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Large UK companies have made considerable progress in improving gender diversity on their boards. Their smaller counterparts are letting them down.
To be sure, board composition is rarely a top priority in the early stages of a startup. But UK growth companies must get their act together if they want to attract more institutional funding.
UK chancellor Jeremy Hunt wants pension funds to invest more money in UK growth companies, or “unlisted equities”, which (unusually) include businesses listed on London's junior Aim market and the Acquis stock exchange.
It remains to be seen how much money so-called “mansion contracts” signed by nine of the UK's largest pension providers will bring in. But those looking for opportunities may come with higher expectations.
There are good reasons why smaller companies in London's main market are subject to less stringent corporate governance rules than larger companies. They also face less scrutiny on issues like diversity.
For example, the FTSE Women Leaders Review tracks female representation on the boards of the FTSE 350 and FTSE 50, the UK's largest private companies. The initiative has already achieved its target of ensuring that more than 40% of board positions on FTSE 350 boards are held by women by the end of 2025.
But fewer than 16% of positions on the boards of Aim-listed companies are held by women, according to consultancy groups indigo Independentgovernance and Addidat, although this is an improvement from 13.7% the previous year.
Gender diversity is just one way to ensure that boards don’t fall into the dangers of groupthink. Boards should consider other factors such as race and socioeconomic background. Still, gender is one of the signs of whether a board is committed to integrating skills, knowledge and experience, according to Bernadette Young, co-founder and director of Indigo.
This could be a test of whether institutional money can take a pragmatic approach on such governance issues. Young founder-led companies are likely to have lower board turnover when they are in growth mode.
Standards are already changing. The Alliance of Public Companies last year updated its corporate governance code for growth companies, which recommended that boards should “understand and challenge” their own diversity, including gender balance.
Other concerns keeping institutional investors away from UK small-cap stocks include liquidity and a lack of good research. Score basic governance norms and even improvement targets, at least to the extent that the board has the power to change them.
nathalie.thomas@ft.com
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