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Jan 17, 2023

UK small caps see ‘gradual’ rise in number of female executive directors

Female CEOs in small-cap index increase only modestly to 5 percent

UK small caps have boosted the number of female executive directors but continue to lag behind larger peers on diversity metrics, according to a report from KPMG.

The proportion of female finance directors within the FTSE SmallCap Index, which includes UK listed companies outside of the FTSE 350, has risen from 5 percent in 2020 to 14 percent in 2022, finds the research.

‘Other’ executive directors, defined by the research as any main board position aside from CEO, finance director, executive chairman and non-executive directors, saw female representation rise from 4 percent to 15 percent over the same time period.

Looking at the board as a whole, the proportion of women at small caps jumped from 3 percent to 10 percent over the last two years. But the number of female CEOs in the index recorded only a modest 2 percentage-point climb to 5 percent.

‘We have seen an increase in female representation across the executive director population for those companies contained within the SmallCap Index, but our figures show that increases are gradual year on year and further work can be done to increase female representation,’ write the report authors.

Steady climb

UK issuers have seen a steady rise in the number of women sitting on boards and executive teams over recent years, encouraged by the Davies Review and Hampton-Alexander Review as well as institutional investor pressure.

At the beginning of 2022, the proportion of female board members at FTSE 100 companies stood at 39 percent, up from 36 percent in the previous year, according to the FTSE Women Leaders Review, which has continued the work of prior initiatives. The FTSE 250, meanwhile, saw female board representation rise to 37 percent from 33 percent.

Given the progress made on board diversity, focus has now increased on executive positions. The FTSE Women Leaders Review has set a new voluntary target for FTSE 350 companies to have a minimum 40 percent female representation on senior leadership teams, as well as the board, by the end of 2025.

Woman using white board
Photo: ThisisEngineering RAEng

The KPMG report notes that companies in the FTSE SmallCap Index deliver most of their executive remuneration via short-term incentives. For example, small-cap CEOs receive 74 percent of total remuneration through elements like salary and annual bonuses.

‘From an investor perspective, in light of the economic impact of Covid-19, there has been an increased focus on how to incentivize executives to increase shareholder value,’ say the report authors.

‘Guidance from institutional investors has been clear that reward must consistently align [with] performance; this continues to be seen in the adoption of performance share plans with performance targets linked to different measures of shareholder value creation.’