It has been a busy start to the year for the European IPO market. If the $3.2 billion of business already priced and the $8.5 billion being marketed find investors, soon a lot of new directors will be taking their seats around the boardroom tables of newly listed companies. But how many of those seats will be filled by women?
Preparation for an IPO is one of the greatest opportunities to increase the diversity of a company’s board. In what is set to be the best year for flotations in Europe since the financial crisis, that opportunity must not be missed.
Listed UK companies are already leading the way in Europe. Women comprise 20.4% of FTSE 100 boards, with only two all-male boards remaining, and 15.1% of FTSE 250 boards. The pace of change in the UK has been remarkable and, importantly, has been voluntary and business-led. Meanwhile the rest of Europe continues to distract itself arguing about quotas.
That makes it all the more disappointing that in last year’s crop of UK IPOs that trend went into reverse. This was highlighted by the report in Financial News this week, based on its analysis of filings by the 17 companies that floated in London in 2013, which found that of the 130 directors, precisely 15 were women. At 11 per cent, that falls far short of the FTSE 100 average.
The reasons there are not more women on pre-IPO company boards are not a mystery. They are largely a familiar issue of systemic culture.
Historically, the tale has been one of a lack of scrutiny. Private company governance has always been less diverse than public company governance, so as companies went from private to public, innate conservatism kept the board composition the same. Private equity backers also often add a senior executive to the board of the portfolio company they are looking to float, and as with much of financial services, this is an area that remains dominated by men. Ditto major shareholders.
Headhunters frequently cite the Catch-22 argument that there are simply not enough women with existing public company board experience, so when it comes to the crucial IPO time, they opt for the safe pair of (male) hands that the market expects.
It is true that there are not enough women on boards, but as the figure in the UK continues to rise (and maintains the momentum it has displayed since Lord Davies’ Report in 2011), this argument becomes more and more moot. The opportunity to add women is being missed because companies are solely focused on the short-term success of their flotation and what they think the market wants, not on their future as a public company.
Companies planning an IPO should regard board composition as an essential part of their disclosure. Investors have become increasingly vocal in calling for diversity on the boards of listed companies, and it is only a matter of time before the same applies to companies undertaking an IPO.
Board composition is an essential part of public, and private-to-public, company governance, and no matter the size of the company, having better female representation on boards discourages group-think and encourages a more varied decision-making process. As a board, creating shareholder value through sensible decision-making should be the number one priority.
The opportunity with pre-IPO companies is huge. More often than not the boards are brand new, so the arguments that the board is already too big or that there is no “space” or “skills gap” for women fall flat. Companies have a blank canvas to create the best and most diverse board possible, and public board experience is not always a requirement. A niche product knowledge or skillset, particularly in the fast growing tech sector, can often be much more valuable to a board.
As the IPO market booms, the topic of IPO boards will attract ever more limelight. UK business and the government are already behind better female representation on boards, and a missed opportunity to make the UK more competitive than Europe will not be taken lightly.