This week in the US, the Institutional Shareholder Services (ISS) released the details of its updated “QualityScore” corporate governance rating system. Everyone aims for 10 (higher quality and lower organisational risk). If you do badly, you’ll be closer to 1 (lower quality and higher organisational risk). There were many improvements, strengthening of existing criteria andthe introduction of new factors and considerations. MSBLeaders believes there are three that stand-out for diversity and performance reasons:
#1 Proportion of women on the board
Previously there was a single factor addressing both number and proportion on the board, this has been separated out. There are now two distinct factors addressing women’s representation on the board of directions (one that addresses absolute number and the other that addresses proportion).
#2 New board refreshment factors
Two new factors were added to the analysis of ‘board refreshment’
- “What proportion of non-executive directors has been on the board for less than 6 years?”
- “Does the board have any mechanisms to encourage director refreshment?”
The first factor awards increasing credit for increasing proportions of the board represented by directors with less than six years of tenure. It gives no additional credit once the proportion exceeds one-third. It also does not count executive directors.
The second factor has a zero-weight impact on the QualityScore and has been added for informational purposes only. ISS specifies mandatory retirement age and term limits as examples of mechanisms to encourage director refreshment.
#3 Company disclosure of the existence of a formal CEO and key executive officers succession plan
ISS will now consider whether a company has disclosed a board-approved, periodically evaluated succession plan for the CEO, other senior management and key effective officers.
Compliance or rankings aren’t reasons to adopt best practice – performance is. These new criteria reflect what high performing boards already know – it pays to have alternative skills, capacities and perspective to develop, test and strengthen corporate strategy and risk management.
Diversity of perspective, which can come from gender representation and renewal, as well as psychological distribution, is an advantage in the board room. Do you have it? For some this is already standard practice, but is not so across all mid size business.
The 30% Club launched as a campaign in the UK in 2010 with a goal of achieving a minimum of 30% women on FTSE-100 boards – currently the figure stands at 27% up from 12.5%. The Minimum Diversity Pledge, another initiative from the 30% Club encourages organisations to address diversity shortfalls in tech. You can read more about on their blog.
Many organisations are missing out on the advantages diversity, refreshment of boards and succession planning can deliver. This is something ISS now formally recognises, and which UK business can learn from.