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AIM and FTSE Small Cap fall behind in board diversity

The FTSE Small Cap 100 (SMC) and Alternative Investment Market (AIM) are falling behind their larger peers when it comes to diversity on boards, according to a new report from Company Matters, part of Link Group.

In terms of gender, 2011 saw a target set for FTSE 100 companies to have a 25% female board. This was met in 2015, and the target was extended to 33% of FTSE 350 companies by 2020, which is likely to be met. Comparatively, a mere 15% of the 329 AIM directors are women, and more than a third (36%) have all-male boards. AIM gender diversity is therefore worse than that of the FTSE 100 in 2011, before progressive measures were introduced.

The make-up of FTSE SMC boards is 28% women. And this is a significant recent rise, as 44% of new appointments over the last 18 months were women, a higher rate than the FTSE 350. While still lower than their FTSE 100 counterparts, this leaves the FTSE SMC more gender diverse than the FTSE 250. However, looking at executive roles in these companies, a mere 4-5% are held by women, the majority in chief financial officer roles. This is a similar pattern to the FTSE 350 where 60% of female executive directors are CFOs or FDs. Only one AIM CEO is a woman.

Looking beyond gender, in 2017 The Parker Review suggested that FTSE UK 100 boards should have at least one director of colour by 2021, and by 2024 for FTSE 250s. In the AIM and FTSE SMC, ethnic diversity is severely lagging; 96% of directors are white, and 80% of boards are all-white. This is compared to 50% of the FTSE 100.

Beyond direct representation, recent years have seen increased expectations for transparent and accurate reporting on diversity. A 2018 review by the FRC found that FTSE 350 reporting on diversity was “fairly basic” and this pattern is repeated in the AIM and SMC. In the latter, more than half have basic or boilerplate reporting, and nearly one in six companies don’t have or don’t describe a clear approach to board diversity. Figures are even worse in the AIM 50, where 42% have no mention of diversity and only nine companies explicitly state that they have a diversity policy.

Tracey Brady, managing director at Company Matters, part of Link Group, said, “Diversity and inclusion are at the top of the agenda for many companies, and over recent years we’ve seen swathes of research measuring the FTSE 350. While those companies do account for a large slice of the economy, many are global corporates and don’t reflect the situation in the UK. That’s why we’ve delved into the detail of the FTSE Small Cap and AIM, and the results reveal a worrying picture. The companies themselves may be interesting and diverse, but their Boards are falling behind.

“Targets have clearly moved the dial at FTSE 350 level. It may be time for the Government to shift its focus to representation in smaller companies, but this push for change also needs to come from the bottom up. It’s vital that AIM and FTSE Small Cap companies step up and engage with the need to diversity their boards and senior management. Not only is diversity shown to improve the productivity and profitability of companies in their own right, but these smaller companies are a major talent pipeline for the FTSE 250. If smaller businesses start doing the right thing and behave as good corporate citizens, we may be able to make greater and faster change in the UK.”

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