Board Diversity – Is Self-Regulation Sufficient?

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    Stockholm (NordSIP) – At the latest ESG summit hosted by Nasdaq and Skytop strategies on 29 August, four influential women discussed how nominating committees can help push forward the agenda on gender equality, while ensuring an enhanced level of governance for shareholders. The panel was composed of Pia Axelsson, Manager, Corporate Governance & Information at the Swedish buffer pension fund AP4, Elisabet Jamal Bergström, Chief Sustainability Officer at the large Swedish commercial bank, Handelsbanken and Louise Hedberg, Head of Corporate Governance at the Swedish asset manager East Capital. Their discussion was moderated by Aoife Houlihan, Vice President, Communications & Public Policy at the Swedish payment-services company Klarna. In another breakout session on the same theme, Ulrika Hasselgren, Global Head of RI Strategy at the proxy advisory firm ISS discussed similar questions with Niklas Ekvall, CEO at the Swedish buffer pension fund AP4.

    “At AP4, we make long-term investments,” Ekvall started. “Therefore, we have a huge focus on sustainability, on the environment and climate change as well as corporate governance. This interest dates back as far as the 80s and even before. Of course, the gender issue has been a key issue in the area of corporate governance. For AP4, gender has been on all agendas since at least 15 years, in order to further improve the performance of companies. Diversity on boards is key.”

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    Often, gender equality in general is considered more advanced in Sweden than in many other countries. Unlike Norway however, Sweden has decided not to force women on the boards by imposing quotas, but to let the corporate sector self-regulate. What is the aftermath of this decision? What are the consequences on gender parity in the corporate sector? And what are the areas that still need focused improvement?

    In both sessions, the panelists agreed that self-regulation is a better solution, as long as it works. It provides more flexibility. Women are also less likely to be accused of being chosen for her gender rather than for her skills when their appointment is not imposed. In the case of Sweden, the threat of regulation may have been the push the corporate sector needed to react. The Swedish corporate governance board issued guidance for the nominating committees and they had to step up their work. “You needed to look beyond your rolodex in order to push this issue forward,” said Hedberg. “People used to say: I know this guy? Do you know anyone?” Now many nominating committees have evolved their way of recruiting board members, as well as planning for the longer term. Large institutional investors, such as the AP, the Swedish buffer pension funds, have strongly contributed to the change through their seats on a large number of nominating committees. “Where we are on nominating committees, we are able to have a direct impact”, said Ekvall. “We make sure the boards have the right competences. One of the areas where there is more focus today as opposed to a few years ago, is that we look at the board as a team, not a collection of individuals with individual competences.” For Bergström, the nominating committee’s role has changed; it provides a stronger support to the business. The committees must look beyond the availability of suitable directors. “Longevity is also key, as well as anticipating the needs of the business and taking special skills into account,” she said. Hedberg added: “You must insure that around the table there is a group that is able to ask questions. Diverse influences need to come in to bring independence and integrity.”

    Niklas Ekvall and Ulrika Hasselgren

    “We hear quite often that women need the CEO experience,” said Axelsson. “But more and more people realize that you don’t need to bring more CEO experience to a board.” The search for women candidates becomes easier when the search is broadened to other titles and areas of expertise. “On the nomination committee,” she added, “you work for the shareholders and the company. You need to make your own analysis of what the challenges are, then you get the profile of the different skill-set that needs to be on the board. Once you do that, it’s not a problem to find the women.” Hedberg added: “The work of the nominating committee doesn’t start in January, but rather just after the AGM.” She insists on the importance to have a long-term plan and that new shareholders must adhere to it. Fast rotation in a board is not a desired outcome. For Axelsson, the role of the nominating committee is also to insure that the right structure is in place beyond the board, that a continuity and a sustainable pipeline of candidates are in place. She explained: “The case for gender issues on boards is easy to make, it’s easy to count and to see. But we need to make sure companies have routines in place to promote women so that women go onto the management teams. That is where we can pick and choose women that we can put on the boards.” Ekvall illustrated the same issues with statistics: “In the corporate sector, 30-35% employees are female. But females are 50% of university graduates, which means we lose females in the corporate sector already at that stage. When we talk about the path from top management to CEO/CFO, there is another big jump, and a big fall in percentage.” He added: “The percentage of females in the boardroom is raising faster than top management. It represents a strong signalling effect. Both to the society in general but also to the company, that a diversified pool of competence is important.”


    Pictures (c) – NordSIP – Featured picture from left to right, Louise Hedberg, Pia Axelsson, Elisabet Jamal Bergström and moderator Aoife Houlihan.

    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.
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