There are new concerns over the rising numbers of boards directors in the financial services sector which are working for multiple companies creating the emerging risk of “overboarding” and hindering the drive for greater diversity in the C-suite.
EY’s latest European Financial Services Boardroom Monitor has found board directors serving Europe’s largest financial services firms currently hold an average of three board seats each, and over a quarter (26%) hold four or more. This comes as new sentiment polling data finds 82% of European investors surveyed believe that holding board positions at three or more firms – rising to 85% if one is at executive level – could present challenge to board directors’ abilities to fulfil their duty of governing a company.
The Monitor charts the profile, experience, training and skillsets of board directors across the MSCI European Financials Index and is supplemented with a sentiment polling survey of 300 European financial services investors.
Amongst the most senior board members – chairs and executive directors – the average number of positions held is two. Across all board members, sitting on more than one major financial services board is less common: only 3% of directors tracked hold two or more board roles at the largest European financial services firms.
When asked to identify the primary driver behind directors assuming multiple board positions, just over a quarter (26%) of investors cited board members’ desires to gain broader experience and over a fifth (22%) cited remuneration. Separately 19% of investors believe it relates to a shortage of female candidates with sufficient experience; however EY said its data does not support those claims, finding that the proportion of both men and women sitting on three or more boards correlates with the gender split of the total director population tracked.
From a sector perspective, directors holding multiple board positions are most common within the asset management sector, where 49% of board members hold more than two board positions. It is least common in the banking sector, where 39% of board members hold more than two board positions.
From a regulatory perspective, while there are local market limitations to some director roles, there is no blanket regulation applied across European financial services markets to restrict or mandate the number of board roles that can be held by an individual.
Omar Ali, EY EMEIA Financial Services managing partner, said: “Concerns about ‘overboarding’ and the knock-on effects it could have on governance are increasingly topical. A careful balance must be struck by companies and chairs to build a board with the requisite skills and breadth of experience to face new and increasingly complex risks while ensuring that all members have the capacity to dedicate the time and resources demanded by the board role. This is particularly the case for board directors serving on multiple boards of businesses that are facing into challenges at the same time, and when the talent pool of qualified candidates is small.
“Whilst there are a number of reasons board members hold more than one position, there are associated risks to monitor. Participants in the 2023 EY European Financial Services Chairs’ Interview Series spoke of concerns that the prestige of a board seat could affect willingness to challenge the status quo – an attribute deemed critical by chairs and regulators – and that some board members might be financially dependent on their board positions, which impacts their independence.”
The Monitor found Eighty-two per cent of European financial services investors state that the gender diversity of the boardroom has a significant influence on their decision to invest, compared to just 6% who say it does not influence their decision at all.
Of board appointments made over the past year (July 2022 – June 2023), 44% were female candidates, representing an eight-percentage point fall year-on-year from 52% in the year to June 2022. Of board appointments made in the first six months of this year, 44% were female and 56% were male. Overall, the current gender split of European financial services board members stands at 43% female and 57% male.
Twenty-eight per-cent of listed European financial services firms have under 40% female representation in their boardroom, which is the level required by June 2026 to comply with the European Commission’s European Women on Boards Directive. The Directive requires all companies in EU member states to meet a 40% female target for non-executive boards or 33% for all board members.
On a sector basis, the gender diversity of wealth and asset management boardrooms lags the insurance and banking sectors. Almost half (47%) of wealth and asset management firms have under 40% female representation within the boardroom, compared to 24% of banks and 17% of insurance firms.
The EY said its data found clear evidence that women on boards continue to be less likely to have worked in c-suite roles. Across Europe’s financial boardrooms, just 53% of female board members hold or have held a c-suite position, relative to 65% of their male counterparts. This is up marginally on January 2023 data, which showed 51% of female board members had c-suite experience, relative to 62% of their male counterparts.
Eighty-four per cent of European financial services investors state that the age diversity of the boardroom has a significant influence on their decision to invest, compared to just 6% who say it does not influence their decision at all.
The average age across European financial services boardrooms is 59. For women it is 58, up from 57 in January 2023, and for men it is 61, up from 60 in in January 2023. Overall, just 10% of companies monitored have board members under the age of 40.
Omar Ali explained: “Financial services boardrooms have changed over the last few years, and chairs and executive teams have actively replaced departures with appointees who bring new and needed expertise – namely in sustainability and tech. As the dynamics of global business continue to change, we expect to see international experience and diversity of background rise in importance as boardrooms navigate an increasingly challenging macro backdrop, and the need for more female board members with c-suite experience remains a priority. However, such appointments can only take place if there is a strong talent pool and a growing pipeline offering an ever-wider range of candidates, both of which are crucial to avoid ‘overboarding’.”