Board diversity is not a new discussion. Since 2001 there has been a myriad of reports highlighting the need for and benefits of gender, ethnic and social diversity of NEDs on boards.
The Financial Reporting Council (FRC), in their guidance on board effectiveness, says: “diversity in board composition is an important driver of a board’s effectiveness, creating a breadth of perspective among directors, and breaking down a tendency towards ‘group think’.”
Nonetheless, a recent study conducted by Winmark surveyed 84 pension schemes and undertook 13 in-depth interviews with chairs of trustee boards and other experts, found that board diversity (in regards to age, ethnicity and gender) was ranked last out of 25 governance elements.
This got me thinking:
Boards, and their committees, including the audit committee, have an obligation to work in the best interests of the company and this means hiring the most experienced people to sit at the top table. Unfortunately, in the financial services sector, for example, those with experience are usually men by dint of the lack of diversity at the top up to this point.
This is compounded in the internal audit arena by the FRC guidance on the composition of the audit committee which requires that “at least one member of the audit committee has recent and relevant financial experience”. Again, here, women are likely to miss out.
So, what can internal audit do to ensure we strive towards equality on boards across companies in the UK?
Board diversity was mentioned by both the Conservative and Labour Parties in their manifesto pledges during the June 2017 general election. It is likely, therefore, that we will see action in this arena. This provides an opportunity for internal audit to play a role in ensuring diversity on boards and committees, without compromising on the quality of board composition.
This article was first published in October 2017.