29 March 2016 by Alexandra Jones
Dame Alison Carnwath, Chairman of Land Securities, talks about true boardroom diversity and rebuilding trust in business after the financial crisis.
It was clear that things were moving very fast – and a lot of what was happening was not in the control of executives or boards. Before 2008 we knew the property market was falling, but nobody knew when the bottom was going to be reached, or at what level the bottom would stabilise. Those situations are frightening for executives, although old hands in the property industry know this happens every now and again. It is a very cyclical business – especially in London.
So we had to have a plan. I needed to energise the board and executives to make them look to the future rather than agitating too much about the past, what had gone wrong and why were we in this position. We then made changes to our strategy, tested our plan in the marketplace and then raised the money from our shareholders to execute it. We ensured that we did not blame individuals, which enabled us to rebuild confidence. It all starts with the attitude of the chairman; I was convinced that we could rebuild the business and that it needed to be done quickly.
That seemed to be a message that everybody wanted to hear and that is what Land Securities has been doing ever since. We are in a different time now, because business has been improving and this new strategy is working well. Ultimately, I think we have succeeded in rebuilding confidence. Interestingly, some external people questioned our decision to keep our chief executive on for three years after the property crisis. This was not the fault of an individual – it was the execution of a rather muddled strategy, so we had to go back to the drawing board.
I had a set of experiences that were relevant to the difficult situation Land Securities was in. The challenge was to step up to become the leader of the board, whereas before I was much more an independent observer, making my contribution to agendas. Before, I had less of a hand in prescribing what was going to be talked about at the meetings and how the discussion would flow. The chairman sets the tone of the board and that is a big change from being a NED. I sit on three boards as a NED now, outside the UK.
The UK is developing guidelines to the effect that if you are chairman of a FTSE 100 company, you should not be able to be chairman of another FTSE 100 company. However, there are some people who are chairmen of two companies and can cope with this, particularly if they are experienced. It is in everybody’s interests to ensure that a more diverse group of people are in this role because it is a very influential position.
I am not a great fan of recycling the same kind of people – some organisations are trying very hard to broaden the recruitment pool for chairmanships, for example the Chairman’s Forum run by Kate Donaghue. However, those who have experience of being an independent NED or chief executive are likely to make good chairmen. Most countries with good governance would suggest that one person should not have more than three or four NED-ships. I have three. They keep me very busy.
The number of experienced female NEDs in the UK is only just beginning to grow, so the fact that many have been sourced from America for example, which obviously is a far larger country, is no surprise. Many boards in the US have good – not brilliant – female representation. It also makes sense for FTSE 100 businesses, which tend to be international, to recruit directors who are not all from the UK.
I am on the board of Zurich Insurance – a completely multinational business. Although it is based in Zurich, it has Dutch, German, English, Scottish, Singaporean and American nationals on its board. Those individuals all have had experience of operating in other parts of the world.
We are only at the beginning of the journey to get closer to parity between male and female board representation. This debate goes further than gender – genuine socioeconomic and ethnic diversity is important too. It has gained momentum in the UK compared to other countries. As long as chairmen act responsibly and believe (I think most of them do) that the diversity pool should be increased, the talent will be found. I do not agree, therefore, that the pipeline in the UK is too small because I do not think most chairmen who are running international businesses look at it as just being a UK pool.
It avoids groupthink – that is the simple answer. People from different backgrounds and different countries have different perspectives and, as long as the chairman creates an atmosphere that allows the debate to be wide-ranging, you get differing opinions. That is good for the executives to hear and, generally, good for all the debates that business is going through at the moment.
Businesses were traditionally organised by men for men. That is how it always was. I think businesses currently find it difficult to have generous terms that allow females to leave their career for a long period of time to bring up children. It is difficult for corporates to keep women engaged during that period. They do not see their usefulness when they are not working for them – fair enough, they are not paying them. There is not an easy solution to this. A solution cannot be legislated or regulated. The reality is that those females that do rate their career very highly will end up making sacrifices in terms of family. There will be females who do not want to go back to work either at all or full-time or in the same stressful jobs.
I do not think a lack of gender diversity is a cultural issue in the boardroom. Women have choices, and sometimes they do not really know what choices they are going to make until they have had children, and then they might think the whole prospect of going back to work is unappealing. It definitely does affect the pipeline. There is no doubt about it and it will continue to do so for a long time. However, businesses do have a responsibility to be supportive of diversity so that they remain attractive places to return to work.
At Land Securities I have a chief executive who also believes diversity is essential – our board is over a third female and our executive committee is 25% female. We have got a board with very different age groups, ranging from mid 40s to mid 60s. That is important because different generations think differently about things. Most chairmen are talking about how to set the right tone for diversity. There are some dinosaurs out there but it is a much easier conversation to have than it was five years ago.
Disputes should really be resolved out of the public eye – but that did not happen at Barclays. It can be very damaging to both the business and the individuals concerned. In this case, it was not a moment of glory for anyone – it was a very regrettable incident.
Bonus culture is embedded in middle management and senior executive positions. A large number of chief executives – not all – would work if they knew they got paid well, whether it is described as incentive payments, long-term payment plans, salary or pension contributions. They all get paid pretty well and they are mostly incentivised by doing a really good job. I do not think these schemes get the extra mile out of many people. Perhaps they do for some middle management who think that if they hit their targets they will get promoted, but frankly it is given too much importance. Executives who really want to make money should build their own businesses.
Companies have to be careful how they report on this because retailers and banks, for example, employ a large number of women but they are likely to be at more junior levels. Although it has not yet been decided how this will be reported, you can rest assured that companies will report them in ways that they think are reasonable and fair, but also demonstrate that the pay gap has narrowed.
Reporting plays a big part. The governance framework in the UK is such that investors can mostly compare companies across sectors and markets, knowing that those companies have adhered to the governance code or explained why they have not. It builds trust because there is a familiarity about what they are reading. We are also moving into a phase where shareholders are becoming more active in terms of their engagement with the companies they invest in. Those that are very vocal are making big noises about strategy and business models. They are successfully challenging boards and management and, indeed, forcing them to change direction. Crucially, they are mostly relying on public information. They do not want to become insiders. Reporting is very important for having clarity on a business’s performance and strategy.
In the UK, we are fortunate to have been brought up in a sensible governance regime – I hold it in high regard. Good governance is so important for a strong economic future. A large proportion of the world looks to UK governance as a model. There are exceptions, such as America, the largest capitalist market in the world. Its governance is not miles away from ours but there are some distinct differences. For example the chairman/CEO role, proxy access and no term limits.
Different countries choose to legislate or offer guidelines for governance. We have had an enormous raft of regulatory changes in light of the financial crisis. Those changes are definitely fundamentally altering the landscape of our banking sector. There is no doubt about that. But whether we have done too much or enough, I am afraid to say, only the next crisis will tell us that.
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