3 | Do diversity targets really help increase diversity in the boardroom?
The board of Dutch listed companies is still dominated by men, gender diversity targets are often not met
Dutch listed companies are managed by an average of three men, between the ages of 45 and 60. Only 9% management board members is female. Supervision of these companies is (on average) done by a group of almost 6 people between 50 and 70, of which less than 2 are women. Diversity in Supervisory and Management Boards in the Netherlands, despite various diversity guidelines and legislation, requires improvement.
Written by Denise Valkering and Arlette Brouns, Senior Consultants Governance & Strategic Risk
The revised Corporate Governance Code, one year later
This blog is part of Deloitte’s ‘revised Corporate Governance Code, one year later’ series. The blogs address how Dutch listed companies account for their application of the 2016 Corporate Governance Code in their annual report. In April 2017 the Dutch parliament reinstated its diversity target, after it had been cancelled in January 2016, to stimulate a balanced distribution of men and women in management boards. Deloitte's research amongst Dutch listed companies, confirms the uneven distribution between men and women on board level: only 15% of listed companies meet the 30% diversity target. Not even 10% of management board members is female, combined with almost 30% female supervisory board members.
Several studies have shown that diversity in the boardroom improves decision making. This notion has been translated into statutory provisions, aimed at ensuring diversity in the board; Management and Supervisory boards should include at least 30% women and 30% men1. The Dutch Corporate Governance Code further emphasizes this by pointing out that diversity leads to a more favorable attitude with respect to innovative ideas of other colleagues, including your fellow board members.
Deloitte’s benchmark study into the boardroom diversity at Dutch listed entities show that the majority companies (85%) currently do not meet this gender diversity target. From the companies included in our benchmark study, 39 out of 68 do not have any women in the Management Board. Out of these 39 companies, 7 also do not have any woman in the Supervisory Board. The majority (~60%) of this last group is also comprised of all Dutch members, reducing diversity even further. Why diversity targets are not met, or what these companies intend to do to increase diversity in the board, is not accounted for. Even though the Code is based on the “comply or explain” principle, they neither comply or explain.
In addition to the national gender diversity guidelines, the Corporate Governance Code 2016 requires listed companies to have a diversity policy in place. And to report on whether or not the company’s own diversity targets have been met. Research by the Committee Corporate Governance Code2, revealed that approximately two-thirds of Dutch listed companies defined boardroom diversity targets. Based on our benchmark study we see an even higher percentage. Out of the examined Dutch listed companies (68), 52 have a diversity policy regarding the composition of their governing bodies (management and supervisory board). Almost 71% of these companies developed gender related guidelines and targets. Others apply a non-discriminatory policy in which they state to “hire the most capable person for the job”, not specifically emphasizing gender priority.
Prior research by Deloitte into boardroom dilemmas already showed that considerations regarding experience, qualification and gender in the selection process can lead to dilemmas for board members. Interviewees expressed their concerns for the increasing focus on gender in the selection and nomination process for board members, and that this might come at the expense of the quality of board members.
It seems that Dutch listed entities still need some convincing into the benefits of gender diversity in the board. The limited amount of women in management boards, appointed by predominantly male supervisory boards seem to confirm the ‘assumption bias’ in selection. This bias causes people to be more likely to hire people alike themselves. Moreover, in its current state the governing bodies in the Netherlands provide a poor reflection of the Dutch society, where the man-to-woman ratio is almost 1-to-1. The Dutch government has attempted to change this unbalance by reintroducing statutory diversity targets. Yet, with the current balance between men and women in boardroom positions, the Netherlands falls behind compared to other European countries. Will reintroducing further legislative measures really help? Time will tell..
1 Principe 2.1.6 in the Code directs to clauses; 2:166, 2:276 and 2:391 (lid 7) from the Dutch Civil Code; a statutory provision that aims to ensure a balanced participation of 30% men and 30% women in Supervisory and Management Board.
2 Monitoring Committee Corporate Governance (https://www.mccg.nl/?page=5757)
‘The revised Corporate Governance Code, one year later’ series
This blog is part of a weekly series of blogs on the results of Deloitte’s benchmark study, examining annual reports of Dutch listed companies to assess how implementation of the 2016 Dutch Corporate Governance is accounted for in its first year. This benchmark study included the annual reports of 68 Dutch listed entities.
As the Code is principle based, we know from our own experience and those of our clients that applying it to your organization can be challenge. Through this benchmark and this series of blogs we provide insights into implementation of some of the key elements in the Code. Interested to see how Dutch listed companies deal with Corporate Values?
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Would you like to know how we diversity can increase the effectiveness of your board? Please contact Arjan ten Cate, Director Deloitte Risk Advisory. He specializes in the design of a thorough diversity policy and aims for a practical application of and reporting on the Dutch Corporate Governance Code.