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Board Composition & Access to Capital

Investors have always cared about Board composition with an understandable desire for Boards Members who:

  • know the business

  • bring a skill needed by the business

  • are independent and safeguard the interests of minority shareholders

But now, as Fidelio has flagged previously, Boards are increasingly being held accountable by both shareholders and stakeholders. This has implications for Board composition and access to capital. Chairs and Nomination Committees need to be alert to these expectations as they think through Board appointments and Board refreshment, and populate the Board’s skills matrix.


Consider for example diversity. At Davos, David Solomon, Chairman and Chief Executive Officer of Goldman Sachs, announced that the bank will not consider bringing companies to market in an IPO without a “diverse” person on the Board. Goldman Sachs noted that over the past four years IPOs in the US with at least one woman on the Board have performed significantly better. Scrutiny of Board composition and its diversity will only increase further in 2020. In the UK the Hampton-Alexander Review is to conclude, having set 2020 targets for the FTSE 350 of 33% female representation on Boards, Executive Committees, and Direct Reports. While the FTSE 100 has very recently reached 33% at Board level, the FTSE 250 lags somewhat at 29.6% as does the Combined Executive Committee & Direct Reports at 28.2% across the FTSE 350. Given this shortfall, Boards can expect investor and media scrutiny to continue through 2020. Additionally, the UK Parker Review on ethnic diversity has just reported slow progress towards its targets of “one by 21” for the FTSE 100 and for the FTSE 250 to follow suit by 2027. Here too investors will be scrutinising Board composition and where it falls short, potentially restricting access to capital.

Cognitive Diversity and Climate Change

The benefits of cognitive diversity at Board level are well rehearsed. This is particularly true when transformational change is required. Indeed, as climate change moves up the political agenda, companies are coming under increasing pressure to contribute to reductions in carbon emissions. Investors want to know that Boards are equipped to oversee this transformation.

What Investors Want

Investment managers are increasingly threatening to call out and vote against Directors who fail to act on climate change. CalPERS, the US’s largest public pension fund, has publicly raised the need for climate change competence in the Boardroom. Hedge funds too are alert to climate change risk: Sir Chris Hohn’s TCI Fund Management is also indicating clear expectations for the Boards of the companies it invests in:

“We will typically vote against all directors of companies which do not publicly disclose their emissions and do not have a credible plan for their reduction”

- TCI Fund Management Limited: ESG Investment Policy, November 2019

Larry Fink, Chairman and CEO of Blackrock, highlights in his latest letter to CEOs a fundamental reshaping of finance, and State Street Global Advisors have recently indicated in a similar document that they intend to vote against companies that score poorly on ESG metrics. Brunel Pension Partnership has recently announced it has set a deadline of 2022 for significant progress on climate risk before penalising Board Directors and divesting from non-compliant companies. David Cumming, Chief Investment Officer for Equities at Aviva Investors, is also on record stating clearly that the firm will vote against companies considered to be climate laggards and against those in the Climate Action 100+ list of large emitters that do not commit to science-based targets. The implication for Boards is clear: commitment to change is no longer optional and appropriate competence is required at Board level in the setting and monitoring of realistic objectives to drive a reduction in CO2 emissions. It’s also clear that the US, the world’s largest capital market, is overcoming its historical scepticism on climate change and over time we expect capital access to become more difficult and expensive for companies that do not demonstrate competence and commitment.

Access to Talent

Increasingly we are seeing that access to capital, in particular the public markets, has strings attached. Investors expect Boards to demonstrate diversity of thought and composition, as well as the capability to deal with radical disruptive change. Todayfew Boards would dream of ignoring technology skills in the Boardroom. Soon we may be saying the same about climate change competence.

How well positioned is your Board to access capital and meet shareholder and stakeholder expectations? Is there alignment of value? For further information about Board Search and Evaluation, please contact Gillian Karran-Cumberlege on


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Gillian - Karran Cumberlege

Head of

Board Advisory

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