Currently many companies may voice concerns privately, but vote in favour of the board publicly, a practice Powdrill says distorts the market view of a director and results in issues never reaching wider discussion. “That makes it harder to break from the herd,” he continues. “Shareholders need to use their votes as a signalling function and speak out.” If less diversity and investor silence has led to a worsening of the governance standards at UK PLC as group-think regains its hold, which has arguably allowed for some of the unacceptably excessive pay awards in recent months, then investors will have to work even harder now to solve the problems for the long term and the impending threat of government quotes will become harder to avoid. “No woman wants to be appointed to tick a box,” argues Emma Howard Boyd, head of sustainability and corporate governance at Jupiter Asset Management and head of the 30% Club’s investor group. “It is key that appointments are made on the right basis. I am very much for progress in this area, but very much against quotas. The threat of quotas has begun to focus investors’ minds though and provides a context in which progress can be industry led.”
Diverse groups make more effective decisions, improving corporate performance and the long-term outcomes for companies and those that invest in them. Investors should be taking what they know and trust in behavioural finance and applying that to how they engage with companies. The importance of combating group-think not only underlines the importance for shareholders to express their views publicly through participation and publication of voting, but also that improving diversity on boards should be a top priority for UK institutions’ stewardship efforts. This idea of ‘behavioural stewardship’ suggests investors should indeed be noisy when others are fearful and fearful when others are silent.
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