Women in the boardroom and their impact on governance and performance

In October, Healthcare Governance Review reported that Harriet Harman, minister for Women and Equality, has told the Treasury Select Committee that the Britain’s boardrooms must have more women on them (click here).

Speaking on Tuesday 20 October in relation to how boards of City firms could improve Britain’s economic performance through boardroom diversity, she told the Committee “If you want to make sure you don’t have the nightmare of men-only boards, you actually have to change the terms on which men and women participate, you have to change the culture and working practices because the greater good you are aiming for is to make sure you have diverse boards and a proper meritocratic approach.”

Healthcare Governance Review has come across an interesting academic paper Women in the boardroom and their impact on governance and performance by Renee Adams (Australia) and Daniel Ferreria (London).

Adams and Ferreira, in a study of US corporate firms, state that “Many proposals for governance reform explicitly stress the importance of gender diversity in the boardroom. In the UK, the Higgs (2003) report, commissioned by the British Department of Trade and Industry, argues that diversity could enhance board effectiveness and specifically recommends that firms draw more actively from professional groups in which women are better represented. If companies do not voluntarily reserve a minimum of 25% of their board seats for female directors, Sweden has threatened to make gender diversity a legal requirement ………The most extreme promotion of gender diversity occurs in Norway, where since January 2008 all listed companies must abide by a 40% gender quota for female directors or face dissolution.”

In their paper, Adams and Ferreira say they provide new evidence that is relevant to the ‘women on boards’ debate by investigating the hypothesis that gender diversity in the boardroom affects governance in meaningful ways. In particular, they ask the following questions. First, do measures of board inputs (director attendance and committee assignments) vary with gender diversity? Second, does the gender composition of the board affect measures of governance, such as chief executive officer (CEO) turnover and compensation? Finally, does the effect of gender diversity on governance matter sufficiently to affect corporate performance?

The researchers found that gender diversity in boards has significant effects on board inputs. Women are less likely to have attendance problems than men. Furthermore, the greater the fraction of women on the board is, the better is the attendance behaviour of male directors. Holding other director characteristics constant, female directors are also more likely to sit on monitoring-related committees than male directors. In particular, women are more likely to be assigned to audit, nominating, and corporate governance committees, although they are less likely to sit on compensation committees than men are.

Women also appear to have a significant impact on board governance. The researchers found direct evidence that more diverse boards are more likely to hold CEOs accountable for poor performance.

The evidence on the relation between gender diversity on boards and firm performance was more difficult to interpret. The researchers found that firms perform worse the greater is the gender diversity of the board. This result is consistent, they say, with the argument that too much board monitoring can decrease shareholder value. Thus, they conclude, it is possible that gender diversity only increases value when additional board monitoring would enhance firm value.

If the key findings of Adam’s and Ferreira’s research can be extrapolated to the case of NHS boards, who tend to ‘fail’ because of a lack of sound monitoring of management, we might reasonably conclude that more diverse boards would be more likely to hold the CEO accountable for poor performance and, in general, would enhance board monitoring of management.

The full academic paper Women in the boardroom and their impact on governance and performance by Renee Adams and Daniel Ferreira can be downloaded here.

Legal action warning issued to NHS bodies not complying with the Race Relations Act

The Equality and Human Rights Commission has issued compliance notices to three NHS organisations warning that they need to take steps immediately to address race equality or face legal action for failing to comply with the Race Relations Act.

The Commission believes Frimley Park Hospital NHS Foundation Trust, Kent and Medway NHS and Social Care Partnership Trust, and NHS Surrey are in breach of the Act’s Race Equality Duty. This Duty requires certain public authorities to eliminate racial discrimination, and promote equal opportunities and good race relations.

The Trusts have failed to put in place compliant Race Equality Schemes that set out how they will meet the Duty including:

• an assessment of functions and policies relevant to race equality
• the arrangements for monitoring policies for any adverse impact on the promotion of race equality
• assessing and consulting on the likely impact of proposed policies on the promotion of race equality
• training staff on how to adhere to the Duty

In addition, NHS Surrey and Kent and Medway NHS must take particular steps to improve their employment monitoring in accordance with their obligations under the Race Relations Act. Obligations required of listed public authorities include putting in place arrangements to monitor the ethnic background of staff and applicants for jobs, promotions and training, as well as monitoring the number of staff from each racial group who are involved in grievance procedures, subject to disciplinary procedures or cease employment with them.

Each Trust has also failed to carry out equality impact assessments on policies. The Commission has asked the Trusts to address these deficiencies.

The three NHS Trusts have received a compliance notice which is the first step in formal legal action. They have three months to put the scheme and monitoring plans in place. Failure to deliver may result in an application to the County Court.

The Commission is writing to a number of other Trusts about concerns it has with their failure to comply with race laws. The Commission is also in discussion with the Strategic Health Authority about how they can play a leading role in improving the standards of compliance by Trusts within their area.

For further information on this post, click here.

Religion or belief – The latest DH governance ‘muddle’

The Department of Health in England (DH) has published Religion or belief – A practical guide for the NHS.

In most respects it looks like a very good document. It is part of a suite of equality guides and gives practical advice to NHS organisations to help them comply with recent equality legislation, understand the role of religion or belief in the context of healthcare, and integrate this knowledge into single equality schemes (SESs).

Characteristically, the DH has, however, got itself into a muddle over governance issues. The guidance states in Worksheet 1 (pages 44-47) that a trust board member should be identified as “responsible for religion or belief issues”; that trust boards should agree action plans in relation to religion or belief’ and boards should monitor religion or belief matters.

Board level monitoring is fine, but the notion of holding a board member responsible for religion or belief, or the board ‘rubber stamping’ management’s action plans in respect of same, does considerable damage to the cause of good governance. Trust boards should be governing bodies, not management entities. Governance and management are two very different concepts and the DH appears to be stuck in the days when trust boards were introduced as management boards. Times have changed and Healthcare Governance Reviewbelieves that the DH needs to get its act together around governance issues for the benefit of the NHS.

Download the DH publication Religion or belief – A practical guide for the NHS here.

Action to improve proportion of black and minority ethnic members on NHS trust boards

According to the Health Service Journal (6 November 2008), the Department of Health (DH) is “working with the Cabinet Office to set a target for a public service agreement [on enforcing the proportion of black and ethnic minority (BME) managers in each trust]… and looking at how they’ll be set locally.”

DH director for equality and human rights Surinder Sharma apparently told HSJ the issue was being treated as a priority to make boards more representative of their local populations.

For further information, see the HSJ article here.