199 In relation to (b), Malleson argues

195 Seung-Hwan Jeong and David A Harrison, ‘Glass Breaking, Strategy Making, and Value Creating: Meta-Analytic Outcomes of Women as CEOs and TMT Members’ (2017) 60 Academy of Management Journal 1219; Jason Q Zhang, Hong Zhu and Hung-bin Ding, ‘Board Composition and Corporate Social Responsibility: An Empirical Investigation in the Post Sarbanes-Oxley Era’ (2013) 114 Journal of Business Ethics 381; Walayet A Khan and Joao Paulo Vieito, ‘CEO Gender and Firm Performance’ (2013) 67 Journal of Economics and Business 55. 196 Priyanka Dwivedi, Aparna Joshi and Vilmos F Misangyi, ‘Gender-Inclusive Gatekeeping: How (Mostly Male) Predecessors Influence the Success of Female CEOs’ (2018) 61 Academy of Management Journal 379. 197 Ryan and Haslam (n 106) 81. 198 Human capital and its flaws are discussed in detail in Chapter 3, section 1.1. and the flexibility of merit is discussed in Chapter 5, section 2.2. 199 Lars Oxelheim and Kevin Clarkson, ‘Cronyism and the Determinants of Chairman Compensation’ (2015) 131 Journal of Business Ethics 69, 86.

Environmental Factors  39 that merit cannot be legitimately or fairly constructed without reference to the potential candidate pool.200 This means that the definition of merit against which each gender and ethnicity is measured should be one that accounts for the skills of the entire pool, and merit-based remuneration should reflect this. In any event, there is no inconsistency; men are consistently paid more than women. If the cause of the remuneration differential is a consequence of bargaining power, as in (3) above, this runs counter to a typical supply and demand situation whereby the holder of that which is in demand has a good bargaining position. In a functioning market, where companies wish to appoint women but there are fewer of them, their remuneration ought to at least match men’s on the basis of their rarity combined with a purported desire for companies to diversify management. This is unless, contrary to common argument, the pipeline is inundated with capable and available women.201 Consequently, either the pipeline argument is inaccurate (in which case the question returns to why there are not more women in the c-suite) or women should have better bargaining power than they do.202 Either way, women are evidently disadvantaged on the basis of an assessment of merit or the reality of their power. Figure 2.2  Total remuneration by role and ethnicity

6,000,000

Mean total remuneration

5,000,000

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0

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White Ethnicity

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40  C-Suite Diversity and its Antecedents As shown in Figure 2.2, the remuneration picture is not clear when considered from the perspective of POC. The data suggests that POC are paid more, on average, than white individuals but there are so few POC in the study, and those that there are include founders whose remuneration might be expected to be higher. Although low remuneration of POC in the c-suite does not appear to be a particular barrier, the fact is that there are too few POC to enable a worthwhile comparison. 5. CONCLUSION

The board has been under pressure to change for some time, and change has been occurring. The widespread attention given to this important topic has largely focused on the wider board and resulted in changes to the constitution of non-executive directors. We know from the literature and even just looking at pictures of FTSE100 board members that they are no longer all white and male. But the overall picture created distorts the reality that there remain severe imbalances from a gender and ethnic diversity perspective (and from many other aspects of diversity such as disability and socio-economic diversity) depending on what part of the board you look at. Delving more deeply into that picture is one of the main objectives of this book and the focus of Part II. The progress made is, in large part, a consequence of targets set by reviews such as the Hampton-Alexander Review203 and the Parker Review.204 The factors upon which the current make-up of the boardroom has been built are not easily overcome. The idea that encouragement to diversify, stemming from either targets or codes of good practice (such as the UK Corporate Governance Code), will be enough on its own to change the imbalance of power is unrealistic. Corporations and boards do not exist in a vacuum; they affect and are affected by the societies in which they operate. In these societies, barriers have arisen that hinder a more balanced diversity arrangement in the seats of power. These include cultural barriers which stem from social norms of conscious and unconscious discrimination, practical barriers derived from an absence or unwillingness to mentor minority groups, and environmental barriers to the institutional and economic standing of women and POC in society. These are

200 Kate Malleson, ‘Rethinking the Merit Principle in Judicial Selection’ (2006) 33 Journal of Law and Society 126. 201 Carter and Silva (n 149). 202 Morten Huse, ‘The “Golden Skirts”: Changes in Board Composition Following Gender Quotas on Corporate Boards’ (2011): www.anzam.org/wp-content/uploads/pdf-manager/473_ ANZAM2011-148.PDF. 203 Sir Philip Hampton and Dame Helen Alexander (n 17). 204 Sir John Parker and The Parker Review Committee (n 49).

Conclusion  41 not discrete factors but feed and grow from one another. Any understanding gained about the make-up of corporate power should be underpinned by an understanding of the antecedents. Only with comprehension of both the diversity of corporate power and its antecedents, is it possible to consider what needs to be done and how.

3 Theories of Merit and Power

A

powerful CEO can be a good and a bad thing. They can provide direction and energy towards efficiently achieving positive outcomes for the company and its stakeholders. In contrast, a powerful CEO could bulldoze misguided and/or personally profitable decisions at the expense of the company and its stakeholders. As such, merit and power can be connected, but are not necessarily so. A discussion of merit and power, at least in the context of the c-suite, involves questions about ‘should’ and ‘can’. Should a person be appointed to the c-suite, and should they retain their position once there – these are normative questions about the merit behind the getting and keeping of c-suite positions. Can a person keep their position on the c-suite, and what can a person do with it, are both questions relating to positive statements about a person’s power. The board have to consider whether a person should receive c-suite appointment.1 Once a person has a c-suite appointment, their respective power in relation to the board will determine whether they can keep that appointment. Comprehending how the merit decision is made and what constitutes the power to retain a c-suite appointment are critical to an understanding of who is in the c-suite. These questions are considered empirically in Chapters five and six. This chapter lays the groundwork for those empirical studies through a theoretical consideration of the meaning of merit and power. 1.  WHAT IS MERIT IN THE C-SUITE?

Merit is a critical but flawed mechanism used in the appointment of directors to the board and the c-suite. The two key problems with merit are the flexibility in the meaning of merit and the unfairness inherent in its application.2 Merit 1 The shareholders do have a say on c-suite appointments (provision 20 Model Articles for Public Companies) and removals (s 168 Companies Act 2006). Companies subject to the UK Corporate Governance Code 2018 are also required to put their directors up for annual re-election (provision 18). However, shareholder input is not considered in any detail here as, in practice, they are unlikely to go against the advice of the board (Jay Cai, Tu Nguyen and Ralph Walkling, ‘Director Appointments: It Is Who You Know?’ (2022) 35(4) The Review of Financial Studies 1933). 2 This is discussed in detail in Eleanore Hickman, ‘The Problems with Appointing on Merit. A Human Capital Analysis’ (2021) 21 Journal of Corporate Law Studies 109.

What is Merit in the C-Suite?  43 is premised upon human capital, which is hard to measure because there is no accepted understanding of what should be measured and any measurements are likely to be inconsistent or inaccurate. Secondly, the practice of measuring human capital reinforces problematic social norms about what is considered valuable. One consequence of this is that women and people of colour (POC) are disadvantaged when trying to establish their economic worth to a company. Despite the challenges and difficulties posed by the measurement of merit, I have undertaken to carry out such a measurement in Chapter five. Resource Dependency Theory posits that board appointments are a rational response to the environment the organisation exists within.3 In this view, it is the context of each firm and its role requirements that define merit for each appointment. Unconsciously or otherwise, the characteristics of the board incumbents should not be a determining factor in assessing the merit of the appointee. Analysing merit from this perspective, resource dependency theorists have suggested three categories of merit: legitimacy, advice and networks.4 These categories can be equated to a broad conception of human capital: advice corresponds to standard economic understanding of human capital; networks correspond to social capital; and legitimacy corresponds to cultural capital. All three types of human capital which feature in a merit assessment are considered here. 1.1.  Human Capital Economists have used the term ‘human capital’ to determine relative levels of employability and individual value in the job market. Skills, knowledge and capabilities make up what is understood as human capital.5 It is commonly agreed that appointments on a merit basis need to be made without crafting the definition of merit around the existing candidate pool. The skills, knowledge and capabilities required for any role should be decided based upon the requirements of the particular role and in advance of the appointment process. Reference to the candidate pool in creating criteria is thought to be discriminatory. Malleson instead argues that it is not possible to disassociate the construction of merit from potential appointees.6 This is particularly the case when looking at c-suite

3 Jeffrey Pfeffer, ‘Size and Composition of Corporate Boards of Directors: The Organization and Its Environment’ (1972) 17(2) Administrative Science Quarterly 218, 226. 4 Paul Dunn, ‘Breaking the Boardroom Gender Barrier: The Human Capital of Female Corporate Directors’ (2012) 16 Journal of Management & Governance 557, 557. 5 Margaret M Blair, ‘An Economic Perspective on the Notion of “Human Capital”’ in A BurtonJones and JC Spender (eds), The Oxford Handbook of Human Capital (Oxford, Oxford University Press 2011) 49. For a discussion on the background of the concept of human capital, refer to Hickman (n 2). 6 Kate Malleson, ‘Rethinking the Merit Principle in Judicial Selection’ (2006) 33 Journal of Law and Society 126, 137.

44  Theories of Merit and Power appointments. The nature of such high-profile roles will be such that the requirements bend to fit the profile of the favoured applicants. The objectivity required by the UK Corporate Governance Code and by commentators in any meritocratic appointment process is, according to this logic, an impossibility. That is part of the merit problem. A number of human capital factors are widely considered to constitute merit. In this study these include professional experience, education and qualifications. Education has long been an important tool used by employers and admissions offices to distinguish between people. Grades can be used as a screening process so that only applications with attainment at a certain level will even be read. According to Sommerland ‘education superimposed on the pre-existing sources of disadvantage of gender and ethnicity, now functions as the primary mechanism in the reproduction of inequality’.7 Nevertheless, education is one of only a few easy ways to benchmark people. The fact that it is not effective for all participants is not problematic for those who are making the appointment decisions, because there are more people willing and able to do these high-profile, well remunerated jobs than there are jobs available.8 Once a person gets into the first of their elite jobs the accumulation of experience becomes easier. This professional experience will increase their human capital. Like capital in the financial sense, once a person accumulates some human capital, it can then be utilised to obtain more, except that human capital doesn’t get used up in the same sense as financial capital. The more you have the more you can get, limited by time and your capabilities. Those who struggle to accumulate human capital may not want for the capability of obtaining it, but they may not have the same time, access or educational footing as more privileged people do. Human capital is, therefore, a way of measuring merit that does not account for opportunity and will favour some over others. To the extent that this is true, we might expect to see a similarity in educational and experiential backgrounds in members of the FTSE100 c-suite. The merit study, described in Chapter five, suggests there is truth behind this expectation. 1.2.  Social Capital When attempting to measure human capital, value is attributed to indicators of what a person knows. In contrast, an attempt to measure social capital requires value to be ascribed to indicators of who a person knows. A person who is trying to build up their social capital might spend time developing their networks of

7 Hilary Sommerland, ‘The Social Magic of Merit: Diversity, Equity, and Inclusion in the English and Welsh Legal Profession’ (2014) 83 Fordham Law Review 2325, 2341. 8 Stephen J McNamee and Robert K Miller, The Meritocracy Myth (Lanham MD, Rowman & Littlefield 2009) 133.

What is Merit in the C-Suite?  45 acquaintances and contacts. A person who might be considered to have valuable social capital in the business context may have a network of contacts amongst whom business relationships can be grown, collective knowledge can be developed and through which processes can be facilitated. A person’s level of social capital is likely to be considered from a merit perspective when deciding on appointments. Those who have greater social capital will be considered more meritorious. Unsurprisingly, research has demonstrated a positive correlation between social capital and salaries, career satisfaction and promotion.9 Not only is social capital likely to work in your favour in a determination of merit once you have reached the interview stage, but it is also likely to assist you in your job search (or lack thereof). People who have a high level of social capital often find that jobs come to them through their networks.10 Schooling is highly relevant to whether a person needs to search for a job or whether the job will come to them. Granovetter found that ‘far fewer of those who attended college in the top 40% searched for their jobs than those in lower prestige colleges’.11 Social capital also provides a person with benefits once they are in their appointed role. Research has suggested that ‘the biggest predictors of influence on a board were ties to others, membership in cliques and prior relationships with other directors, not independence from the company or CEO’.12 Given all these advantages of social capital, it is small wonder that individual directors would want to participate in the traditions of the boardroom which facilitate this. These traditions are exemplified in a number of different ways, but one example is that in the US, golf remains a mainstay of corporate network building, with Fortune 500 CEOs taking up to 100 golf days per year.13 There is an undeniable underlying link between social capital and inequality that should be acknowledged. Social capital is often a product of privilege. It is much easier for some to accumulate social capital than others. On top of this, and just like human capital, once one has some social capital, it can be capitalised upon. In this way social capital can then be used as a barrier to progression for the less privileged. To the extent that this is the case, one would expect the FTSE100 c-suite to have similarities in their social backgrounds. The results of the merit study in Chapter five suggest there is truth in this assumption.

9 Scott E Seibert, Maria L Kraimer and Robert C Liden, ‘A Social Capital Theory of Career Success’ (2001) 44 Academy of Management Journal 219, 232. 10 Mark Granovetter, Getting a Job: A Study of Contacts and Careers (Chicago IL, University of Chicago Press 1995) 32. 11 Ibid 149. 12 William B Stevenson and Robert F Radin, ‘Social Capital and Social Influence on the Board of Directors’ (2009) 46 Journal of Management Studies 16, 23. 13 Lee Biggerstaff, David C Cicero and Andy Puckett, ‘FORE! An Analysis of CEO Shirking’ (2016) 63 Management Science 2302, 2306.

46  Theories of Merit and Power 1.3.  Cultural Capital Cultural capital represents an overlooked but important consideration when determining a person’s value to an organisation, ie the ‘norms, values, beliefs and ways of life of the groups to which people belong’.14 The groups to which people feel like they belong are many, but often include characteristics such as nationality. Time spent at an elite educational institution can also connect people through norms and values. Universities not only bring educational benefits (human capital) and assist in developing networks (social capital), but from a cultural capital perspective they can also foster an understanding of the types of behaviour most favoured in what might be considered ‘elite’ circles.15 The ability to indicate familiarity with the norms and customs of particular universities and sometimes even socio-economic groups directly, can impact career prospects.16 Boards themselves can form a group that have a perception of themselves which they want to be reflected in whomever they appoint. This means that their perception of the status of potential board members matters, and will ultimately impact upon who gets appointed.17 This is overtly recognised by executive search firms who have highlighted the core role that cultural capital plays in their selection process.18 With this in mind, one would expect to see similarities in the cultural backgrounds of the FTSE100 c-suite (nationalities, age, alma mater). Just as with human and social capital, the study in Chapter five suggests that this expectation is warranted. 2.  A CONCEPTUAL FRAMEWORK FOR C-SUITE POWER

In the previous section I dissected the meaning of merit in the context of the c-suite in order to better understand the normative reasons (flawed or otherwise) as to why a person may be appointed. In this section a similar process will be carried out for power, but instead of asking if a person should be powerful, the question is whether they are powerful (which leads onto the question of why). This is an important distinction because merit is constructed in the eyes of others, whereas power is either present or it isn’t. In both cases the underlying motivation for the analysis is, as was stated in Chapter one, to understand who is

14 McNamee and Miller (n 8). 15 Mairi Maclean, Charles Harvey and Jon Press, Business Elites and Corporate Governance in France and the UK (Basingstoke, Palgrave Macmilan 2006) 39. 16 Donald C Hambrick and Phyllis A Mason, ‘Upper Echelons: The Organization as a Reflection of Its Top Managers’ (1984) 9 Academy of Management Review 193, 200. 17 Scott Johnson and others, ‘Antecedents of New Director Social Capital’ (2011) 48 Journal of Management Studies 1782. 18 James R Faulconbridge and others, ‘The “War for Talent”: The Gatekeeper Role of Executive Search Firms in Elite Labour Markets’ (2009) 40 Geoforum 800.

A Conceptual Framework for C-Suite Power  47 in the c-suite and why. Understanding the characteristics of who gets appointed helps to unpack the normative reasons behind a judgement of a person’s merit, and therefore what merit means. This process would be of little use in relation to power because it is not based on a judgement. Instead, it is necessary to look at the sources of power. This helps to unpick why someone has or does not have power (rather than why they are perceived to have it or not have it). This can be further analysed to see if there are consistent characteristics amongst the people who have power and why that might be. Power in the c-suite context is not in itself a bad thing. Power is critical to success because without authoritative decision making, businesses would stall and stagnate. It is when power is concentrated and excessively utilised that it can be problematic, as has been shown in a number of corporate failures such as British Home Stores,19 Carillion20 and Thomas Cook.21 Inordinate executive remuneration provides another example of problems that arise from the excessive use of power. Over recent years executive pay has risen consistently even without concomitant increases in the performance of the companies for whom these executives work.22 Principle R of the UK Corporate Governance Code 2018 advises that remuneration should be linked to performance. In reality performance often has little to do with it.23 Although this is not a universal behaviour, there are companies in which the remuneration packages are designed by directors in power for their own interests, as opposed to the interests of the company or its stakeholders.24 It has been noted that behaviours surrounding remuneration are, in some cases, driven by ‘greed and personal ambition of powerful individuals’ rather than any business reason.25 2.1.  What is Power? In defining power, commentators have focused on the ability to achieve a desired outcome26 and others on the control an individual has over resources needed 19 ‘Philip Green’s Greed Brought down BHS, Cost 11,000 Jobs, Damaged Pension Fund, Say MPs’ CNBC (25 July 2016): www.cnbc.com/2016/07/24/philip-greens-greed-brought-down-bhs-cost11000-jobs-damaged-pension-fund.html, accessed 10 June 2022. 20 James Hakner, ‘CEO’s Unchecked Risk-Taking Led to Carillion Collapse’ The University of Sussex, Broadcast (29 January 2018): www.sussex.ac.uk/broadcast/read/43600, accessed 10 June 2022. 21 ‘Debt, Egos and Bad Decisions: How Thomas Cook Failed to Adapt to a New Era of Travel’ Skift (30 September 2019): skift.com/2019/09/30/debt-egos-and-bad-decisions-how-thomas-cookfailed-to-adapt-to-a-new-era-of-travel/, accessed 10 June 2022. 22 ‘CEO Pay: Shareholders Must Show Their Teeth’ Financial Times (30 May 2022). 23 Marc T Moore, ‘Corporate Governance, Pay Equity, and the Limitations of Agency Theory’ (2015) 68 Current Legal Problems 431. 24 Robert F Göx and Thomas Hemmer, ‘On the Relation between Managerial Power and CEO Pay’ (2020) 69 Journal of Accounting and Economics 101300. 25 Maclean, Harvey and Press (n 15) 19. 26 Gerald R Salancik and Jeffrey Pfeffer, ‘Who Gets Power – and How They Hold on to It: A Strategic-Contingency Model of Power’ (1977) 5 Organizational Dynamics 3, 14.

48  Theories of Merit and Power by others.27 Looking at how power has been defined in the specific context of the boardroom, Hickson et al have described power as the ability to cope with uncertainty, a central problem for organisations.28 Hambrick theorises that those who are able to cope with uncertainty are in a position of power over those who perceive that ability in them.29 There are various environments of uncertainty within a firm (such as in relation to production inputs and outputs, the regulatory environment and intra- and extra-firm relationships) and the ability to cope with one or more should, according to Hambrick, correspond to greater levels of power. Intuitively it makes sense that those who lead firms have demonstrated ability to manoeuvre through uncertainty. However, a detailed understanding of the areas of uncertainty and the relationship with power goes beyond what is necessary here. It is unnecessary to know about levels of ability to cope in differing areas in order to make a basic comparative assessment of power. For the purposes of this study, power can be defined more simply using a resource-based understanding 2.2.  A Resource-based Theory of Power The resource-based understanding of power adopted in this study can be broken down into its two components: resources and freedom. Without one the other is fairly useless, but together they create power.30 Resources can be material (eg money), intangible (eg information) or human (eg skill). The relevant resources in a corporate context include information, human knowledge and competencies, the assets and reputation of the business and the networks the company has access to. Those who occupy positions which span organisational groups have control over information needed by multiple groups. For example, those on the board as well as the management committee (ie board executives) have access and control over information from company management and from board discussions.31 Resources are typically finite in nature. Control of finite resources can cause conflict. Where one party is in control of the available resources, conflict is likely to be minimal. That person has considerable, concentrated power. One of the downsides of concentrated power is that, as described by Hillman et al, ‘when

27 Joe C Magee and Adam D Galinsky, ‘Social Hierarchy: The Self-reinforcing Nature of Power and Status’ (2008) 2 Academy of Management Annals 351, 313. 28 DJ Hickson and others, ‘A Strategic Contingencies’ Theory of Intraorganizational Power’ (1971) 16(2) Administrative Science Quarterly 216, 219. 29 Donald C Hambrick, ‘Environment, Strategy, and Power within Top Management Teams’ (1981) 26(2) Administrative Science Quarterly 253. 30 David Beetham, The Legitimation of Power (Macmillan International Higher Education 2013) 43. 31 Peter Fleming and André Spicer, ‘Power in Management and Organization Science’ (2014) 8 Academy of Management Annals 237.

A Conceptual Framework for C-Suite Power  49 a CEO is powerful, he or she acts to limit the effect of board heterogeneity on both strategic variation and deviation’.32 In other words, you could have a highly diverse board, but the positive impact of that diversity on decision making will be limited where there is a single powerful individual dominating the group. In contrast, where there is competition for or dispute over control of resources, discord and conflict can arise.33 In such situations power is more diffuse and this provides room for diversity of viewpoint and perspective. Freedom is the second requirement for power and refers to the space to take decisions without obstruction. A person may have access to resources such as money and skills in abundance, but if freedom to use them is restricted, those resources mean little. Control over the freedom to exercise resource-based decisions can curtail the exercise of power. Boards act as a freedom restrictor on c-suite power. They monitor the executive decision making and thereby restrict their freedom to utilise the resources at their disposal. How effective a board is at challenging and assessing resource-based decisions of the c-suite will dictate the balance of power. There has been research into what can effectively curb CEO power. Larger boards (to a point) are thought to help in the restriction of power.34 There is also much support for the idea that non-executive directors exert a moderating effect on CEO power.35 The competitive markets also moderate CEO power by fastening the prospects of the c-suite to the performance of the company.36 Each of these factors will impact on c-suite freedom to an extent. Together these factors are likely to have a cumulative effect. There are several other ways in which unfettered freedom to control resources is restricted, such as through laws or public scrutiny. Nevertheless, non-executive directors are determinative in this regard. It is part of their job description to be a method through which laws and standards of behaviour are upheld and enforced. Stock markets have been shown to react positively to the unexpected deaths of high-powered CEOs whose boards were dominated by insiders (and thus more likely to be captured by the CEO).37 In the resource-based power framework, this finding can be understood on the basis that the CEO had resources and was not restricted by the board in the way they were used. The market was

32 Katalin Takacs Haynes and Amy Hillman, ‘The Effect of Board Capital and CEO Power on Strategic Change’ (2010) 31 Strategic Management Journal 1145, 1159. 33 Elizabeth Mannix and Margaret A Neale, ‘What Differences Make a Difference? The Promise and Reality of Diverse Teams in Organizations’ (2005) 6 Psychological Science in the Public Interest 31. 34 Katalin Takacs Haynes and others, ‘Figureheads or Potentates? CEO Power and Board Oversight in the Context of Sarbanes Oxley’ (2019) 27 Corporate Governance: An International Review 402. 35 James G Combs and others, ‘The Moderating Effect of CEO Power on the Board Composition– Firm Performance Relationship*’ (2007) 44 Journal of Management Studies 1299. 36 Anutchanat Jaroenjitrkam, Chia-Feng (Jeffrey) Yu and Ralf Zurbruegg, ‘Does Market Power Discipline CEO Power? An Agency Perspective’ (2020) 26 European Financial Management 724. 37 James G Combs and others (n 35).

50  Theories of Merit and Power aware of this power imbalance and it adjusted the stock price up when that power imbalance was removed. Conversely, the deaths of CEOs have resulted in a negative stock market reaction in circumstances where the board was dominated by independent non-executive directors.38 The resource-based framework would explain this on the basis that independent boards are perceived to be better monitors and therefore able to restrict the freedom of the CEO to utilise resources of the company. One of the main roles of the non-executive directors is to ‘scrutinise and hold to account the performance of management and individual executive directors against agreed performance objectives’.39 It is sensible to question the ability of the market to price the effectiveness of the non-executives as freedom restrictors. However, whether or not the market is effective at doing this, it remains the case that the level of c-suite power will be impacted by the availability of resources and the restrictions placed upon their freedom to use them. 2.3.  Source of Power Although a resource-based framework helps to understand the constituents of power, it doesn’t help to understand how power might be obtained. Both resources and freedom can be either given or taken. Here I use the terms ‘conferred’ or ‘appropriated’. Understanding how power is obtained provides some insight into the relationship between power and merit. In what follows I argue that power that has been conferred by others is likely to be merit based whereas power that it appropriated is not. 2.3.1.  Conferred Power Mead and Maner propose that dominance and prestige are alternate forms of obtaining influence (a form of power), the former through force and manipulation and the latter through garnering respect.40 Respect and prestige are sentiments and feelings that are induced in others. Respect and prestige cannot be taken, but can only be earned, bestowed or conferred. A common way to earn respect or prestige is to demonstrate competence and skill or human capital (the latter may be demonstrated through qualifications).41 Where the source of power is human capital or competence, it is has a basis in merit. This accords with best practice, according to The UK Corporate Governance Code 2018.42 38 Ibid. 39 UK Corporate Governance Code, Provision 13. 40 Nicole L Mead and Jon K Maner, ‘On Keeping Your Enemies Close: Powerful Leaders Seek Proximity to Ingroup Power Threats’ (2012) 102 Journal of Personality and Social Psychology 576. 41 Human capital is not without its issues. On this see Chapter 5 of this book and Eleanore Hickman (n 2). 42 UK Corporate Governance Code 2018, Principle J.

A Conceptual Framework for C-Suite Power  51 A large proportion of the companies in the FTSE100 refer to merit in their director appointment policies.43 Power at the appointment stage is likely to be conferred because competence and human capital will usually need to be demonstrated by a candidate in order to be appointed. For new appointees, power will often be shared with incumbents of the board and others who know more about the company. At least at this preliminary stage, power is likely to be balanced between the incoming director and other members of the board because the incumbents have better access to information and knowledge. If appointments are to be made on merit, their retention should also be merit based. Greve et al note that ‘Repeated exercise of power creates a reputation for being powerful, which diminishes resistance because others will be reluctant to oppose the powerful executive’.44 Expertise and experience gained through tenure are sources of human capital and consequently of conferred power. The concern is the possibility that power, which was once conferred on the basis of human capital, becomes no longer merited, such as when a CEO exerts control over the board for personal ends by virtue of their position and personality. For example, Phillip Green ran BHS and its group companies ‘as his own personal empire, with boards taking decisions with reference to a shared understanding of his wishes rather than the interests of each individual company’.45 Towards the end of a CEO’s tenure, then, power may no longer be conferred/merited, but is less likely to be called into question. This is when conferred power can become appropriated power. 2.3.2.  Appropriated Power Dominance is Mead and Maner’s alternative to prestige and respect as an influence strategy.46 Dominance is a form of power that has been appropriated through manipulation, force or other forms of domination. In this sense it does not need to be linked with competence, skill or human capital. Dominance has been described as a personality trait that comes into effect when individuals reach positions of authority.47 But this is far from a settled idea, with others viewing dominance, alongside status, as behavioural strategies.48 People in positions of power do not necessarily exhibit dominant characteristics: they can be collaborative or democratic in their power. 43 For more on this see Chapter 6 of this book. 44 Henrich R Greve and Hitoshi Mitsuhashi, ‘Power and Glory: Concentrated Power in Top Management Teams’ (2007) 28 Organization Studies 1197, 1202. 45 ‘Parliamentary Committee Report on BHS’ (2018) para 135. 46 Mead and Maner (n 40). 47 Christian Schumacher, ‘Organizational Structure and CEO Dominance’ (2021) 10 Journal of Organization Design 19. 48 Joey T Cheng and others, ‘Two Ways to the Top: Evidence That Dominance and Prestige Are Distinct yet Viable Avenues to Social Rank and Influence.’ (2013) 104 Journal of Personality and Social Psychology 103.

52  Theories of Merit and Power Once an individual is in a role at c-suite level, they can wield substantial power, and that power often accumulates year on year. It has been said that power begets power and, ‘once a hierarchy gets established, a number of organisations and psychological processes conspire to create different degrees of opportunity to acquire and maintain power’.49 Even when responsibilities are being shirked, the longer a CEO’s tenure, the less likely they are to be dismissed.50 Malmendier and Tate found that award-winning CEOs who have obtained celebrity status exhibit a clear decline in performance after having received their award and still manage to extract greater levels of remuneration from the firm.51 Interpersonal influence comes into play from the perspective of the more senior individual (from an organisational perspective) who is able to bestow favours and career progression on others in such a way as to shore up the power they already have. At this point, the power that may once have been conferred as a consequence of that person’s merit, has become appropriated power. 2.4.  Differences in Access to Power Sources The problem at the heart of this book is based on a theory that, on balance, women and POC do not have the same levels of power as men. From a power framework perspective, the obvious conclusion is a lack of resource – typically women and POC are not appointed to the roles which are accompanied by access to the seemingly limitless resources. However, this cannot be the case where women and POC do have access to comparable resources, ie they hold a CEO role. According to a resource-based understanding of power, if a person has the same access to resources as another, but one is powerful and the other is not, the difference must arise from reduced freedom to use those resources. In the context of the c-suite, the implication is that the individual with less power is subject to a greater level of scrutiny from boards, the markets and the public. There is evidence to suggest that women in the c-suite are subjected to a higher level of scrutiny52 and are in receipt of less support than men.53 Not only would this make it harder for women (and for POC to the extent that the same holds true) who hold c-suite roles than it would be for their white male counterparts, but it also acts as a disincentive to try to obtain those roles in the first place.

49 Magee and Galinsky, (n 27) 323. 50 Biggerstaff, Cicero and Puckett (n 13). 51 Ulrike Malmendier and Geoffrey Tate, ‘Superstar CEOs’ (2009) 124 The Quarterly Journal of Economics 1593. 52 Vishal K Gupta and others, ‘Do Women CEOs Face Greater Threat of Shareholder Activism Compared to Male CEOs? A Role Congruity Perspective.’ (2018) 103 Journal of Applied Psychology 228. 53 Christy Glass and Alison Cook, ‘Leading at the Top: Understanding Women’s Challenges above the Glass Ceiling’ (2016) 27 The Leadership Quarterly 51.

A Conceptual Framework for C-Suite Power  53 According to Vial, Napier and Brescoll, ‘women who have assumed leadership roles are less liked than their male counterparts and face social and economic penalties when they exercise or express their authority’.54 Such stereotypical perceptions of legitimacy are a result of social norms of behaviour and expectation. The consequence of this can mean that the constituents of power (resources or freedom) are not conferred on women even under circumstances where such conferral would be merited. Some have suggested that women adopt dominant behaviours in order to exhibit their power and authority in an effort to be more respected by subordinates.55 In the described scenario women have appropriated power through dominance. The suggestion is that the power might have been conferred if the woman, in those circumstances, was a man. In other words, the women had the competence and human capital to support a conferral of power as opposed to the appropriation of it. A different narrative to explain the difference between male and female power is that women are ‘less power orientated and less power hungry than men’.56 This is highly contentious, but even if it were true, any difference in power appetite is likely to reflect norms of society and conditioning, not necessarily a reflection of actual preference. Furthermore, framing women as less power oriented does not align with also framing them as dominant power appropriators as was referred to in the previous paragraph. To suggest that power is not conferred upon those who are not power oriented further disassociates the connection between merit and power, and implies that the typical source of power is domination. This is an unhelpful construction of power, and unrealistic, in that it does not account for non-dominant powerful people who exhibit competence and human capital. It also presents a very bleak picture of positions of power. Both the narrative that women try to appropriate power through dominance and the narrative that women are less power oriented than men are contentious, but they point to an underlying issue: access to sources of power between men and women is unequal. Supporting the idea that women have less access to sources of power is research by Bilimoria et al, which suggests that an increase in the number of women in top management ‘provides an increase in women’s representation but without the associated prestige, influence and impact’.57 In other words, even when women have achieved a spot at the very top, the power they hold is different from that of their white male counterparts. Eagly and Karau call this ‘role congruity theory’.58 Women may have command over the same resources and yet 54 Andrea C Vial, Jaime L Napier and Victoria L Brescoll, ‘A Bed of Thorns: Female Leaders and the Self-Reinforcing Cycle of Illegitimacy’ (2016) 27 The Leadership Quarterly 400, 402. 55 Ibid 6. 56 Patricia Gabaldon and others, ‘Searching for Women on Boards: An Analysis from the Supply and Demand Perspective’ (2016) 24(3) Corporate Governance: An International Review 371. 57 Deborah Dahlen Zelechowski and Diana Bilimoria, ‘Characteristics of Women and Men Corporate inside Directors in the US’ (2004) 12 Corporate Governance: An International Review 337, 341. 58 Alice H Eagly and Steven J Karau, ‘Role Congruity Theory of Prejudice toward Female Leaders’ (2002) 109 Psychological Review 573.

54  Theories of Merit and Power it is suggested they typically have less power to influence the board and decision making.59 Not only might it be harder for women to obtain conferred power, but incumbents have power to exclude others with merit from entering this sphere of employment, by virtue of their position.60 This has been described as opportunity hoarding61 and occurs when the criteria for merit are defined in terms of the meritocratic class, and is used to perpetuate their power.62 Power used in this way is strongly associated with privilege. These privileges may be, for example, a combination of the network developed during an education at elite institutions, or the privileges associated with being white and male. This is a form of cultural capital and as such can suggest that this power has been conferred. This helps to demonstrate that even when power is merit based, when the construction of merit is built upon privilege and inequality, even conferred power is highly problematic. Research indicates that POC who reach senior positions are ‘hyper aware of privilege’ and have found ways to adapt in response.63 The suggestion is that POC feel the need to adapt to a definition of merit that may be or has been disadvantageous and that does not appreciate the value of difference, just to have the chance to obtain conferred power. Given that one of the much cited benefits of diversity is a variance in viewpoint and perspective, creating an environment in which those who are different have to assimilate in order to be considered is damaging and counterproductive. 3. CONCLUSION

In this chapter, the concepts of merit and power have been considered for the purposes of setting up a framework to understand the diversity of the c-suite of the FTSE100. Merit is considered through the lens of human capital which is composed of human, social and cultural factors. By applying this framework to the characteristics of who gets appointed, an assessment can be made as to the similarities and differences of the appointees and thereby how the merit concept is being applied in practice. This will be the subject of Chapter four.

59 Morten Huse, Value-Creating Boards: Challenges for Future Practice and Research (Cambridge University Press 2018) 52. 60 Eagly and Karau (n 58). 61 Erik Olin Wright, ‘Understanding Class: Towards an Integrated Analytical Approach’ (2009) 60 New Left Review 101. 62 Ruth Sealy, ‘Changing Perceptions of Meritocracy in Senior Women’s Careers’ (2010) 25 Gender in Management: An International Journal 184. 63 Doyin Atewologun and Ruth Sealy, ‘Experiencing Privilege at Ethnic, Gender and Senior Intersections’ (2014) 29 Journal of Managerial Psychology 423, 427.

Conclusion  55 Power is considered here according to how it is obtained and its consequential relationship with merit. According to the theory developed here, there is a difference in access to power for men and women. There is an absence of literature on c-suite power in relation to POC and, as such, theory development is much more limited. Nevertheless, who has power is analysed empirically in Chapter five with related questions regarding its distribution.

56

Part II

In Practice

58

4 Diversity

I

n the UK, the largest companies by market capitalisation are those listed in the FTSE100. It is within these companies that the greatest level of diversity change on boards has occurred.1 FTSE listed companies set an example and trail blaze for smaller companies in many respects. As such, it is important to see what the FTSE100 are doing regarding their leadership diversity, partly because of the example they are setting and partly because of what the diversity of power may mean for corporate decision making. This chapter has two sections. The first section clarifies the objective and methodology of the empirical part of the diversity aspect of the study. The second section sets out the findings of the diversity study, with discussion and analysis of the results. 1.  COLLECTING DIVERSITY DATA

In this first empirical aspect of this study, the method for collecting and analysing the data relies upon the statistical data provided by FTSE100 companies regarding diversity and gender pay gap reporting. This data was manually collected from annual reports and the Gender Pay Gap website.2 The list of FTSE100 companies for each of the years studied was obtained from the London Stock Exchange FTSE100 index on or near 15 March in each respective year. In March some of the companies in the FTSE100 had not yet published their report; these companies were noted and returned to once the report had been published. Though this meant the time period for each of the reports varied, depending on the company’s accounting year, for each of 2016, 2017 and 2021 the relevant annual report was reviewed for every FTSE100 company. The reports were searched for gender statistics, the biographies of the boards of directors and the gender pay gap report. Section 414(c) of the Companies Act 2006 requires FTSE100 companies to disclose gender statistics in relation

1 Susannah Vinnicombe, Doyin Atewologun and Valentina Battista, The Female FTSE Board Report 2019: Moving beyond the numbers (Cranfield University School of Management, 2019). 2 Gov.uk, ‘Gender Pay Gap Service’, gender-pay-gap.service.gov.uk/, accessed 15 October 2022.

60  Diversity to the entire workforce, the senior management and the board. The purpose of the requirement is to reveal any disparities in the gender diversity of those who work for the business and those who control it. The requirements did not extend to data on ethnicity, but there are calls for ethnicity data to be included in annual reports in the same way in future.3 It was noticeable that substantially more companies in 2021 provided data on ethnicity than in 2016 and 2017, despite there being no requirement to do so. There are no requirements to disclose c-suite or executive director gender composition, but this data was collected by identifying each c-suite member from their biographies and assessing gender and ethnicity for the purposes of producing the binary categorisations of male or female and white or POC. In this book POC refers to any individual not classified as white. This is far from an ideal way of categorising ethnicities but the respective numbers of white people versus all other ethnicities, combined with the lack of specific data, made this the only feasible option. 1.1.  The Dataset The following data was manually collected from annual reports of every FTSE100 company in 2016, 2017 and 2021: • • • • • • • • •

Number and proportion of women in the c-suite; Number and proportion of POC in the c-suite; Number and proportion of women on the board of directors; Number and proportion of POC on the board of directors; Proportion of women in senior management; Proportion of women in the company; Industry sector; Mean and median pay gap; and Mean and median bonus gap.

As a consequence of The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (the Gender Pay Gap Regulations), companies with over 250 employees are legally obligated to report on their gender pay gap.4 The primary source of data for the gender pay gap statistics was the annual reports. However, in some cases these statistics were not provided. In such cases the Gender Pay Gap Service website was used. This involved entering the relevant company

3 Ruby McGregor Smith, ‘Race in the workplace: The McGregor-Smith Review’ (Department for Business, Energy & Industrial Strategy, 2017). 4 The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017.

Collecting Diversity Data  61 name and collecting the results. Not all companies were required to provide this information and for some the data could not be disaggregated from the group company data. Across the two years’ worth of data collected (2017 and 2021), data could be obtained for almost 75% of the companies. There was no data in 2016 as this was prior to the gender pay gap requirements coming into force. 1.2.  A Note on the Categorisation of Gender and Ethnicity It is necessary to stick to a binary gender categorisation, as the vast majority of FTSE100 companies do little to acknowledge the non-binary nature of gender. From an ethnicity perspective, a small proportion of companies provided a breakdown of different ethnicities. This information was not provided frequently enough to be able to collect any data. As such, ethnicity data needed to remain as white or POC. There is much that may be learned from an organisation being more transparent about the personal characteristics of its workforce. As an example of how transparent a company can be in terms of protected characteristics, ITV published the following data in its 2021 annual report: Figure 4.1  ITV plc diversity data 20215 UK workforce diversity data (based on disclosed population at 31 December 2021) Senior Leadership Team (SLT)1 Characteristic

Managers

All Colleagues

Target

2021

2021

2021

2022

Age 50+

42.0%

20.3%

16.6%

–

Black, Asian & Minority Ethnic

11.8%

10.5%

14.3%

15.0%

Disabled or with a long-term health condition

10.8%

9.0%

10.4%

12.0%

Female

45.6%

49.2%

52.6%

50.0%

LGB+2

4.4%

7.8%

8.2%

7.0%2

Transgender3 Professional socio-economic background4

–

–

0.3%

–

42.0%

37.9%

37.5%

–

(continued)

5 With

thanks to ITV for permission to reprint this excerpt from their 2021 Annual Report.

62  Diversity Figure 4.1  (Continued) Senior Leadership Team (SLT)1

Managers

All Colleagues

Target

2021

2021

2021

2022

Intermediate socio-economic background4

13.0%

14.2%

13.3%

–

Working class socio-economic background4

21.7%

24.1%

22.0%

–

Characteristic

1 The SLT is a defined group of 335 senior leaders within the business which includes the Management Board. For the purpose of this table, we have only included the 156 SLT members based in the UK. There is no separate target for the Management Board as the numbers are too small, however, there is an expectation that this will also be representative. 2 Our LGBT+ target combines sexual orientation and gender identity, but we measure and report these separately. Our target is based on estimated working population data in these communities in Diamond. The Fourth Cut Report, benchmarks are 6.4% LGB+ and 0.8% transgender representation. 3 We have not broken down data on transgender and non-binary staff by management level due to low numbers. 4 We have followed guidance from the Social Mobility Commission and Categorised responses based on the NS-SEC category of the main wage earner’s occupation when respondent was 14. Note: Under the Companies Act 2006, we are requested to report on the gender breakdown of our senior managers – this statutory definition is broader than our definition of members of the global SLT (a defined group of 335 senior leaders within the business). Of our global workforce of 5,487 and disclosed population (2696 male, 3258 female), 376 were senior managers (191 male, 160 female), which includes members of the SLT and directors on the Boards of undertakings of the Group (to the extent there are additional individuals), but exclude individuals who sit as directors on the Board of the Company.

As can be seen from the excerpt, ITV provides data on gender, ethnicity, age, disability, sexual orientation, gender identity and socio-economic background, going well beyond the requirements of the UK Corporate Governance Code 2018 and demonstrating genuine transparency with regard to diversity. Were this level of diversity data available across all companies, it would be much easier to identify issues such as discrimination or exclusion. At this stage, companies that provide this level of information are the exception. As enlightening as the detailed diversity information may be, it must be remembered that much of this data cannot realistically be provided in relation to the board. At least in respect of some of the variables, such as disability and gender identity, it would be difficult to reveal this information without compromising anonymity. Across the workforce, it must also be considered that the accuracy of the data will depend on the willingness of staff to be honest in completing their forms. Freedom to be honest about these personal matters will be impacted by the corporate culture.

Detail on Diversity  63 2.  DETAIL ON DIVERSITY

2.1.  In the C-Suite The pie chart below presents c-suite diversity for the FTSE100 in 2016 and 2017. Figure 4.2  Gender and ethnic distribution of the FTSE100 c-suite in 2016 and 2017 (%) 4

0

9

87 White men

White women

Women of colour

Men of colour

As shown in Figure 4.2, 87% of the c-suite were white men, 9% were white women, 4% men of colour and less than 1% women of colour.6 From an ethnicity perspective, POC account for just 4% of the total of c-suites executives in the FTSE100. There is some cause for optimism because, during the subsequent five years since the 2016 and 2017 period, the percentage of women in the c-suite has risen to 14%, an increase of 5%. Table 4.1 below sets out the proportions of men and women (irrespective of ethnicity) in the c-suite averaged over 2016 and 2017 and then compared to the same data from 2021. Table 4.1  Proportions of men and women in the c-suite in 2016–17 and 2021 Men FTSE100 c-suite

Women

2016–17

2021

2016–17

2021

90%

86%

10%

14%

6 This is broadly consistent with an FRC Report during the 2017 period. There are differences in scope between this study and the FRC Report, the later focusing on board executives as opposed to the c-suite as is the case here (Susan Vinnicombe, Elena Doldor and Ruth Sealy, Female FTSE 2018: Busy Going Nowhere with the Female Executive Pipeline (Cranfield University School of Management 2018)).

64  Diversity Although there has been some progress since 2017, the rate of change is slow. Women make up 45% of the working population in England and Wales, 1% more than men, highlighting the difference in their respective representation levels on the c-suite.7 Compared to the working population aged 25–64, men in the c-suite are overrepresented by 46% and women are underrepresented by 31%. It would be both arbitrary and essentialising to suggest that the c-suite should mirror the population more generally. However, with differences in representation that are so drastic, thought must be given to whether this is due to barriers that disadvantage women and to some degree of unearned advantage for men. The proportion of POC subdivided by gender (as set out in Table 4.2) reveals further layers to the underrepresentation. Table 4.2  Percentage of FTSE100 c-suite population that are men of colour and women of colour in 2016–17 and 2021 Men of colour 2016–17 FTSE100 c-suite

4% (16)

2021

Women of colour 2016–17

2021

4% (13) 0.3% (1) 0.5% (3)

There are considerably more POC in employment in England and Wales between ages 25–64 when compared to the c-suite employment proportions, but it is much more pronounced for women of colour than men of colour. In the 2011 census, men of colour made up 6% of the economically active population but in 2016/17 and 2021 (10 years after the census) they constituted 4% of the population of the c-suite of the FTSE100.8 In the same census, women of colour represented 5% of the economically active population in England and Wales but only between 0.3 and 0.5% of the c-suite.9 This corresponds to one woman of colour in the c-suite in 2016–17 and three in 2021. At a population level there was an increase in employment levels for POC between 2011 and 2019 but more recent statistics do not provide analysis by ethnicity10 and any employment data since 2019 is likely to have been affected by the global pandemic. The pandemic widened the gap in unemployment rates between white people and POC, with women of colour being the most negatively impacted.11 Certainly, when compared to the economically active 7 Data from Office for National Statistics, ‘Population census by economic activity, sex and age’ (2011). Statistics from 2019 show that the percentage of females over the age of 16 in the workforce is 56.9% compared to 52.7% from the same period in 2011. For males these figures are 66.4% and 64.1% respectively (Office for National Statistics, People in Work (2019)). 8 Data from Office for National Statistics, ‘Population census by economic activity, sex and age’ (2011). There has been an increase in employment levels since 2011 but latest statistics do not provide analysis by ethnicity. 9 Ibid. 10 Office for National Statistics, People in Work (2019). 11 Sussannah Irvine and others, ‘Women and the UK Economy’ (4 March 2022) House of Commons Library Briefing Paper No 6838.

Detail on Diversity  65 population more generally, women of colour are substantially underrepresented in the c-suite. At a high level, the data suggests that, proportionally, women are more underrepresented than POC. This is consistent with the views of Padavic and Reskin who, in their empirical work on occupations more generally, found that ‘there remains a great deal of sex segregation and a moderate amount of occupational race segregation’.12 However, as intersectionality scholars have suggested, it is at the point where gender and ethnicity intersect that underrepresentation is at its most extreme.13 This corroborates research indicating that it is women of colour who are most affected by unequal job opportunities.14 Overall the data suggests women of colour are at the greatest disadvantage in accessing c-suite appointments.15 Clearly there is a need to focus our attention on women and in particular women of colour when seeking to address the problem of underrepresentation in the c-suite. Taking a high level and company-centred approach, Table 4.3 sets out some of the key statistics regarding the proportion of companies within specific categories of c-suite gender and ethnic diversity across the three years studied. Table 4.3  FTSE100 c-suite diversity profile (%) % of companies with

2016

2017

2021

At least 1 man

100

100

100

At least 1 woman

22

26

35

At least 1 POC

14

12

12

Men outnumber women

97

97

94

White executives outnumber POC

99

99

96

In 2016, 78% of all FTSE100 companies had all-male c-suites. This decreased to 74% in 2017 and by 2021 the percentage of all-male c-suites was at 65%. This is encouraging and suggests that progress is being made in terms of female participation in corporate power. In terms of ethnicity the picture is unpromisingly stagnant. In 2016 86% of the FTSE100 had all-white c-suites, increasing by 2% in 2017 and that number remains the same in 2021.

12 Irene Padavic and Barbara F Reskin, Women and Men at Work (Thousand Oaks CA, Pine Forge Press 2002) 69. 13 Beth Mintz and Daniel H Krymkowski, ‘The Intersection of Race/Ethnicity and Gender in Occupational Segregation’ (2010) 40 International Journal of Sociology 31. 14 Margaret Yap and Alison M Konrad, ‘Gender and Racial Differentials in Promotions: Is there a sticky floor, a mid-level bottleneck, or a glass ceiling?’ (2009) Journal of Industrial Relations 593, 609. 15 Ibid.

66  Diversity Where women and POC are present in the c-suite they are almost always in the minority. Kingfisher plc was the only FTSE100 company in 2016–17 in which women outnumbered men in the c-suite.16 This company was no longer part of the FTSE100 by 2021. More positively, in 2021 women outnumbered men in four companies: Admiral Group, Natwest, Land Securities and Severn Trent. 2.2.  Diversity by Industry Figures 4.3 and 4.4 show the proportion of companies with women in the c-suite by industry sector in 2017 and 2021. No separate data is provided for 2016 as there was little change between 2016 and 2017. The ‘Other’ category consists of those industry sectors with fewer than five companies in the FTSE100; these were Utilities, Telecommunications, Technology, Real Estate and Oil and Gas. Figure 4.3  Proportion of companies with women in c-suite by industry 2017 Other Industrials Health Care Financials Consumer Services Consumer Goods Basic Materials 0%

10%

20%

30%

40%

50%

Companies without women

60%

70%

80%

90% 100%

Companies with women

Figure 4.4  Proportion of companies with women in c-suite by industry 2021 Other Industrials Healthcare Financials Consumer Services Consumer Goods Basic Materials 0%

10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Companies without women

Companies with women

16 In 2017 the Kingfisher plc c-suite consists of Veronique Laury (CEO), Karen Witts (CFO) and Andy Cosslett (Chairman). Kingfisher plc, Annual Report (2016).

Detail on Diversity  67 Comparing 2017 with 2021, the graphs reflect the overall increase in women in the c-suite. The biggest sector change is the increase in the proportion of women in the financial sector, with 13 out of 22 companies having women in the c-suite in 2021. The healthcare sector is also proportionally high, but as there are only five healthcare companies in the FTSE100, less can be drawn from this. In 2017 the financial sector was already at the front of the pack for women’s representation in the c-suite, together with consumer goods. One possible reason for this is the push that has been made across the financial sector to increase the number of women in senior management by the Women in Finance Charter.17 The Charter was launched in 2016 and in a recent review it was revealed that there had been a 60% increase in number of women on executive committees since the launch.18 To the extent change can be attributed to the Charter, this is a strong testimony to the benefits of industry-specific diversity drives. In light of research indicating the reputational benefits resulting from having women on boards, it is logical that prominent industries such as the consumer goods and consumer services industries should have higher proportions of women, relative to other industries.19 However, results in 2021 show that the representation of women in consumer goods fell substantially, casting doubt on links with reputational benefits or perhaps suggesting that companies are not responding to potential for reputational benefits. Although not depicted in Figure 4.4, there has been a change in industry categorisations according to the London Stock Exchange. The consumer goods sector was sub-divided in 2021 into consumer staples and consumer discretionary. Consumer staples are considered to be daily essentials. Companies in that category include Sainsbury and Unilever. In contrast, consumer discretionary comprises products which are non-essential and includes companies such as Burberry and Whitbread. Almost all of the companies with women in them were consumer discretionary companies. Only one of the seven consumer staples FTSE100 companies had women in the c-suite. Equivalent information was not available for the 2017 data. It is not clear why there might be a difference in female c-suite participation in consumer discretionary vs consumer staples. It may be a matter of path dependency in that once experience is gained in one area there is a tendency to stay within that area. Combined with the phenomenon that diversity begets diversity, this could see certain industries get ahead in diversity terms, whilst others fall behind. Unfortunately, there were too few POC in the c-suite of the FTSE100 to provide any meaningful analysis from an industry-specific perspective.

17 HM Treasury, ‘Women in Finance Charter’ (2015). 18 Yasmine Chinwala, Jennifer Barrow and Panagiotis Asimakopoulos, ‘HM Treasury Women in Finance Charter: Five Year Review’ (2021). 19 Stephen Brammer, Andrew Millington and Stephen Pavelin, ‘Corporate Reputation and Women on the Board’ (2009) 20 British Journal of Management 17, 18.

68  Diversity 2.3.  In the Workforce It is informative to look beyond the c-suite and into company diversity statistics more generally, in particular the average percentage of women in each company’s workforce, senior management, board and c-suite in 2016, 2017 and 2021. This shows increases in gender diversity at every level (except the workforce) between each of the years studied. In relation to the board figure, this is consistent with the research, which has shown a steady increase in the number of women on boards since the Davies Report.20 Table 4.4  Female participation statistics in FTSE100 by workforce element (%) Average % women 2016

2017

2021

C-suite

7.6

9.4

13.6

Board

26.5

27.6

37.4

Senior Management

23.4

29.3

31.3

Workforce

39.3

40.1

38

As Table 4.4 shows, womens’ participation has increased in the c-suite, on the board and at senior management level between 2016–17 and 2021, but there has been a fall in the proportion of women in the workforce generally. This is not a displacement of workers from the general workforce into more senior categories, as the group sizes are vastly different. From a workforce perspective, the fall in the number of female employees in 2021 may be a consequence of the pandemic and falls in employment adversely affecting women.21 The increases that have been seen at board level support the work that has been done as a result of the Davies Review, Female FTSE Leadership Report and 30% Club. Progress is particularly strong at board level, where these reports, groups and activities have been focused. Across all three study years the proportion of women in senior management has been lower than the proportion on the board. At first glance this may appear to support the argument that there are insufficient women in the pipeline to the board. On reflection, this is not the case for at least two reasons. Firstly, senior management roles are likely to be full-time, and women holding those positions will hold only one at a time. In contrast, non-executive director (‘NED’) positions are part-time, and multiple appointments can be held concurrently. Secondly, appointments to senior management will be driven by a historically

20 Female FTSE Board Report 2019: Moving beyond the numbers (n 1). 21 Billi L and others, ‘Women and Girls Left Behind: Glaring Gaps in Pandemic Responses’ (UN Women 2021).

Detail on Diversity  69 biased understanding of merit, as will be discussed in Chapter five. This doesn’t mean the pipeline of those who are able is smaller, but that the pipeline of those who are considered able is smaller. There has been little consistency in the way data provided by companies in relation to proportion of women in senior management positions is reported, therefore these statistics have limited reliability. This reliability should have changed following the implementation of the UK Corporate Governance Code 2018, which required companies to define senior managers as the first level of management below the board, plus their direct reports.22 What has happened in practice is that a number of different statistics are often provided with little explanation, with some companies taking what seems like a scattergun approach to disclosure. Given that the 2021 figure should be more consistent, the fact that the number is not dissimilar to that which was calculated in 2016–17 could mean the companies were getting the calculations broadly right in the first place or, more pessimistically, different obfuscating tactics are being utilised. At present, workforce and senior management data does not exist in relation to POC on a significant scale. It was therefore not possible to provide the same type of analysis by ethnicity. Although the UK Corporate Governance Code 2018 does include reference to ethnicity, this does not extend to any requirement to provide ethnicity composition data. Such requirements continue to refer to gender alone.23 A minority of companies voluntarily provide this information anyway. Encouragingly, this minority has been increasing so that substantially more companies were voluntarily providing this data by 2021. The fact that companies are pre-empting an ethnicity disclosure requirement goes some way to supporting the idea that the UK Corporate Governance Code 2018 is itself unnecessary as boards are voluntarily adopting norms of good practice.24 The idea that time has run out for the Code is in several respects persuasive. In relation to its diversity provisions I argue that they are actively u ­ nhelpful (see Chapter eight). However, there is a difference between pre-empting a disclosure requirement that companies think might be coming and providing that information because companies think it is the right thing to do. My concern is that companies are adopting the former approach and removing the Code without anything in its place could see a shift back to non-disclosure. 2.4. Roles A slight but welcome sense of optimism has emerged from the small increase in the number of women in the c-suite between 2016–17 and 2021. To understand 22 UK Corporate Governance Code 2018. 23 Ibid Provision 23. 24 Brian R Cheffins and Bobby V Reddy, ‘Thirty Years and Done – Time to Abolish the UK Corporate Governance Code’ (9 June 2022): https://papers.ssrn.com/abstract=4132617, accessed 1 July 2022.

70  Diversity the increase better, it is worthwhile breaking the data down further and looking at where the increases can be found between c-suite roles. Table 4.5 shows the respective proportions of men and women in each role across the periods under study. Table 4.5  Percentage of each role occupied by men and women in 2016 and 2017 compared to 2021 2016 and 2017 Male

2021

Female

Male

Female

CEO

91

9

92

8

CFO

86

14

83

17

Chair

94

6

88

12

Other

90

10

72

28

The results show that there has been little change to the number of females in the CEO role, having fallen by one. Four of the female CEOs from 2017 are still CEOs of the same companies in 2021. Two of the companies in which there were female CEOs in 2017 are no longer in the FTSE100 (GKN and Royal Mail). Those women, Moya Green (Royal Mail) and Anne Stevens (GKN) are now nonexecutive directors (easyjet and Rio Tinto for Moya Green and Anglo America for Anne Stevens). In two companies, female CEOs were replaced by male CEOs (Kingfisher and Imperial Brands). In contrast, the number of female Chairs has increased by 100% and the number of females in other executive board roles (such as chief operating officer) has increased by 180%. Nevertheless, the difference in gender representation does remain quite stark, as can be visualised in the graph in Figure 4.5. Figure 4.5  Percentage male and female by c-suite roles in 2016 and 2017 (averaged) and 2021 100 90 80 70 60 50 40 30 20 10 0

CEO

CFO

Chair

2016 and 2017 Male

2021 Male

2016 and 2017 Female

Other 2021 Female

Detail on Diversity  71 The role of ‘other board executive’ has the largest proportion of women, the role of CEO, the least. The second most common position for women in the c-suite is in the role of CFO. When this information is combined with data about the diversity of the whole board, it becomes clear that there is not just a two-speed system25 to diversity in operation, but a three-tier track. The NED track is streets ahead, followed a considerable distance behind by Chairs, CFOs and CXOs. Finally, not really moving at all, is the CEO track. There is some research into women in the CFO roles that may shed some light on why it is the most likely c-suite role in which to find women (along with the catch-all CXO). Empirical research in the US has shown that investors react positively to the appointment of a woman CFO for firms in low growth industries, and it is claimed that the cause of this is a perception that women are less overconfident than men.26 There is little evidence to support this perception. Nevertheless, as the second most common role for women in the c-suite, and considerably more common than women CEOs or Chairs, it is important to consider potential explanations. In contrast to the overconfidence explanation, I explain the popularity of this role with women on the basis of power. As a c-suite role, CFO is typically less powerful than the CEO, and on the board it is also less powerful than the Chair. Therefore, under circumstances were companies feel pressure to diversify their c-suite it is possible for incumbents to choose to do so in a way that means the majority of power is retained, ie by appointing women to CFO or ‘other board executive’ roles. White men are relatively evenly distributed between CEO, CFO and Chairman roles. The tendency to confine women to the least powerful roles in the c-suite seems to be clear. This mirrors the ‘prestige effect’ seen in the judiciary, where women and minorities are mostly found in the lower levels of the judiciary.27 Power is looked at in more detail, particularly in Chapter six. 2.5.  Female Executives In addition to the data on the company board, companies often provide biographical information on the individuals who make up their executive team, ie the full-time managers who work with the c-suite but who come below the board in the corporate hierarchy. This is not a requirement of the Code, and 36% (2016) and 23% (2017) of the companies studied did not provide this information.

25 European Women’s Lobby, ‘Women on Boards in Europe from a Snail’s Pace to a Giant Leap?’ (February 2012) www.womenlobby.org/IMG/pdf/ewl_report_women_on_boards_in_europe_27_ february-2.pdf. 26 Trang Doan and Mai Iskandar-Datta, ‘Does Gender in the C-Suite Really Matter?’ (2021) 36(1) Journal of Accounting, Auditing & Finance 81. 27 Cheryl Thomas, ‘Understanding Judicial Diversity. A Research Report for the Advisory Panel on Judicial Diversity’ (2009).

72  Diversity I gathered data from the available information on the roles assumed by women executives to see if there were any trends. The results are set out in Figure 4.6. Figure 4.6  Number of women executives by role in FTSE100 2016 COO

5 5

CEO

5

CFO Other Corporate relations Regional/sub division Legal Human Resources

2017

7 6

9 8

12 10

14 13

25 16

20 27

37

Figure 4.6 shows the types of roles women executives assume in the FTSE100. It indicates that women are most often found in Human Resource roles, followed by Legal and regional or sub-divisional roles (the latter being less well defined and can be quite diverse in scope). Year to year there has been an increase in the number of women executives in each role. The biggest increases are of 75% in regional/sub-division roles, a 37% increase in human resources roles and a 40% increase in corporate relations. This role-based aspect of the study was not repeated in 2021, as this data was available via the Green Park Report.28 The results of the Green Park Report reflect the findings to this study in 2016 and 2017, and indicate that women are still most commonly found in human resources roles, occupying 71.1% of them. Change and transformation roles were the most male dominated, and had no female representation.29 Increased female representation in executive roles may bode well for future appointments of women in the c-suite, as the executive management team is often considered to be the pool from which internal c-suite candidates are chosen. However, there is a distinct lack of women in the more strategic roles 28 Green Park, ‘Business Leaders Index 2021 FTSE 100. A Review of the Gender and Ethnocultural Diversity Composition of the UK’s Most Senior Leadership’ (10 August 2021): www.raceequalitymatters.com/green-park-business-leaders-index-2021-ftse-100/. 29 Ibid 28.

The Gender Pay Gap  73 such as Chief Operating Officer. These results suggest women are being stereotyped into roles which have a more human element. There is similarity here with the ‘caring role effect’ found in the legal profession and the judiciary, in which women are most commonly found in family law-related posts.30 It is not uncommon for women to be grouped this way. Research has found that women are more likely than men to be on public affairs committees and less likely than men to be on executive committees.31 Discussing occupations more generally, Padavic and Reskin have found that women are limited to fewer occupations than men, and those occupations conform to stereotypes of women as ‘caring, patient, nimble-fingered, skilled at household tasks and docile’.32 While none of the executive roles fit that description, there is a pattern in the employment of women at executive level that reflects a version of the caring role effect. Information on role segregation by ethnicity was not gathered in relation to POC in 2016 and 2017 because there were too few POC to draw any meaningful data from their functions. However, this research was conducted in 2021 by Green Park who found that there was no stand-out function most common to ethnic minorities but that POC were least often found in Marketing and Communication.33 3.  THE GENDER PAY GAP

3.1.  What is the Gender Pay Gap? The requirement for companies to provide data about their gender pay gap falls in line with a regulatory trend towards greater transparency in corporate governance. The idea is that providing information on the pay gap will force companies to take steps to address differences in gender pay. There has been limited research into the impact of pay gap reporting. Some research provides indications that it may be effective, given time. One study using firms in Denmark (after regulation similar to the UK’s Gender Pay Gap Regulations had come into force) showed a decrease in the gender pay gap for firms subject to the regulations, as well as an increase in the likelihood of female promotion.34 On the other hand there are those who claim that the disclosure 30 Cheryl Thomas,‘Understanding Judicial Diversity. A Research Report for the Advisory Panel on Judicial Diversity’ UCL Judicial Institute (29 June 2009) 3. 31 Peterson CA and Philpot J, ‘Women’s Roles on US Fortune 500 Boards: Director Expertise and Committee Memberships’ (2007) 72 Journal of Business Ethics 177, 177. 32 Irene Padavic and Barbara F Reskin, Women and Men at Work (Thousand Oaks CA, Pine Forge Press 2002) 71. 33 Green Park (n 28). 34 Morten Bennedsen and others, ‘Do Firms Respond to Gender Pay Gap Transparency?’ (Cambridge MA, National Bureau of Economic Research 2019) NBER Working Paper no 25435: www.nber.org/papers/w25435.pdf, accessed 28 March 2022.

74  Diversity requirements are too crude to provide useful information and instead encourage discrimination against men and resentment towards women.35 Data from the FTSE100 was gathered in the first year the Gender Pay Gap Regulations came into effect (2017) and four years later (2021) by which time teething problems had a chance of being ironed out. Table 4.6 below sets out the mean and median pay and bonus gaps for 2017 and 2021, averaged across the FTSE100. Table 4.6  Average percentage pay and bonus gaps of the FTSE100 in 2017 and 2021 FTSE100 AVERAGE

2017

2021

Mean hourly pay gap (%)

23

18

Median hourly pay gap (%)

19

16

Mean bonus gap (%)

47

36

Median bonus gap (%)

24

24

The table shows that the gender pay gap is still very much present in the FTSE100, but that it has fallen in the period between 2017 and 2021 across all measures except the median bonus gap. Despite the fall, the gender pay gap is pervasive and it persists notwithstanding the Gender Pay Gap Regulations (though these need to be given more time before we can accurately reflect on their impact). For a clearer understanding of the gender pay gap, Figures 4.7 and 4.8 look at the spread of pay gap in 2017 and 2021 respectively. Figure 4.7  Mean gender pay and bonus gap distribution in FTSE100 in 2017 mean bonus

mean pay

2

91% to 100% 0 81% to 90% 0 1

5

% difference in pay (in favour of men)

71% to 80% 0

14

61% to 70% 0 51% to 60%

10

4

41% to 50%

8

3

11

31% to 40% 7

21% to 30%

3

0% to 10% 0 –9% to –0.9% 0 –19% to –10% 00 –20% and below

17

5

11% to 20%

0

1

14

22 11

The Gender Pay Gap  75 Figure 4.8  Mean gender pay and bonus gap distribution in FTSE100 in 2021 mean bonus gap

mean hourly gap

91% to 100% 00

% difference in favour of men

81% to 90% 0 1 71% to 80% 0

5 13

61% to 70% 0 51% to 60% 0

14

41% to 50%

9

4

8 8

31% to 40% 21% to 30%

9

19

4

11% to 20%

25

0% to 10% 0 –1% to –9% –10% to –19%

–20% to –29 0 –30% and below 0 0

18 5

2 2 2 2 3

5

10

15

20

25

30

Figure 4.7 shows a substantial difference in pay between men and women in FTSE100 companies, with more than 80% of companies in 2017 paying men between 11% and 40% more than women. Figure 4.8 shows slight improvements in 2021 with 72% of companies paying 11% or more to men than they pay to women. More indicative of a slight rebalancing might be the finding that there are four companies in which the mean pay gap favours women. There were no such companies in 2017. In terms of bonuses, the picture is more extreme, with the most common band of bonus difference being 61% and 70% more for men than women in 2017. In 2021 the most common band is between 51% and 60% but there are 12 companies in which the mean bonus gap favours women. It should be noted that 2021 was an unusual year in terms of bonus pay because the effect of the pandemic meant that, for several companies, the senior executive did not receive – or waived – their bonuses. Nearly one-third of FTSE100 CEOs did not receive a bonus.36 One of the reasons was investor pressure to rein in compensation, particularly for companies that had received financial support from the government during the pandemic. As such, for the purposes of this study, bonus data for 2021 should be considered to be potentially anomalous.

35 Julian Jessop, ‘“Gender Pay Gap” Reporting Isn’t Fit for Purpose’ (Institute of Economic Affairs, April 2018): https://iea.org.uk/gender-pay-gap-reporting-isnt-fit-for-purpose/, accessed 7 October 2022. 36 ‘FTSE 100 CEO Pay Drops as Investors Flex Muscle during Pandemic’ Financial Times (22 November 2021).

76  Diversity 3.2.  Why the Gender Pay Gap? Companies have justified their pay gaps by reference to the fact that women tend to be in lower paid roles than men, without providing justification for why that might be. For example, Berkeley Group stated ‘Berkeley’s pay gap, like much of our industry, is primarily driven by the shape of our workforce with a lower proportion of women in senior, higher paid roles and more women occupying junior, lower paid roles’.37 Such statements are about as informative, from an explanatory point of view, as the idiom ‘It is what it is’. This was the essence of the argument against the gender pay gap made by Morchio and Mosser.38 Indeed, research has found the most common argument for the pay differential is that there are more men in senior positions.39 In contradiction to the ‘It is what it is’ argument about the division of labour, it is noted that there are a small number of companies in which women outnumber men in the c-suite, and yet only one of those companies (Severn Trent plc) has a bonus gap which is (marginally) in favour of women,40 and even then the salary gap continues to favour men.41 NatWest, one of only a handful of companies where women outnumber men in the c-suite, still has a very substantial gender pay gap. The annual report states the following: The mean gender pay gap for NatWest Bank is 30.1% (median: 34.2%) and the mean gender bonus gap is 26.0% (median: 12.5%). The statutory bonus gap calculated in line with regulation is the number including recognition vouchers (mean 50.5%; median 92.9%). This means that even colleagues who received a small recognition voucher – for example a £10 voucher – are included in the calculations. Most colleagues in our more junior jobs only receive fixed pay – a change made to provide more certainty over earnings; and this means that many colleagues included in the statutory bonus gap calculations only received a recognition voucher. We currently have a higher proportion of women in these roles. We therefore believe the figures excluding recognition vouchers, 26.0% (median: 12.5%), are the most accurate reflection of our gender bonus gap today.42

This is a wordier version of ‘It is what it is’, but its presence is particularly concerning given the proportion of women in typically the most highly remunerated jobs. The reality is that women are widely paid less than men. Attributing this to female dominance in more junior roles is problematic. It is not just that women are in junior roles, because women who are in the most senior roles of all are still paid less than men in similar roles. It is important to resist the temptation

37 Berkeley Group plc, Annual Report (2021) 138. 38 Morchio I and Moser C, ‘The Gender Pay Gap: Micro Sources and Macro Consequences’ Meeting Papers Society for Economic Dynamics No 143/2019. 39 Feargal McGuinness and Doug Piper, ‘The Gender Pay Gap Briefing Paper’ (2018) 4. 40 ‘Gender Pay Gap Service’: https://gender-pay-gap.service.gov.uk, accessed 2 August 2019. 41 Ibid. 42 Natwest plc, Annual Report (2021), 59.

The Gender Pay Gap  77 to accept these hollow justifications of the status quo as being just the unavoidable shape of things. The shape of things is not organic but constructed. Studies into the gender pay gap point to discriminatory practices as well as differences in female and male preferences that reflect social norms.43 That women are more likely to work part-time is an important factor. Costa Dias et al show that experience gained when working full-time leads to wage increases whereas experience working part-time does not.44 It is noted that almost half a century after the Equal Pay Act women in Britain continue to earn less than their male counterparts. The rate of convergence is slow, despite successive cohorts of women closing most of the gap in work experience and overtaking men in their academic attainment.45

The majority of the UK gender pay gap arises from within firms.46 This means that, for the main part, women are paid differently to men as a consequence of decisions made within the firms they work for, not because of the decisions they made about which jobs to take or apply for. The gender pay gap is not a consequence of the choices and attributes of different genders, but who they work for. That is why it is important to raise awareness of the wage gap within firms so that consideration can be given to what individual companies are doing about it. It should be noted that the reason for discussing he gender pay gap in the context of the c-suite is not because one or other gender is not paid enough. After all, even the person with the lowest remuneration in the c-suite of the FTSE100, is paid many multiples of the salary of the average person. A look at the pay ratios disclosed in the FTSE100 annual reports reveals gargantuan differences in pay between the top and the bottom, which are surely unjustifiable.47 The reason the gender pay gap issue is raised here is because it is indicative of the balance of power in corporations. Not only are women underrepresented, but when they are represented, they are not treated the same as men. This speaks volumes both about who holds power and about the pace of change throughout companies. There is little hope of changing the gender pay gap at the bottom of the hierarchy if it cannot be effectively addressed at the top. Some research suggests that the gender pay gap is not an issue at the c-suite level, arguing that female CEOs are paid a premium.48 This view is not supported by the findings 43 Ghazala Azmat and Barbara Petrongolo, ‘Gender and the Labor Market: What Have We Learned from Field and Lab Experiments?’ (2014) 30 Labour Economics 32. 44 Monica Costa Dias, Robert Joyce and Francesca Parodi, ‘The Gender Pay Gap in the UK: Children and Experience in Work’ (2020) 36 Oxford Review of Economic Policy 855, 879. 45 Heather Joshi and others, ‘The Gender Gap in Wages over the Life Course: Evidence from a British Cohort Born in 1958’ (2021) 28 Gender, Work & Organization 397. 46 Sarah Louise Jewell, Giovanni Razzu and Carl Singleton, ‘Who Works for Whom and the UK Gender Pay Gap’ (2020) 58 British Journal of Industrial Relations 50. 47 Hugh Collins, ‘Fat Cats, Production Networks, and the Right to Fair Pay’ (2022) 85(1) The Modern Law Review 1. 48 Aaron D Hill, Arun D Upadhyay and Rafik I Beekun, ‘Do Female and Ethnically Diverse Executives Endure Inequity in the CEO Position or Do They Benefit from Their Minority Status? An Empirical Examination’ (2015) 36 Strategic Management Journal 1115.

78  Diversity of this research and others.49 For details of c-suite remuneration see Chapters four and seven. There is another reason why we need to address the disparities at the very top of the corporate hierarchy. Research shows that having more female managers significantly helps in decreasing the gender pay gap. Firstly, simply by having more female managers, the average female wage is raised. Secondly, having female managers helps to ensure that subordinate females are paid more fairly, based on their performance.50 I would also suggest that having more women at the top of the hierarchy creates the inspiration and drive needed for other women to follow suit. It is much easier to try to do something when you can recognise yourself in those who have gone before. This is likely to be as true for gender as it is for ethnicity and even more so when the factors intersect. 3.3.  A Pinch of Salt on the Pay Gap Statistics Gender pay gap statistics are intended to indicate ‘the difference between average pay between all men and women in a defined workforce at a point in time, regardless of the nature of the work.’51 In the first year of reporting pay gaps it was evident that there were some significant reporting flaws. According to the House of Commons report: In this first year of reporting, it is clear that many organisations had difficulty in producing the figures required or, were reluctant to devote the resources to doing so. The resulting set of figures published initially was therefore inaccurate although to an unknown degree.52

The flaws were many and various. The reports made no distinction for part-time and full-time work, they did not compare types of work like-for-like53 and who should be included in the definition of ‘workforce’ was unclear.54 Most significantly, for the purposes of this research, large group companies could present their data by subsidiary company and only those subsidiaries based in the UK

49 Vishal K Gupta, Sandra C Mortal and Xiaohu Guo, ‘Revisiting the Gender Gap in CEO Compensation: Replication and Extension of Hill, Upadhyay, and Beekun’s (2015) Work on CEO Gender Pay Gap’ (2018) 39 Strategic Management Journal 2036. 50 Nikolaos Theodoropoulos, John Forth and Alex Bryson, ‘Are Women Doing It for Themselves? Gender Segregation and the Gender Wage Gap’ (September 2019) IZA Institute of Labor Economics Discussion Paper no 12657: https://ssrn.com/abstract=3468605, accessed 8 November 2022. 51 Gender Pay Gap Reporting (House of Commons Business, Energy and Industrial Strategy Committee, 2018) 6. 52 Ibid 8. 53 Josie Cox, ‘Gender Pay Gap Reporting: Government’s new rules will not tackle financial inequality, critics warn’ The Independent (5 April 2017): www.independent.co.uk/news/business/ news/gender-pay-gap-reporting-uk-government-rules-financial-inequality-critics-fawcett-societywomens-a7668581.html. 54 Gender Pay Gap Reporting (n 51) 8.

Conclusion  79 were required to provide information. There was no overall parent company headcount. This meant the gender pay gap data for some of the FTSE100 was likely to be incomplete, segmented and inaccurate. On this issue, Linklaters have reported that: at present, organisations are required to report on a single entity basis, rather than at a group level. This can lead to some inconsistencies as the gender pay gap of organisations with more complex group structures will be more difficult to ascertain.55

Some of these reporting difficulties had been resolved by 2021 but it was clear that many of the difficulties remained, such as in relation to the segregation of group companies. Given these reporting difficulties, there are likely to be inaccuracies in the data. 4. CONCLUSION

If I had to respond to the question ‘How effective were the boardroom diversity targets set by the Davies Review, Hampton-Alexander Review and Parker Review?’, I would respond that they have been very effective. Each of the targets that were set have, if not been achieved, then nearly achieved. However, such a conclusion is superficial in one very important respect – power. The various codes, targets and guidance have not made a substantial change to who holds power in the most powerful corporations in the UK. The results of this aspect of the study show that there has only been a small increase in c-suite diversity for women and hardly any for POC since the 2017 data. There has been a fall in the number of female CEOs and the gender pay gap remains unacceptable, particularly at its extremities. The unavoidable preliminary conclusion is that women and POC are making headway in the boardroom, but the c-suite is where the power is, and that looks set to remain homogenous in terms of gender for some time, and in terms of ethnicity, for even longer.

55 Written evidence from Linklaters relating to the House of Commons Committee review into gender pay gap reporting (Linklaters, 2018).

5 Merit

A

meritocrat would argue that individuals hold positions of power, such as those in the c-suite of the FTSE100, by virtue of their hard work and abilities. This principle of merit is often considered to trump concerns about diversity on the (false) basis that a person’s gender or ethnicity is unrelated to their individual merit. This view is widely held and is bolstered by the representation of merit as a core tenet of good governance in the UK Corporate Governance Code. Principle J of the UK Corporate Governance Code 2018 suggests that companies appoint to the board on the basis of merit. The majority of companies in this study specifically cite merit as the only or the dominant factor when making appointment decisions (more on this in Chapters seven and eight). It is easy enough to claim that decisions are merit based, but the making of merit-based appointments requires both a clear understanding about what merit is and a method by which it can be measured. In this chapter I look empirically at the role of merit in the c-suite appointment process. Castilla found that the characteristics of those who were ascribing the rewards mattered.1 In this context the rewards are c-suite appointments. Whether Castilla’s theory is true of the FTSE100 c-suite is one of the questions considered here. The chapter proceeds with an overview of the board appointment process and the role of executive search firms. The second and third sections discuss the merit-related data gathered for the FTSE100 c-suite and provide an analysis of the findings. 1.  THE APPOINTMENT PROCESS

The nomination committee is tasked with leading the board appointment process and its members are responsible for board recruitment.2 They are required to analyse what skills, experience, independence and knowledge the board is missing, and to prepare a briefing paper for presentation to the board.3 Research suggests that the nomination committee is subject to less scrutiny

1 Emilio J Castilla, ‘Gender, Race, and Meritocracy in Organizational Careers’ (2008) 113 American Journal of Sociology 1479. 2 UK Corporate Governance Code 2016, Provision B.2.1. 3 Ibid Provision B.2.2.

The Appointment Process  81 than either of the other two committees (audit and remuneration), although it arguably has greater impact.4 Persistent board diversity issues may be hard to resolve partly because of the importance that nominations committees place on ‘informal, one-to-one and “corridor” discussions’.5 More unofficially, the CEO will frequently have significant input into new appointments and who may succeed them in their role. This is particularly the case when the CEO has a high degree of power.6 Other than as set out at the start of this chapter, there is minimal appointments guidance provided by the Code. What there is guides boards to use executive search firms and open advertising for Chairman and non-executive appointments.7 There is nothing explicit in relation to executive appointments. The Financial Reporting Council guidance states that executive directors may be recruited externally, but companies should also develop internal talent and capability.8 A company may benefit from both types of appointment. Promotion utilises the skills, knowledge and networks that the company has helped to form, whereas external appointments bring in new perspectives, fresh knowledge and untapped networks. Executive search firms are significantly involved with both internal and external appointments. Transparency in the appointment process (as required by the Code9) is often lacking, particularly with CEOs. A CEO appointment is necessarily highly confidential for both parties because candidates are likely to be serving in other companies and would not want to alert them of their job search until their position is secure. Public awareness of a candidate being ‘in the running’ for a prominent role may not only affect a person’s professional image from a commitment standpoint, but it can also be very damaging if they are not chosen. These factors can affect the share price of all companies involved. While the need for secrecy is understandable, one consequence is a lack of empirical academic research into the process.10 One concern is that with secrecy comes a lack of formality, and with a lack of formality there is increased potential for biased decision making. Appointments can be made from internal or external candidates. US research suggests that the external process for finding a new CEO is typically used in response to a company crisis.11 In such circumstances the perception may be that internal candidates are insufficient to effect the change necessary for the 4 ICSA The Governance Institute, The Nomination Committee – coming out of the shadows (2016). 5 Ibid 8. 6 Ibid 185. More on power in Chapter 6 of this book. 7 The UK Corporate Governance Code 2018, Provision 20. 8 Financial Reporting Council, Guidance on Board Effectiveness (2018). 9 The UK Corporate Governance Code 2018, Principle J. 10 Terrance W Fitzsimmons, Victor J Callan and Neil Paulsen, ‘Gender Disparity in the C-suite: Do male and female CEOs differ in how they reached the top?’ (2014) 25 The Leadership Quarterly 2453. 11 Rakesh Khurana, Searching for a Corporate Savior (Princeton NJ, Princeton University Press 2011) xi.

82  Merit company. As Lou Gerstner, former CEO of IBM said ‘you don’t see many examples of internal candidates getting to the top of the system and then laying waste to the existing culture’,12 which may be what is expected or desired by the shareholders in a company crisis scenario. Appointing externally is an important decision and often sends a clear message that the board wants to move away from the strategic direction of the outgoing CEO.13 According to Khurana, the choice of selecting an external candidate typically follows a script that begins with a decline in performance, the forcing out of the incumbent CEO, followed by an external search for a ‘saviour’.14 This view is supported by US research which robustly demonstrates that poor company performance is an antecedent to CEO departure.15 There is a typical process for external appointments.16 It begins by establishing the relationship between the company and executive search firm. For a CEO appointment this is likely to involve discussion with all the board members to determine what is required and desirable and these criteria are passed to the executive search firm. According to Khurana, the specifications provided by boards are typically a rehash of what society perceives makes a good CEO, focusing largely on personal traits and with little to suggest proper consideration of the needs and requirements of the company.17 Armed with these specifications, the executive search firms narrow down a pool of candidates, some of which they will select for interview. There is no set procedure or interview standard. Interviews may involve ‘granular’ scoring of the candidate along pre-ordained criteria developed by the executive search firm, followed by extensive psychometric testing, for example. In contrast, other firms may use a more intuitive system, allowing greater flexibility for discussion. The process of board appointments is purposefully flexible, to allow room for corporate decision making in these key decisions. However, this flexibility does make it difficult to control for bias, subconscious or otherwise.18 1.1.  Executive Search Firms For potential FTSE100 executives or board members, executive search firms are likely to be highly instrumental. Doldor et al classify executive search firms as ‘accidental activists’ in the boardroom diversity discourse, labelling their 12 Ibid 65. 13 Finkelstein and others (n 72) 188. 14 Khurana (n 11) 20. 15 Finkelstein and others (n 72) 168. 16 Janne Tienari and others, ‘And then there are none: on the exclusion of women in processes of executive search’ (2013) 28 Gender in Management: An International Journal 43, 49. 17 Khurana (n 11) 99. 18 For a discussion of the heuristics of appointment decisions, see Eleanore Hickman, ‘Boardroom Gender Diversity: A Behavioural Economics Analysis’ (2014) 14 Journal of Corporate Law Studies 385.

The Appointment Process  83 commitment to change as ‘precarious and opportunistic’.19 Since 2013, there has been a voluntary code of conduct for executive search firms, which considers diversity and has been signed by the vast majority of them.20 This voluntary code includes a recommendation to provide at least 40% (updated in 2021 from 30%) female candidates as well as ethnic diversity on longlists, and it suggests that training on unconscious bias be arranged.21 What is problematic about the executive search firm voluntary code is that it contains a lot of guidance that is either vague or for which there is no means of establishing compliance. For example, it is hard to see how the goal that the executive search firm will ‘explore with the client if recruiting women and/or ethnically diverse individuals is a priority’ can amount to more than lip service.22 Similarly, the reference to ‘intrinsic personal qualities’ of candidates is hard to mobilise, because of its lack of clear meaning.23 Executive search firms have been shown to treat men and women differently, with mothers receiving fewer recommendations than non-mothers or fathers24 and a preference for women with accounting qualifications where no such preference exists for men.25 Although executive search firms need to be considered an intrinsic part of the external board appointments procedure, caution should be exercised before assuming that the voluntary code has had any tangible beneficial effect on diversity. With internal candidates, executive search firms get involved early on to help the company formulate an internal succession and development plan.26 By appointing internally, companies avoid the transition risk present when appointing externally. Consequently, an external appointment would need to be considered significantly more desirable than an internal candidate to overcome this risk.27 It is important that the company be perceived to be open to internal hires because the knowledge that there is potential for promotion has been shown to be an excellent incentive for potential candidates to remain invested in the company and increase their firm-specific skills.28

19 Elena Doldor, Ruth Sealy and Susan Vinnicombe, ‘Accidental Activists: Headhunters as marginal diversity actors in institutional change towards more women on boards’ (2016) 26 Human Resource Management Journal 285, 298. 20 ‘Women on boards: executive search firms signed up to the code of conduct’: www.gov.uk/ government/publications/women-on-boards-executive-search-firms-signed-up-to-the-code-ofconduct, accessed 27 March 2017. 21 The Standard Voluntary Code of Conduct for Executive Search Firms, 2021. 22 Ibid Goal 3. 23 Doldor and others (n 19) 295. 24 Hazel Mclaughlin and others, ‘Women in power: Contributing factors that impact on women in organisations and policitcs; psychological research and best practice’ (2018) 47 Organizational Dynamics 189, 192. 25 Ibid. 26 Meeting between the author and Sarah Galloway at Russell Reynolds on 13 August 2018. 27 Meetings between the author and Susanne Thorning-Lund at Odgers Berntsen on 20 August 2018 and between the author and Sarah Galloway at Russell Reynolds on 13 August 2018. 28 Shawn Mobbs and Charu G Raheja, ‘Internal Managerial Promotions: Insider incentives and CEO succession’ (2012) 18 Journal of Corporate Finance 1337, 1338.

84  Merit When making external appointments, companies must overcome the information deficit that each party has about the other. Appointments made from within the company benefit from a reduced information deficit. Having already been an employee, it is highly likely that both the company and the candidate know more about each other than would be the case with an external candidate. Economically it may be prudent to hire a candidate from within because they may not have as strong a bargaining position as external candidates when negotiating compensation packages or other demands. In circumstances where the CEO or other c-suite members are moving on voluntarily, and there is no particular market desire for a turnaround or pre-succession scandals, internal candidates are the obvious answer.29 In the UK the appointment of executive directors is usually conducted via the internal route (in contrast with NEDs).30 US research suggests that there is a move towards more external CEO appointments.31 One of the questions explored by this study is whether there is a similar trend in the UK and whether this has any relevance for boardroom diversity. One theory is that women are more likely to access the c-suite via the external route.32 If that is the case, it would suggest that executive search firms have more effective systems in place to bring diverse candidates forward than when involved with the internal route. The alternative theory is that women and POC enter more often via the internal route because, once known to the board, they may be judged less by stereotypes and more by their personal attributes. 1.2.  Internal Recruitment Methods There are two principal methods of internal recruitment. Firstly, there is Rosen and Lazear’s ‘executive tournament method, whereby the board chooses between comparable candidates on the basis of performance and effort, with the winner gaining the coveted position’.33 Alternatively, c-suite succession may take the form of ‘heir selection’, where one individual is selected specifically and groomed for the role, such as when Microsoft groomed Steve Balmer for two years before he took over from Bill Gates.34 Empirical research claims that the selection process for choosing an internal candidate will often depend on how much the company is reliant upon company-specific skills.35 Companies

29 Finkelstein and others (n 72) 187. 30 Ibid 17. 31 Khurana (n 11) 49. 32 Fitzsimmons and others (n 95) 18. 33 Nina Smith, Valdemar Smith and Mette Verner, ‘Why Are So Few Females Promoted into CEO and Vice President Positions? Danish empirical evidence, 1997–2007’ (2013) 66 Industrial & Labor Relations Review 380, 387. 34 Mobbs and Raheja (n 28) 1337. 35 Ibid 1346.

The Appointment Process  85 with high requirements for firm-specific knowledge are typically more suited to the heir selection route, partly because there are fewer eligible candidates but also because the transition involves significant investment in the individual. In such firms, it may be less likely for women to succeed because research has suggested women are less likely to be trained in firm-specific skills than men.36 Where the company requires more generalised skills, the tournament method is better suited to them because there are more potential candidates. Women may have a greater likelihood of success in such circumstances. The present study looked at the entrance route to the c-suite by gender and ethnicity in 2016 and 2017 and found no substantial difference from a gender perspective. In terms of ethnicity, a greater portion of POC gained appointments via the internal route, but given the number of POC in the study, little can be concluded from this. One notable pattern that emerged was that irrespective of gender, the most common entry route for Chairs is the external one. This may reflect the role of the Chairman to reassure stakeholders about the state of the company, and this may relate to why the proportion of external appointments is higher for male Chairmen than for female Chairmen. Where a company is wishing to comfort its stakeholders, the perception may be that it is easier to do this with high-profile individuals with considerable social capital. Earlier research by Doldor et al,37 found that the entry route into the c-suite was relatively evenly split between the internal and external routes. This is consistent across genders and corresponds to the claim that there has been a shift in recent years towards more external hiring.38 When considered as a whole, Fitzsimmons et al’s theory – that women were more likely than men to gain entry via the external route – is not supported.39 Similarly, the research conducted here does not support the theory that internal pathways are more common for women because they allow the individual to become known and evaluated on their own merits instead of on stereotypes.40 Though there does not appear to be a difference in the type of route most open to women and POC, the concept of merit is applicable to both. As such, a closer look at what merit means in practice is necessary to understand the appointment process and whether it has a differential impact on women and POC. 36 Margarita Estévez-Abe, ‘Gender Bias in Skills and Social Policies: The varieties of capitalism perspective on sex segregation’ (2005) 12 Social Politics: International Studies in Gender, State & Society 180. 37 Elena Doldor, Ruth Sealy and Susan Vinnicombe, ‘Accidental Activists: Headhunters as marginal diversity actors in institutional change towards more women on boards’ (2016) 26 Human Resource Management Journal 285. 38 Discussions between the author and FTSE executive recruitment consultants Susanne ThorningLund at Odgers Berntsen on 20 August 2018 and Sarah Galloway at Russell Reynolds on 13 August 2018. 39 Terrance W Fitzsimmons, Victor J Callan and Neil Paulsen, ‘Gender Disparity in the C-suite: Do male and female CEOs differ in how they reached the top?’ (2014) 25 The Leadership Quarterly 245. 40 Andrea C Vial, Jaime L Napier and Victoria L Brescoll, ‘A Bed of Thorns: Female leaders and the self-reinforcing cycle of illegitimacy’ (2016) 27 The Leadership Quarterly 400.

86  Merit 2.  THE MERIT STUDY

2.1. Sources For each individual in the c-suite of the FTSE100 in 2016 and in 2017, data was gathered to represent their merit along human, social and cultural capital lines. Companies in the FTSE100 have boards of typically 8–10 members, the majority of which are NEDs. Typically, there will be three members of the c-suite (ie Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Chairman). There are occasionally one or two other board executives, referred to here as CXO. For the FTSE100 this presented a population of 392 people across the two years, all of whom were included in the study. Occasionally, more than one individual occupied a single role jointly. In such cases, both individuals are included. In a small number of companies there was a non-standard board set up, such as Scottish Mortgage, which operates as a Trust and had no executives in 2021. The constituents of the FTSE100 and their c-suites fluctuate year on year. Companies fall in and out of the FTSE100, directors leave and retire, and new ones are appointed. In order to avoid confusion, for the purposes of this study the annual reports dictated which directors were in the study each year. The official list on the London Stock Exchange determined which companies were included in the index. To obtain the human, social and cultural capital data three categories of source were used: primary (externally verified); primary (self-reported); and secondary. Primary-externally verified sources were those compiled by third parties who have a vested interest in the accuracy of the data, and which are widely relied upon. Primary-self-reported sources are those which provide information directly from the individual in question. Secondary sources are indirect sources which are less reliable and ideally require corroboration; these were used sparingly, with corroboration where possible, and only when there were gaps in the data. Gender information was also gathered using a binary categorisation based on photographs, pronouns, and given names.41 As mentioned in Chapter two, this was necessary because, although there is increasing formal recognition that gender is not binary, that recognition has not yet spread into annual reports on a wide scale. There is evidence that the change is beginning though, for example, Auto Trader Annual Report 2021 reported on the number of male, female and non-binary/other members of its staff.42 Ethnicity data was less available than gender data. The photographs of the c-suite members that are provided in the annual reports and on corporate

41 It is noted that there may be some inaccuracy here based on the inability to account for how people in the study identify. 42 Auto Trader Group plc, Annual Report (2021) 49.

The Merit Study  87 websites helped with identification of ethnicity but only at a very general level. The difficulty of finding specific and accurate information, combined with the very small numbers of POC, led to the binary categorisation of White or POC. Given the small number of individuals involved, this level of detail is thought sufficient. Table 5.1 below lists the main sources of data, by category. Table 5.1  Sources of director data categorised by reliability Data source type

Source

Primary – Annual reports Externally verified Corporate websites London Stock Exchange

Reliability Data obtained from these sources provided a high level of certainty. Annual reports are necessarily accurate to a high degree because of legal disclosure and accuracy requirements. They are externally verified by auditors.

Companies House The London Stock Exchange must also ensure their information is accurate and they update their company information on a monthly basis. Primary – Self-reported

Who’s Who LinkedIn

Who’s Who publish data collected directly from the individuals it features. LinkedIn provides data about individuals that the individuals choose to publicly disclose through the LinkedIn website.

Secondary

Media reports43

Media reports are indirect because they provide information through a secondary source. These sources were used only to fill gaps in the data that could not be filled via the primary route, and were supported by more than one secondary source where possible.

Table 5.2 provides a list of the variables considered for each company and each director, together with the source and the source type. Where relevant a percentage is provided indicating the extent to which the data for that variable is complete. For example, for the first item, company name, the data is 100% complete because names were obtained for all the companies in the table. The last two columns provide detail on the gender aspects of the study, so that the extent to which the data is complete for males and for females is clear. In some ways this in itself is informative. There is little difference in completeness of data between genders except when it comes to university institution, which is different by 14%, with women having the most complete data. This may be linked with a need for women to be more upfront about their credentials in order to be perceived as legitimate. 43 Including; The Times, The Financial Times, The Wall Street Journal, The Telegraph, The Irish Post, Bloomberg, Reuters, The Guardian, thisismoney.com, and The Irish Times.

% total % men % women Source Type complete complete complete Company website Externally verified 100 100 100 Company website Externally verified 100 100 100 Company website Externally verified 100 100 100 Companies House Externally verified 98 98 100 Company website picture/ media search Secondary 100 100 100 Annual report or Companies House Externally verified 100 100 100 Company website Externally verified 100 100 100 Company website Externally verified 100 100 100 Company website Externally verified 100 100 100 Company website Externally verified 100 100 100 Company website/ LinkedIn/ Who’s Who/ Bloomberg Direct 80 78 92 Company website/ LinkedIn/ Who’s Who/ Bloomberg Direct 90 91 89 LinkedIn/ Who’s Who/ Media search Self-reported or 20 20 19 Secondary Company website Externally verified 100 100 100 Company website Externally verified 100 100 100 Annual report Externally verified 96 96 92 Annual report Externally verified 88 87 95 Company website Externally verified Unclear44 Unclear Unclear Data source

44 It is unclear how complete the data collected in relation to non-profit positions is because there is no requirement for directors to disclose it. Where no nonprofit positions are disclosed it may be that the director has none or that they do but have not disclosed them.

Other current board roles Historic board roles Remuneration Vested Shareholding Non-profit boards/ senior positions

Variable Company name Director name Gender Nationality Ethnicity Age Honours Job title Internal/external hire Duration of service University institution Higher education attainments Schooling

Table 5.2  FTSE100 Director data variables

88  Merit

The Merit Study  89 2.2.  Human Capital 2.2.1.  Education Merit All higher education and professional qualifications for the individuals in the study in 2016 and 2017 were noted. Each individual was given an education merit score which was coded as an ordinal variable and calculated by awarding one point for each Bachelor and Master’s degree, two points for every PhD, MBA or professional qualification and three points for a professorship. Training programmes and other forms of semi-formal education not internationally recognised or certified were not included.45 The scores were added up to produce a total education merit score for each individual. This approach was developed to enable better comparison of the backgrounds of the c-suite sample. For this aspect of the study, no adjustments were made on the basis of the institutions from which the qualifications were obtained.46 The total scores were calculated, and the results are set out in Figure 5.1. Figure 5.1  Percentage of each gender according to education merit score men

women 45 40

29 24 13 12

12 7

4

6

7

0 0

1

2

3

4

5

merit score

The results showed that a greater proportion of women have an education merit score of three and above, whereas a larger proportion of men have an education merit score of 0–2. There are no women with an education score of zero whereas 4% of men have such a score. Many of the men with a score of zero will be 45 For example, a number of individuals listed ‘senior executive training programme’ on their biography. Such training may be firm-specific and there is no indication of wider recognition. This form of training is assumed to be encompassed within what is expected of a role at this level. 46 University institution, considered in relation to prestige power, is discussed at Chapter 4. However, it is acknowledged that the institution relates to much more than just privilege and there will be a difference in educational attainment according to the institution from which the qualification was obtained. However, without much more information such as subjects taken, university speciality, grades obtained and teaching, it was felt an attenuation of qualification scores according to institution could not be effectively achieved here.

90  Merit founders or owners but this doesn’t account for all 4%. The data suggests that on average women are at least as qualified as, and often more qualified than their male counterparts. It echoes the fact that women have been outperforming men in higher education for the last two decades.47 It is supported by US research examining Fortune 500 companies which concluded that ‘these females are as highly qualified as their male counterparts’.48 It runs counter to any tokenism arguments that have been used to justify lack of diversity. It should be acknowledged that diversity in education is to be welcomed, but it should not be the case that latitude, when it comes to educational background, is only afforded to certain categories of people. Figure 5.2  Percentage of each ethnicity according to education merit score white

BAME 53

33 24 18 11 6

3

7

6

0 0

6

0 1

2

3

4

5

Figure 5.2 shows education merit scores from an ethnicity perspective. It shows a notable increase in the proportion of POC with a score of three than for white people. White people are proportionally more likely than POC to have a score of 0–2. Just as was the case in relation to much of the diversity data in Chapter two, little can be drawn from this due to the small number of POC in the study. Broadly, the findings here support US research into gender and ethnicity gaps in employment which concluded that ‘white men earn a higher premium for being male than other men, and, simultaneously, earn a higher premium for their whiteness than women’.49 In Figure 5.3 the education merit score has been broken down by role to see if there are any patterns as to where the education merit lies. 47 Alex Bryson and others, ‘A Short History of the Gender Wage Gap in Britain’ (2020) 36 Oxford Review of Economic Policy 836, 840. 48 Craig A Peterson and James Philpot, ‘Women’s roles on US Fortune 500 boards: Director expertise and committee memberships’ (2007) 72 Journal of Business Ethics 177, 193. 49 Beth Mintz and Daniel H Krymkowski, ‘The Intersection of Race/Ethnicity and Gender in Occupational Segregation: Changes over Time in the Contemporary United States’ (2010) 40 International Journal of Sociology 31, 52.

The Merit Study  91 Figure 5.3  Percentage of each merit score by role 0–1 10

18

37

3

4+ 14

31 60

17

36

2

21

29

12 21

7

43

29

14 CEO

CFO

Chairman

CXO

Figure 5.3 suggests that Chairmen have the lowest education merit scores amongst the key roles, followed by CEOs. The low score for Chairmen may reflect the older age of this group and the increased pressure for educational attainment over time.50 This phenomenon has been described as ‘qualification inflation’.51 The low education merit scores in respect of CEOs is harder to explain, but the fact that the two most high power jobs have lower education merit scores supports the idea advanced in this book that power and merit are not necessarily related. For CFOs, qualifications are more common. Over 75% of CFO’s have an education merit score of three or above. Although not a requirement, CFOs are expected to have finance and accounting qualifications as a reflection of their finance related role. Executive Chairmen are not included in Figure 5.3 because their total number in the FTSE100 during the time period of the study was small, but they had the largest proportion of low education merit scores, with 75% having a score of zero or one. 2.2.2.  Education – Subject Choice Research has shown an 11% increase in the proportion of directors (not just CFOs) with finance backgrounds since 1996, and this is thought to represent an unwelcome step backwards in diversity of background.52 Training in finance will 50 Department for Education, ‘Working Futures 2017–2027: Long-Run Labour Market and Skills Projections for the UK – Main Report’ (2020). 51 Nick Morrison, ‘You’ll Need More and Better Qualifications to Get a Job in 2027’ Forbes (11 February 2020). 52 ICSA The Governance Institute, A View at the Top: Boardroom trends in Britain’s Top 100 Companies (July 2019): www.cgi.org.uk/knowledge/resources/a-view-at-the-top-boardroom-trendsin-britains-top-100-companies, 19.

92  Merit suit and attract a certain type of thinker and, if diversity of thought is a key objective, a concentration of finance professionals is unlikely to help achieve this. Figure 5.4 details the subject choices for the highest educational attainment of each individual in the sample, where this information was available. It sets out the percentages of each gender and ethnicity grouping by each subject area. Figure 5.4  Percentage of gender and ethnicity by subject choice men

women

white

POC

54

38 33

32 27

24

27

23

21

14 14 14 8

5

9

7 0

business

social science

science

arts

3

8 8

engineering

7

6 0 other

6 0

5

8

0 none

Business-related subjects are the most common for each category of individual. Social sciences are the second most common for all but the POC in the study, whose second most common subject is science. The percentage distribution is remarkably similar for both genders across most subjects except that the proportion of women with arts qualifications is considerably higher than for men. In contrast, men are much more likely to hold engineering or other qualifications, as well as to hold none at all. Whilst there is some diversity in the background subject choices, the data suggests there is less diversity for women and POC, none of whom have ‘other’ degrees. This is likely to be a consequence of the smaller numbers of both these groups when compared to white men. What is clear is that the largest majorities for subject choice across each group are in business-related subjects. This reflects the numbers of c-suite members who complete a postgraduate MBA. This is understandable, but it may also serve to narrow the diversity of thought that companies are describing a preference for. 2.2.3.  Experience Merit Biographies of board members on the annual report typically set out previous board experience. For each individual in the study in 2016 and 2017 this information was collected and the most recent experience was grouped according to the following categories: FTSE100, FTSE350, Fortune 500, other international

The Merit Study  93 main stock market or none of the above. Figure 5.5 sets out the previous board experience of c-suite members by gender. Figure 5.5  Percentage of gender with different categories of board experience prior to current role men

women 51 43

35 27 10 FTSE100

14 5

FTSE350

5

6

Fortune 500

3

Other international stock market

None

The data shows 7% more women c-suite members have FTSE100 experience than men. Women also have proportionally more FTSE350 experience. In contrast, 8% more men than women have no prior board experience in any of these categories. Looking at the data from an ethnicity perspective, Figure 5.6 shows that a higher proportion of white c-suite members have FTSE100, FTSE350 or other international stock market experience than POC, whereas there are proportionally more POC than white c-suite members with Fortune 500 experience. The most substantial difference is in relation to those in these categories with no prior board experience, of whom there are 20% more POC than white people. Given the historic lack of POC in the boardroom this is unsurprising, as there are fewer individuals able to gain that type of experience. Again, the paucity of POC in the sample means little can be concluded from this. Figure 5.6  Percentage of ethnicity with different categories of board experience prior to current role White

POC 70

50

28 12

FTSE100

10

6

FTSE350

12 4 Fortune 500

6

0

Other international stock market

None

94  Merit 2.2.4.  Professional Merit Professional education was coded separately from more general higher education. Fields of study were categorised into one of the following groups: accounting, legal, engineering and other, none, and unknown. Figure 5.7 below shows the number of directors holding the most common types of professional qualifications. Figure 5.7  Percentage of each gender by professional qualifications men 55

women

51 43 32

11 3 none

accounting

other

3

3

unknown

The majority (55%) of c-suite members have no professional qualifications. There is little gender difference, with 51% of women having no professional qualifications compared to 55% of men. The most common type of qualification is an accounting qualification. This is unsurprising given the relevance of this knowledge to the role of the CFO and it also ties in with what is seen in the subject merit analysis. Given that there is a higher proportion of women CFOs than male CFOs, it is also unsurprising that a larger proportion (43%) of women have accounting qualifications than men (31%). The data shows it is less common for women c-suite members to hold professional qualifications that are classified as ‘Other’ than it is for men. Only one woman holds a qualification in something other than accounting whereas men hold engineering, legal, actuarial, surveying and a number of other professional qualifications. This is probably a consequence of there being many more men in the study than women. However it may also be indicative of the trend already described whereby women are less likely to deviate from the norm than are men. This may be linked to their already being subconsciously considered as deviating from the norm in relation to their gender. Figure 5.8 below sets out the same information about professional qualifications but from the perspective of ethnicity.

The Merit Study  95 Figure 5.8  Percentage of each ethnicity by professional qualifications POC

White

71

54

33 24 10

6

0 none

accounting

other

3

unknown

Figure 5.8 shows that there are more POC with no professional qualifications than white individuals, with about 10% fewer POC holding accounting or other qualifications respectively. Those are largely constituted of founder c-suite members, of whom POC have a disproportionately high number. There are no women founding c-suite members, but 12% of POC are founder owners and 3% of men are. This may be because they are more likely to obtain c-suite roles if they create them themselves. There are no POC holding ‘other’ qualifications. Just as in relation to women, POC appear less likely than white men to deviate from the merit norm. 2.2.5.  Human Capital Summary Figure 5.9 shows a graphical summary of the human capital merit factors, split by proportions of gender for which each factor is present. Figure 5.9  Proportions of key professional background factors by gender attending at least one elite institution hold at least one degree plus professional qualification hold MBA FTSE100 experience FTSE350 experience 0

10

20

30 40 50 women men

60

70

96  Merit When looking at each factor in isolation one might be forgiven for thinking that the relatively small gender differences could be dismissed as coincidence. However, when you look at the collection of human capital factors together, as displayed in Figure 5.9, it is clear that women are consistently scoring substantially higher than men in all measures of merit from a human capital perspective. The implication is that women have to demonstrate more merit than their male counterparts before being admitted into the c-suite. It is harder to draw conclusions from an ethnicity perspective due to lack of data. 2.3.  Social Capital 2.3.1.  University Institution Attended University institution can be an indicator of the networks to which a person has been exposed. There is an abundance of research linking elite education and social class.53 Elite institutions are often seen to feed high-powered and wellpaid jobs.54 From 2015–2017 just eight schools (all private) in the UK had as many students going to Oxford University and the University of Cambridge (together ‘Oxbridge’) as three-quarters of the rest of UK schools.55 University institution is therefore likely to play a substantial role in the formation of a person’s social capital. In order to establish university institution attendance as an indicator of social capital it is necessary to consider the ranking of each institution. To do this, data was obtained from well-known national and global university and business school ranking publications.56 What the data shows is that there is a pattern in the concentration of elite universities but also that both elite and nonelite universities are often grouped together. The most commonly attended universities are unsurprising. Oxbridge are at the top, reflecting their position at the top of national and global university rankings, Harvard is third most common in c-suite members and is ranked 6th in the world and INSEAD, a business school that is ranked third globally

53 James D Westphal and Ithai Stern, ‘The Other Pathway to the Boardroom: Interpersonal influence behavior as a substitute for elite credentials and majority status in obtaining board appointments’ (2006) 51 Administrative Science Quarterly 169, 170; Mairi Maclean, Charles Harvey and Jon Press, Business Elites and Corporate Governance in France and the UK (Basingstoke, Palgrave Macmillan 2006) 39. 54 Maclean and others (n 53) 38. 55 The Sutton Trust, Access To Advantage (7 December 2018): www.suttontrust.com/our-research/ access-to-advantage-university-admissions. See Sean Coughland, ‘Oxbridge “Over-recruits from eight schools”’ (7 December 2018): www.bbc.co.uk/news/education-46470838. 56 ‘Times Higher Education World University Ranking’ (2018) Times Higher Education: www. timeshighereducation.com/world-university-rankings/2018/world-ranking, accessed 5 November 2022, The Financial Times, ‘Global Business School Rankings’ (2018): www.rankings.ft.com/ rankings/2808/global-mba-ranking-2018.

The Merit Study  97 for its MBA was fourth most common among c-suite members. Slightly more surprising is that the fifth most common university attended was The University of Manchester, which is ranked 54th in the world.57 Looking specifically at Oxbridge from the perspective of gender revealed that 30% of the women in the study went to Oxbridge universities compared to 15% of the men. On the wider board, the proportion of women with an Oxbridge background is 11%.58 To take this analysis further, I categorised universities according to their status as elite or non-elite. By combining the 2018 Times Higher Education UK Top 10, World top 20 and the Financial Times World Business School rankings top 10, a list of 29 institutions were categorised as Elite. These were Oxford University, University of Cambridge, Imperial University, University College London, London School of Economics, University of Edinburgh, Kings College London, Manchester University, Bristol University, Glasgow University, California Institute of Technology, Stanford University, Massachusetts Institute of Technology, Harvard, Princeton, University of Chicago, ETH Zurich, University of Pennsylvania, Yale, Johns Hopkins, University of Colombia, University of California LA, Duke, University of California Berkeley, Cornell, Northwestern, INSEAD, Wharton, and London Business School. All other universities were categorised as non-elite. Each individual in the study was scored according to each institution they attended. Elite universities were given twice the score of non-elite universities. Where multiple universities were attended, these scores were added together for each individual to create their university institution score. The findings are set out in Figure 5.10. Figure 5.10  Attendance at elite institutions by gender men

women

percentage of total gender

43

32

35 31 24

5

4 0

no formal higher education

higher education at non- higher education at 1 elite higher education at 2 or elite institution institution more elite institutions

57 ‘Times Higher Education World University Ranking’ (n 56). 58 Susan Vinnicombe, Doyin Atewologun and Valentina Battista, The Female FTSE Board Report 2019: Moving beyond the Numbers (Cranfield University School of Management 2019) 25.

98  Merit The results show that while 5% of men in the c-suite have attended no formal higher education institution, there are no women without formal higher education. Also, most c-suite men have a graduate degree from a non-elite institution, whereas the majority of women c-suite members have a graduate and postgraduate degree from an elite institution. This suggests that women must demonstrate a higher level of social capital in order to be accepted onto the board. It also suggests that where an individual differs from the norm in respect of gender or ethnicity the individual needs to either be the same in other characteristics or better. To put it another way, they are allowed one deviation. Figure 5.11  Attendance at elite institution by ethnicity white 42

BAME

41

41

31

4

7

6

0 no formal higher education higher education at nonelite institution

higher education at 1 elite institution

higher education at 2 or more elite institutions

From an ethnicity perspective (see Figure 5.11), there are no POC c-suite members with attendance at two or more elite institutions but, proportionally, there are more POC educated at one elite institution than white individuals. This is despite the over-representation of POC relative to white men, in founderowner roles which are not associated with high education merit scores. The overall suggestion is that, for those who don’t build their own route into the c-suite by founding their own company, POC are less likely to deviate below a certain standard than white men. The dominance of certain elite institutions may relate to the ‘continuing significance for corporate firms and their clients of the class cachet conferred by Oxbridge and elite public schools’.59 From an ethnicity perspective, 9% of the POC in the study attended Oxbridge, compared to 17% of white individuals.

59 Hilary Sommerland, ‘The Social Magic of Merit: Diversity, Equity, and Inclusion in the English and Welsh Legal Profession’ (2014) 83 Fordham Law Review 2325, 2325.

The Merit Study  99 Considering the historic disadvantage faced by POC in gaining places at these universities, this is unsurprising.60 Efforts to increase the diversity at a university level may in time impact the level of diversity in the c-suite. However, as this is still a work in progress at Higher Education level, waiting for change to trickle up would take too long. When the historical university admission disadvantage is considered alongside the date gathered in this study, it points to a double disadvantage for POC. Firstly, in order to obtain appointments it is necessary for POC to have more social capital than white people; and secondly, at an educational level, that social capital is harder for them to obtain. 2.3.2.  External Appointments External appointments are a source of social capital as they provide an opportunity to work and build relationships with people in positions of power elsewhere. There are limitations on the number of external appointments acceptable because, although social capital is important, the ability to commit enough time to each role is a necessary requirement for doing a role well. Paragraph 2.15 of the UK Corporate Governance Code 2018 states that ‘full-time executive directors should not take on more than one non-executive directorship in a FTSE100 company or other significant role’. An analysis of the number of external appointments by gender and ethnicity in respect of each c-suite role is set out in Figure 5.12. Figure 5.12  Percentage total of each gender in each role with 0, 1, 2 and 3+ current external appointments 0 11

1

2

3+ 3 3

4 4

5 6 40 39

57

67

56

18

38

31

23 75 50

60

60

17

24

17

15

33

Women Men CEO

Women Men CFO

Women Men Chairman

43

Women Men CXO

60 In 2017 a White applicant to Oxford University was at least twice as likely to gain entry as a Black applicant: University of Oxford, Annual Admissions Report (May 2018). Historically this disadvantage would have been considerably greater.

100  Merit Figure 5.12 reveals that despite the Code requirement nearly 10 per cent of male CFOs exceed the external appointments guidelines in the number of directorships they take on, whereas there are no women who do. Deviating from the Code appears more acceptable for men, whereas women appear more likely to work within the boundaries of what is deemed acceptable. For the CEO, Chairman and CXO, there is a greater proportion of women who have one or more external appointments. Of particular interest is the difference in numbers of external appointments between male and female Chairmen. Almost 30 per cent more women than men have three or more external appointments. There are also no women Chairs without any external appointments compared to 15 per cent of male Chairs. As Chairmen are typically part-time non-­executives, the limitation in paragraph 2.15 of the UK Corporate Governance Code does not apply to them. However, the Institutional Shareholder Service (ISS) states that Chairmen should not hold another executive position, more than one additional chairmanship or more than three non-executive directorships.61 The higher proportions of external roles for women could be a consequence of women needing to demonstrate a higher level of social capital in order to obtain appointments. An alternative theory is that these women are the ‘golden skirts’62 of the FTSE100 and are given more appointments because of the dearth of talented women in the pipeline. The former argument is more persuasive, given the evidence and support for the view that there are no issues with the pipeline of talented women.63 Apart from CXOs, the proportion of external appointments held by POC is substantially lower than for white individuals across all roles. This correlates with the idea that POC are more likely to gain their appointments through internal promotion, for which high levels of social capital may not be as necessary because they will be known to the nomination committee. However, there are too few POC in the study to be able to make a valuable comparison. 2.4.  Cultural Capital As discussed above, cultural capital represents the norms and behaviours gained through participation or affiliation with groups. In looking for potential clustering of groups this study examines age, nationality and university alma mater groups. 61 Institutional Shareholder Service, Director overboarding (UK & Ireland) (2018). ISS is a service that makes recommendations to institutional shareholders in order to improve corporate governance for their financial benefit. As such, boards may pay attention to its recommendations in order to keep their institutional shareholders happy. 62 Morten Huse, ‘The “Golden Skirts”: Changes in Board Composition Following Gender Quotas on Corporate Boards’ (2011): www.anzam.org/wp-content/uploads/pdf-manager/473_ ANZAM2011-148.PDF. 63 ‘Global Board Ready Women Database’: www.boardreadywomen.com/.

The Merit Study  101 2.4.1. Age Figure 5.13 sets out the spread of ages of the c-suite members, according to gender. Figure 5.13  Age distribution of c-suite members Gender male female

50.0

Frequency

40.0

30.0

20.0

10.0

0.0

30

40

50

60 Age

70

80

90

As can be seen in Figure 5.13, there is a similar pattern of age distribution for both genders, but the range is significantly broader for men, and women tend to be younger. Women are not found at either extreme end of the age spectrum and the oldest man is over 15 years older than the oldest woman. This may be a further reflection of the idea that women have already used up their one deviation from the norm due to their gender. The smaller numbers of women in the study compared to men also mean that it is more likely there will be men at both ends of the spectrum. Nevertheless, the range of ages displayed is broad and does not suggest that c-suite members are homogenous in terms of their age. This may mean age has little to do with a person’s cultural capital from a c-suite appointment perspective. At least in terms of age, the data suggests that the FTSE100 is getting the benefit of a diversity of age perspective. However, what this does not show us is whether the ages in each company vary. For example, the c-suite in one company could all be in the upper end of the age spectrum, and in another, all at the lower end. Such distribution would not provide the benefit of diversity of age perspective. 2.4.2. Nationality A closer look at the nationalities dominating the c-suite reveals that 64 of the FTSE100 have a c-suite in which the dominant nationality is British. A nationality

102  Merit is considered dominant for these purposes if it outnumbers all other nationalities in the c-suite of that company. 25 companies have a different dominant nationality. Only 11 companies have no dominant nationality. Figure 5.14 shows that nearly half of the companies in the study have just one nationality in the c-suite and only 17 have three or more. Figure 5.14  Count of companies according to number of nationalities in the c-suite 46 37

14

1

2

3 number of nationalities

2

1

4

5

As all of the companies in this study are listed on the London Stock Exchange, it is unsurprising that 65% of the individuals studied are British. This finding supports industry research from 2016 which found that 60% of FTSE100 CEOs were British.64 British dominance may appear reasonable given the listing location, but it is important to remember these are primarily global companies. Only 10% of the FTSE100 obtain all their revenue from the UK, and 21% are headquartered overseas.65 Given the knowledge gap that UK nationals are likely to have about other jurisdictions, it is arguably necessary for other jurisdictions to be represented. However, other European indexes display even less diversity of nationality. For example, in the German DAX, 75% of the CEOs are German, and in the French CAC40, 86.5% of the CEOs are French.66 A variety of other nationalities make up the remaining 35% of the FTSE100 c-suite. Figure 5.15 shows the split of non-British nationalities. There is a prominence of American nationals in the non-British proportion of the individuals in the study. This may be explained by the language and similarities between British and American governance systems and the breadth of elite companies from which c-suite members can gain experience. There are two non-English-speaking nationalities among the most represented: Spanish and Dutch.

64 The Odgers Berndtson Global Corporate Leadership Barometer (March 2017): www. odgersberndtson.com/media/3812/corporate_leadership_barometer-odgers-berndtson.pdf. 65 FTSE100 Stocks listed in London: www.lseg.com/markets-products-and-services/our-markets/ london-stock-exchange/ftse-100-stocks-listed-london. 66 Ibid.

The Merit Study  103 Figure 5.15  Non-British nationalities represented on c-suites

Dutch 4

Spanish 4

Australian 5 Other 34

Unknown 8

South African 10

Irish 14 American 21

Many of the most common nationalities can be found grouped together within companies. For example, the Irish companies CRH plc, DCC plc and Smurfit Kappa plc have only Irish nationals on their c-suite and the Mexican company Fresnillo plc has only Mexican c-suite members. Less intuitive concentrations of nationalities include Anglo American plc, where the dominant nationality of c-suite is Australian. Anglo American plc is a mining company and, whilst some of its projects and operations are in Australia, it is headquartered in the UK and it has offices in India, China and Singapore only.67 Most of its mining operations take place in South Africa. Another example is Royal Dutch Shell plc, whose c-suite is dominated by Americans despite the company being an English-Dutch company, with projects not only based in the Gulf of Mexico but also Malaysia, Philippines, Norway and the UK.68 In Kanter’s 1977 empirical research, one of her participants asked ‘do all companies have an ethnic flavour? Our top men



67 Anglo-American 68 ‘Major

plc, Annual Report (2017). Projects’: www.shell.com/about-us/majorprojects.html, accessed 10 October 2018.

104  Merit all seem to be Scotch-Irish’.69 Kanter attributed having an ‘ethnic flavour’ to the process of homosocial reproduction ie the appointment of others in the image of the appointees.70 The results of this study show that there is still some truth in this, as the nationality of the c-suite showed patterns of similarity. When considering that the average number of people in a FTSE100 c-suite over the two-year period of the study was 4.02, it is surprising that nearly half of the sample companies have just one nationality. It also reinforces the claim that cultural capital plays a role in the appointment process. In addition to its correspondence with Kanter’s theory, the findings here also correspond with research that shows firms with foreign board members are more likely to make foreign appointments.71 This resemblance magnet effect is problematic because ‘the values that business executives bring to their tasks are largely influenced by a national system of beliefs’.72 A lack of diversity of nationality will very likely impact upon the many value-based choices made by the c-suite. It also goes against the diversity of thought that many FTSE100 companies claim to seek in their annual reports (this is discussed in detail in Chapters seven and eight). 2.4.3.  University Alma Mater Further analysis of the data revealed that 21 of the FTSE100 companies had directors who shared an alma mater. Whilst frequently the common university was Oxbridge, other connections of note include the CEO and CFO of AstraZeneca both attending HEC Paris, the CEO and Chairman of Land Securities both attending the University of Reading and the CFO and Chairman of Rentokil Initial both being alumni of the University of Manchester. This is further evidence that similarities in background are beneficial in the appointment process. Specific matches in cultural capital will be an advantage. Such advantage is obtained outside of the typical understanding of merit as relating to just human capital and shows that claiming to appoint on this understanding of merit is something of a fiction. 2.4.4.  Public Profile Many of the individuals in this study are quite well-known. From a search of the Who’s Who database in 2018, Table 5.3 sets out the proportion of men, women, white people and POC included within it who feature in the study. 69 Rosabeth Moss Kanter, Men and Women of the Corporation (New York, Basic Books 1977) 54. 70 Ibid. 71 Sabina Nielsen and Bo Bernhard Nielsen, ‘Why Do Firms Employ Foreigners on their Top Management Team? An exploration of strategic fit, human capital and attraction-selection-attrition perspectives’ (2010) 10 International Journal of Cross Cultural Management 195, 204. 72 Sydney Finkelstein, Donald C Hambrick and Albert A Cannella, Strategic Leadership: Theory and Research on Executives, Top Management Teams, and Boards (Strategic Management Series) (Oxford, Oxford University Press 2009) 53.

Conclusion  105 Table 5.3  FTSE100 C-suite member entries in Who’s Who by gender and ethnicity Men

Women

White

POC

Percentage of total in Who’s Who

94%

6%

100%

0%

Percentage of total number in study

30%

16%

28%

0%

Who’s Who is a database of influential people in the UK, it features 27% of the individuals in the sample. Gaining entry into this database is a closely guarded secret but,73 according to the publisher, its objective is ‘to hold up a mirror to show an up-to-date image of the people of influence or distinction and interest in contemporary British society’.74 As set out in Table 5.3, of those c-suite members in Who’s Who, 94% are white men. There are six women from the sample in the database, accounting for 16% of the total sample of women. There are no POC from this sample in Who’s Who. Given the uniqueness of their position, their lack of membership in Who’s Who is surprising. It is also surprising that so few women are featured. However, what we do not know from this statistic is whether any of this sample were asked to be included but declined. In any event, both women and POC appear to be less visible in their prominent roles based on their proportional representation in Who’s Who. 3. CONCLUSION

Merit is a largely accepted part of the way our society operates. It is an effective method of sorting people, but there are many ways in which it creates and perpetuates unfairness. This was discussed in Chapter three. In this chapter, through looking at the merit-based characteristics of the individuals in the c-suite, it is possible to make an assessment of how the merit principle has been applied. What this suggests is that women have needed to show more merit than men in order to be appointed to the c-suite. Where there is sufficient data to carry out an assessment, the data suggests a similar position for POC. The data demonstrates that women in the FTSE100 c-suite often have more human and social capital than men, indicating they have to do more to obtain their c-suite roles. Cultural capital analysis shows that women are less likely to deviate from the cultural norms than men, which again points to unfairness. For POC, the data is also largely supportive of these conclusions, but this is less reliable due to the small numbers of POC in the study.

73 Anon, ‘How to get in Who’s Who’ BBC News (18 January 2001): http://news.bbc.co.uk/1/hi/ uk/1119959.stm, accessed 6 August 2019. 74 Neil Tweedie, ‘Who’s Who and Why oh Why?’ The Telegraph (1 December 2008), accessed 26 October 2018.

106  Merit In analysing the respective merit of the c-suite of the FTSE100 I do not suggest that merit needs to be replaced as the method by which people are appointed to positions of power. However, based on the findings here, I do suggest that our understanding of merit needs to be more complete, with awareness of its flaws so that they can be mitigated. This means creating a new understanding of merit – one that is broader and more inclusive – and taking steps to ensure it is more consistently applied. What those steps might be is the subject of Chapters nine and ten.

6 Power

I

n this book power is understood to mean the control over resources needed by others, combined with freedom to use them. What this often amounts to is the ability to get things done according to the schedule and desires of the power holder. This simple framework is a useful way of conceptualising the construction of power, and has been discussed in Chapter three. A greater challenge than understanding power in theory is measuring levels of power in practice. To do this raises difficult questions about what should be measured and how. Despite these challenges, quantifying power provides a very useful insight because it enables an analysis of where power is situated within and across corporations. Consideration can thereby be given to why power is spread in this way. This provides a large piece of the ‘who has power and why’ jigsaw puzzle. In order to analyse the homogeneity of power, this study takes a broad empirical view. This chapter considers a number of indicators of power in c-suite individuals in order to carry out an assessment. One such indicator is corporate titles, because they represent a person’s position in the corporate hierarchy. Although the title conferred by a role is often a good indicator of power, there are other indicators, or proxies, that can fill in some of the gaps in understanding which remain about levels and origins of power. Measuring power is necessarily imprecise, just as measuring anything via the use of proxies often is. The nature of the endeavour is the measurement of something other than the unit you actually want a measurement of. Despite this unavoidability, through the number of participants in the study and the number of proxies used, information of value can be obtained, from which assertions can be made as to where power lies in corporations. 1.  MEASURING POWER

When trying to measure power there is a choice to be made between measuring the use of power and the possession of power.1 A person may possess

1 T Mcnulty and others, ‘The Role, Power and Influence of Company Chairs’ 2011 15 Journal of Management & Governance 91, 94.

108  Power power without using it but not the other way around. As such, my initial plan was to measure the use of power in the c-suite. However, this option was soon discounted on the basis that this would present an incomplete picture of power. To understand why power usage was not measured it is necessary to consider usage in more detail. There are two ways in which a person can use their power explicitly or implicitly.2 Explicit power usage relates to situations when a person overtly uses their power, for example by directing someone to carry out an action or by discounting the views of others in decision making. Implicit power usage is more subtle and involves the indirect use of a person’s power, for example by influencing strategic decision making. Implicit power usage is not always a conscious decision or openly admitted, and is largely unobservable to outsiders. In light of these limitations, if trying to measure power usage, implicit power would not be as easily measured as the explicit type. Therefore the perception of when power has been used will not always correspond to when power has actually been used. Despite these limitations, perceived power usage has been measured in other studies. Pearce and Zahra measured power through telephone interviews with executives to rate their CEO’s power.3 Though informative, this likely presented an incomplete picture of power because the implicit use of power is not obvious. The alternative way to measure power is to focus on the source. Doing so does not distinguish between explicit and implicit power and in that way presents a more complete picture. What such a measure cannot do is distinguish between when an individual possesses a source of power, as recognised under this study, and when they utilise it. This is not thought to pose a significant problem, as it is often the potential to exercise power that enables an individual to get things done rather than overt power usage. Other studies have sought to measure power sources. Sources of power can be multiple, cumulative and unacknowledged, and can represent proxies for the power levels of individuals. Various proxies have been used; these include remuneration (the CEO Pay Slice4 which measures CEO pay as compared to top executive pay), founder ownership,5 CEO tenure6 and CEO chairman duality. All these measures focus solely on CEO power.

2 Jianyun Tang, Mary Crossan and W Glenn Rowe, ‘Dominant CEO, Deviant Strategy, and Extreme Performance: The moderating role of a powerful board’ (2011) 48 Journal of Management Studies 1479,1480. 3 John A Pearce and Shaker A Zahra, ‘The Relative Power of CEOs and Boards of Directors: Associations with Corporate Performance’ (1991) 12 Strategic Management Journal 135. 4 Lucian A Bebchuk, KJ Martijn Cremers and Urs C Peyer, ‘The CEO Pay Slice’ (2011) 102 Journal of Financial Economics 199. 5 James G Combs and others, ‘The Moderating Effect of CEO Power on the Board Composition– Firm Performance Relationship’ (2007) 44 Journal of Management Studies 1299. 6 Ibid.

Measuring Power  109 Looking more broadly at top management teams Finkelstein developed four constructs to measure power: structural power, ownership power, expert power and prestige power.7 These were used as a schema to represent the origins of power in top management in US companies.8 Finkelstein found strong empirical support to indicate that these constructs were valid representations of power in US companies.9 Udeuni utilised this study in research on UK top management and again found the constructs to be ‘reliable, valid and stable’ estimates of power on the board.10 Tang et al used the structural and ownership constructs in a study of CEO dominance,11 and Daily and Johnson used the method to analyse the connection between CEO power and firm performance.12 In this book, the concepts of structural, ownership and prestige power have been applied to econometrically analyse the data according to the variables set out in Table 6.1 below. Using information obtained from publicly available sources, data was collected on each individual in the study and this was used to create a personal score against each of the listed variables. These scores were then totalled and used to compare power levels across the c-suite and identify any trends in the distribution of power. A total power score has not been calculated primarily because the weighting of the different structural, ownership and prestige powers varies considerably. For example, ownership power may be more valuable than power associated with attendance at elite institutions. As such, a high prestige score will not mean the same as a high ownership score. Table 6.1  Power constructs used in the study Power construct Structural

Description The power associated with an individual’s position in the corporate hierarchy

Included variables • Corporate role • Remuneration • Any role duality (eg CEO chairman) • Board tenure (continued)

7 Sydney Finkelstein, ‘Power in Top Management Teams: Dimensions, Measurement, and Validation’ (1992) 35 Academy of Management Journal 505. 8 Comparisons between US and UK corporate boards and corporate governance structures are common due to the converging nature of their corporate processes (Michael Useem, The Inner Circle (New York, Oxford University Press 1984) 7). However, adaptations are necessary due to jurisdictional differences such as role duality and access to information. 9 Finkelstein (n 7) 530. 10 Henry Udueni, ‘Power Dimensions in the Board and Outside Director Independence: Evidence from large industrial UK firms’ (1999) 7 Corporate Governance: An International Review 62, 70. 11 Tang, Crossan and Rowe (n 2) 1487. 12 Catherine M Daily and Jonathan L Johnson, ‘Sources of CEO Power and Firm Financial Performance: A longitudinal assessment’ (1997) 23 Journal of Management 97.

110  Power Table 6.1  (Continued) Power construct

Description

Included variables

Ownership

The power associated with level of ownership of company and any associations with the ­founding of the company

• Founder member • Relative of a founding member • Share ownership

Prestige

The power associated with a person’s reputation and privilege.

• University institution • Prior board experience ranking (FTSE100, Fortune 500) • Count of prior board experience • Count of non-profit experience

Unlike Finkelstein’s method, expert power was excluded from this study because this information could not be obtained with sufficient consistency or reliability. Publicly available Curriculum Vitaes are not always complete and they are not explicit about skills. Udeuni and Tang et al all come to similar conclusions.13 Furthermore, measuring expert power according to a personal Curriculum Vitae would not take into account depth of expertise. In other words, a director who was a ‘Jack of all trades’ (ie with qualifications and experience in a variety of areas but expertise in none) would receive a higher expert power score than a director whose expertise in one area was outstanding. A measurement of depth of expertise would be needed for any expert power score to have value. This would not be possible without some additional comparable and standardised testing of executives. This is not practicable, particularly as the subjects of the study are the most senior individuals in the largest listed companies in the UK. In any event, Finkelstein found that of all the four power constructs, expert power received the least support from the data in terms of demonstrating validity and reliability.14 In this study I look at the 398 individuals from the original 2016–2017 data set and extract information for each of them relating to structural, ownership and prestige power, as detailed in the respective sections below. The exercise was not completed for the 2021 data set as there was less data available which corresponded with the prestige section of the power study. Furthermore, a preliminary analysis suggested little difference to the original outcomes of the study and, to the extent any differences were present, it would be difficult to disassociate them from the impact of Covid 19 on business. As the data is looked at as a complete set, without distinction as to year, the inclusion of the 2021 data would therefore add little of value.

13 Udueni

(n 10) 66; Tang, Crossan and Rowe (n 2). (n 7) 530.

14 Finkelstein

Structural Power  111 2.  STRUCTURAL POWER

Structural power is an assessment of the power of individuals within their organisation. Finkelstein included title(s) and remuneration as part of his assessment. In addition to these, this study has also included board tenure and role duality (ie when one person occupies two roles, such as Chairman and CEO). Each aspect of the sections below detail an aspect of the structural power score, including a table setting out how the scoring was structured, together with a full description of its application to the data. 2.1. Title Table 6.2  Scores for c-suite title Measurement Title (if dual role, score both)

Role

Score

Chief Executive Officer

3

Chairman

2

Chief Financial Officer

1

Other Chief Officer

0

It is perhaps obvious that an individual’s title provides a good proxy for the level of power they wield in an organisation as it denotes their position at the top of the organisational hierarchy. According to a McKinsey report, management literature broadly agrees that the main elements of the CEO role include ‘setting the strategy, aligning the organisation, leading the top team, working with the board and being the face of the company to external stakeholders’.15 Given the position and responsibilities of the CEO, all individuals in this study were given the maximum three points for holding this role (as set out in Table 6.2). The Chairman receives the second highest score of two, on the basis that they lead the board and therefore have some control over the CEO and CFO. The role of CFO scores one because they are subordinate to both the CEO on the executive committee and the Chairman on the board. All other executive board positions score zero. Another indicator of structural power is dual CEO/Chairman roles, given the potential for that individual to dominate the board.16 In the UK this duality is contrary to the Code, in order to prevent one individual wielding too much power.17 Consequently there are very few dual roles still remaining in the 15 Carolyn Dewar, Martin Hirt and Scott Keller, ‘Mindsets and Practices of the Best CEOs | McKinsey’ (2019): www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/ the-mindsets-and-practices-of-excellent-ceos, accessed 13 June 2022. 16 Ibid. 17 UK Corporate Governance Code 2018, Provision 9.

112  Power FTSE100. However, there remain a small number of executive Chairmen on boards; often they are founders. Where this is the case, the individuals receive three points for being CEO and two points for being Chairman, making a role score of five. 2.2. Remuneration Table 6.3  Scores for level of remuneration Measurement Relative Remuneration

Categories

Score

>50% higher than 2nd highest

3

1.01%

4

0.11%–1.00%

3

0.06%–0.100%

2

0.01%–0.05%

1