Anti-quotas fund giant fuels diversity debate

One of Britain’s biggest fund managers has sparked fresh debate about boardroom diversity by hinting it might vote against companies that fail to promote change and attacking the idea of set quotas.

A review of boardroom equality by Lord Davies in February set a target for boards to be made up of at least 25% women. But last week Sacha Sadan, the director of corporate governance at Legal & General Investment Management (LGIM), which owns more than 4% of the British stockmarket and is represented on the boards of many of the biggest firms, said set quotas could be detrimental to boardroom diversity rather than improve it.

Speaking at LGIM’s fundamentals briefing, Sadan said: “We don’t like quotas. We care about people being as good as they can be.”

While the ultimate solution was a diversity of genders, ages, and global experience, said Sadan, hiring a specific type of person for the sake of it was damaging. A boardroom quota would also effectively create a shortage of female non-executive directors who were available for appointment as companies rushed to diversify their boardrooms according to the target.

Sadan indicated that LGIM was not averse to using its influence. “As one if the largest shareholders, we will always be there,” he said. (article continues below)

He insisted that using LGIM’s voting rights would be a last resort, but added: “If a company does nothing for three years, we would ask why that was the case. It [could] come to the point that we will have to vote against a chairman.”

Sadan, who directly aligns the performance of a firm with the diversity of its boardroom, points to Imperial Tobacco as an example of a company that is making positive moves to tackle the issue. Gareth Davies, its former chief executive, was succeeded in 2009 by a woman, Alison Cooper.

Industry bodies agree on the need for diversity, and David Tebbs, the founder and executive partner of the Association for Non-Executive Directors and Independent Directors, says it is important not to narrow the debate.

“Shareholders should vote depending on what they believe in,” he says. “Diversity is a widely misused label. It is often used in singular terms regarding gender, when the reality is that it is a much broader thing.”