Creating diverse Boards is both a commercial and a moral imperative. Studies by McKinsey have found that companies with diverse Boards are more likely to be profitable than non-diverse ones. Businesses in the top quartile of gender diversity on executive teams were 25 percent more likely to experience above-average profitability than peer companies in the bottom quartile.
As we celebrate the advancements made by disadvantaged groups through occasions such as International Women’s Day, or Black History Month, we are reminded of the consistent effort required to establish a more equitable workplace. The reasons why we strive to achieve diverse leadership teams are now better understood, but how we do it, and the methods we employ, are practiced inconsistently.
How should employers actively strengthen the diversity of their leadership teams? Here we assess three specific techniques we can use, with a focus on the CFO role.
1. Take positive action, without discrimination
Under the Equality Act (2010), it’s unlawful for employers to discriminate against job applicants because of one of the Protected Characteristics: age, disability, sex, gender assignment, race, religion, sexual orientation, partnership status, pregnancy, or maternity. As an example, asking for an all-women shortlist is therefore illegal. In practice it would also be empirically and morally challenging to implement by relying on assumptions about identity based on name and appearance.
What we can do is take positive action. To understand this, the Government Equalities Office use the below example:
A bank has a vacancy for one of its senior jobs. All the other senior jobs at that level are done by men. The bank conducts a recruitment exercise and at the end of a stringent and objective process finds that two applicants – a man and a woman – could do the job equally well. The bank could decide to take positive action and give the job to the woman. But the bank couldn’t give the job to the woman if the man would be able to do the job better than her – that would be unlawful direct discrimination against the man.
Faced with making a choice between candidates of equal ability, positive action allows an employer to take into consideration whether someone is from a group that is under-represented or otherwise disadvantaged within their workforce. Applied in the context of executive search, consultants must establish specific criteria against which candidates will be assessed at the outset of a selection process, allowing us to create a threshold of acceptable qualification, beyond which choices can be made about hiring diversely.
Deciding the selection criteria requires focus on what is essential and what is desirable. If we are searching for a FTSE250 CFO, and the demand is that all shortlisted candidates must have been one already, this will severely limit our ability to create a diverse shortlist. A 2022 update of the Parker Review found that British minority ethnic directors held just 4.4% of the statutory Board positions in the FTSE250, compared to 18% of the overall population. Ensuring that the diversity of this group expands will require a proactive approach to succession management.
Using this example, if what is essential is candidates with public company Board experience from an organisation of commensurate size, international executives may be equally qualified. Similarly, if skills in investor relations, corporate finance, governance, and managing a large P&L are needed, these can often be found at the CFO-1 level, opening a much wider group of candidates, and creating opportunities for diverse, up-and-coming talent.
2. Don’t ask for an ACA (ICAEW)
Of the six main accounting bodies in the UK (ACCA, CIMA, CIPFA, ICAEW, CAI, and ICAS), the ICAEW has the lowest proportion of women in their membership, at only 30% as of 2022. The ACCA and CIMA fare better, respectively having 48% and 42% of women as members.
The ICAEW exams are rigorous, and the qualification rightly deserves its prestigious standing. Typically, assessments are completed during an intense two-year period, with the sponsorship of an accounting firm such as one of the Big Four. Conversely, students of the ACCA and CIMA take longer to achieve their qualification, suggesting its students have studied more flexibly, fitting exams around other commitments.
Accounting for the gender disparity of ICAEW members relative to peer organisations deserves more thorough analysis, but in part, its demanding approach to achieving qualification may contribute to this imbalance. Being able to commit evenings and weekends to revising over a sustained period is a privilege only afforded to those with a significant amount of free time. If consideration was taken by the ICAEW, and the firms that sponsor it, to create a more flexible approach to attaining qualification, they might achieve more diverse outcomes.
Recruitment stakeholders in-house and in consulting should demand more creativity when defining what is crucial to being a high-performing CFO. We should not take the ACA exam as the only measure of quality, particularly when considering the gender imbalance of its membership.
3. Ensure your diversity strategy is embedded into the recruitment process
An employer makes several choices, conscious and unconscious, about how it chooses to represent itself during the interview process. What language is used in the position specification; how interviews are conducted; who conducts them; and what is said during interview, will carry different significance to different people.
A first step in addressing this could be eliminating gendered, ableist, or other discriminatory language from job descriptions. Free-to-use tools, such as Gender Decoder, provide this service which can be easily incorporated into a structured process. Another is ensuring that, as far as possible, the people conducting interviews are themselves diverse. A 2022 study by the Financial Reporting Council on barriers to senior leadership for minority ethnic groups found that representative interview panels had a significant positive influence on employer perception.
Search consultants and internal business partners must work in partnership to ensure that consideration for diversity is embedded into the recruitment process, rather than as an afterthought, only relevant at shortlist presentation.
Informed diversity strategy improves recruitment, retention, and performance
Ensuring individuals with a plurality of background are responsible for leading the companies we work for should be seen as business critical, with a range of positive consequences, direct and indirect. In-house recruitment process leaders, together with search consultants, can create more inclusive hiring and succession initiatives to gain competitive advantage, whilst also making Boards that are representative of the businesses they lead and markets they serve.