07 March 2017 by Henry Ker
Sir John Parker discusses the value of diversity in the boardroom, the need for business to earn its licence to operate in society and how UK corporate governance is the world-leader
Sir John Parker is Chairman of Anglo American and led the Parker review into the ethnic diversity of UK boards
When you have different representatives and different nationalities involved on a board, when you have people from different ethnic backgrounds, and the female perspective as well, you get people coming from different positions. They are not necessarily always on the same track as an all-male, all-white board and you are more liable to get the challenging questions that the all-male board may not have considered. That is added-value to me.
With candidates from diverse backgrounds, ethnicity and gender there is sometimes a difference in the thought process, and a difference in where they start from in analysing a problem. They can offer a completely different outlook and, with that different view, awaken you to new possibilities. It disturbs the status quo and I am all for that.
“The business case comes before you even consider the social justice issue”
You refuse light from no quarter. Challenge in the boardroom is a very important element of corporate success and you generate it through different skillsets and cultural approaches, and through different mindsets.
A will from the top of the company, and indeed within the board itself. Ideally the chairman and the chief executive are united that this is something they want to achieve. I believe it is very much like many other aspects of corporate life: what is the will at the top of the company to achieve it? And what effort are they going to make to drive it through?
Undoubtedly there is a pipeline issue for women coming through to the executive committee. I was on the Lord Davies committee [examining the under-representation of women on UK boards] for five years, and we saw the need for companies to widen their focus and look at alternative sources of talent – not just those that are coming from corporate life.
There are many women on boards now who come from professional accountancy and legal firms, some who come through companies as general counsels and HR specialists. So the focus has been widened to satisfy the 25% target that we set for female candidates. I am hoping that is going to be very much the case when we come to achieve the target of beyond one director from an ethnic background on boards by 2021.
I do not think any of these initiatives will dilute the horsepower in the boardroom, if properly recruited. Every board needs to have a great breadth of skill because we live in a world where you do not know where the next challenge is going to come from.
I believe in having a very broad base of skills on the board and I can find those in different communities, either in the UK or around the world. The necessary skillsets and experience are not just confined to white males.
I do believe things need to change. There is inbuilt bias in some companies and they really need to look hard at themselves.
If you are a business in this country, and you recognise that 14% of the population is now people of colour – and by 2030 it will be more like 20%, and by 2050 more like 30% – you have to ask: is my boardroom aligned to the needs of my stakeholders? The changing nature of my customer base means I should be looking hard at whether my board is capable of interpreting what might be going on in large swathes of society.
The business case comes before you even consider the social justice issue. There are many lenses through which you can look and whatever way you take it, you cannot ignore these developments.
The Davies review was an amazing success to change the composition of the boards of FTSE companies within five years to the extent we have. I do not think anyone would say that the performance of the FTSE is being diluted by that. The time has come to address other areas of diversity, and particularly people of colour. These things have to be done in phases. There is a very talented pool of people out there.
At Anglo American we are very conscious of our need to earn our licence to operate in overseas countries where you can disturb communities by your operations. You need to build strong relationships with your communities, where they see reward for you being there.
I think the same is true for all large companies. We are not islands; we are part of society. But we do not explain that very well to the world at large.
We have a very transparent report that we publish every year on how and where we pay our taxes in the world. Responsible leadership and responsible boardrooms should be more willing to be transparent and more willing to explain that we help our community and our infrastructure through our activities. It is part of gaining the confidence of society – articulating that we exist with a good purpose in mind.
I am a great believer that quality boards with strong leadership, with a broad range of skillsets and – very importantly – a number of directors with domain experience of the company you are involved in is really the bulwark against the destruction of shareholder value.
When I say strong leadership, I do not mean dominant leadership. The board has got to have the freedom to express itself and you cannot have a dictatorship. I believe the chairman and the CEO in particular have to be people who are willing to listen; people who are not arrogant, will take input and challenges from their non-executives, and who run an open society. All of that is critical for success.
“You need to build strong relationships with your communities, where they see reward for you being there. We are not islands; we are part of society”
In those companies I have chaired, they have the same ingredients. They have got strong leadership on the board, have a world-class chief executive, and have built up a world-class board with the right range of skillsets, good governance and good leadership.
One other thing I would say is that if I have had any success in corporate life, it is down to the fact that I have never joined a board or company where there was not something of my own domain skillset of engineering running through it.
This means you can learn the language very quickly; you can kick away the training wheels, have a grown-up conversation with your management and your chief executive – and you understand what is going on.
As well as building a board with a good, broad range of skillsets, you choose people of maturity, and you have an open society where you build respect for one another’s views, even though at times they may differ.
Generally, when you talk things out on a board, even though people may have entered the boardroom with a strong view, if they see some other people whom they respect dealing with the issue in a different way than they want to deal with it, they are often swung around. So I think mutual respect among colleagues is very important.
But if you still have conflict, then I think the chairman has a duty to have a number of one-to-one conversations. To talk things through, to try and explain where the majority are coming from and the main reasons why management wants to do this.
It is not often the chairman has to say he or she does not agree with what management wants to do; because if that is the case, normally it would never get as far as the boardroom.
It is a vital role – and a role that has increased in importance in recent years, given the greater degree of governance and compliance that we have to deal with. The independence company secretaries exert and the confidentiality they must work under is very important.
A good company secretary is a confidante to the chairman and a confidante to the board, and that is a very important characteristic of corporate life. They are a very important interface with the non-executives.
“Britain’s model is, in my view, the world-leading model of governance”
We have had a lot of reform in the country, which started with the Cadbury report. Sir Adrian Cadbury really laid the foundations of modern governance and since then there has been constant improvement.
And I believe – sitting as I do on a European board, an American board and I have sat on a Middle-Eastern board – Britain’s model is, in my view, the world-leading model of governance.
But we must avoid constantly pulling up the plant and looking at the roots. There is hardly a week I do not get a letter from an investor who has some new idea. Of course there is a need for constant improvement, but also at the same time, stability – improvement, but not disruption. But the basic framework for governance in the UK is very strong and it is envied in many parts of the world.
Apart from the ones we are working on now – such as diversity in our boardrooms – employee representatives have also been considered recently. I have worked on boards with employee representatives and trade union representatives, when I was in nationalised industry and in government-owned industry, and as far as I am concerned, it worked well.
The big challenge is, if you are a multinational organisation, how do you elect someone? If we operate in Chile and Peru, for example, do we have a Chilean representative? Do we have a Peruvian representative?
It is incredibly challenging to fairly invite an employee representative onto the board of a multinational. For a domestic company, it also has its challenges, but it can be done with a bit more ease.