Most companies have some sort of problem with board member representation. However, a new report from executive search firm Swann Global suggests that mining company boards may not only reflect this but be a particular example of the failings of board representation.
The study looked at 686 board members, across 120 mining companies listed on the London Stock Exchange or Alternative Investment Market. In its introduction, it quotes corporate structure advisor the Pearce Trust as saying: “A company which applies the core principles of good corporate governance – fairness, accountability, responsibility, and transparency – will usually outperform other companies and will be able to attract investors, whose support can help to finance further growth”.
Naomi Kent, North America president of board member network In Touch Networks, tells us: “There are many different theories around what makes an effective board. There’s been many, many studies done around what is right. I think what’s right for the business and what’s right for the company and the industry really depends on who you’re talking to.
“My personal view is that the board needs to have different perspectives on the business. You can’t just bring in anybody who’s different from the outside. You have to bring in somebody who’s very familiar with the business and understands the industry but also brings a different perspective.
“You can look at age range, experience range, you can look at diversity in terms of gender and ethnicity and you can check a lot of boxes, and it doesn’t always mean that the board is going to be effective and that they’re going to work together well.
“There are other things that people look at, like attendance of meetings, how people work together, and having that cultural fit across a group. Being respectful of the CEO’s decisions, but also being able to advise and being able to get your point across wisely.”
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Across the board, women have little say in the direction of mining companies
Mining has some of the least gender-diverse boards of any industry. The Swann paper suggests that only 10% of mining board members are women. Of these, half sit on the boards of a small number of top companies.
Data from personnel analytics company BoardEx shows that larger companies have greater gender balance, but still have more men than the UK average. Across all UK companies, approximately one in five board members are women, rising to more than one in three at the highest levels. In mining boards, women hold slightly less than one in three seats at the largest companies. In the smaller companies, which make up the majority of all companies, this falls to one in 17.
Kent said: “For me, it’s not about checking boxes and saying, ‘we must do this’. It’s about saying to the business ‘do we represent our audience and our business’? Do we have people who can comment on different perspectives in the future so that we can lead our business through change? And businesses have been going through a huge amount of change recently.
“There’s a big discussion at the moment around gender and ethnic diversity, especially in the US. In Canada, Australia, and California, they have actually put mandates in place for publicly traded companies around how many women that companies should have on their board. There is data that shows that in 2019 and last year, the number of women hired to boards rose by something like 40%.”
In the UK, companies remain far from gender parity on board members. However, its ratio compares favourably to others worldwide. Tom Butler, CEO of the International Council of Mining and Minerals (ICMM), says: “For me, the most shocking statistic quoted in the Swann report is that for the top 500 mining companies globally, only 5% of board members are women.
“This needs to change if we are to up our game as a sector, and also attract and retain more women, at all levels. Encouragingly, there are signs of progress. The number for London-listed companies is double the global statistic, at 10%, and for ICMM’s four largest members, the number is 32%. In general however, there is still a long way to go.”
Most members of mining boards have sat for more than nine years
Mining companies also tend to have board members remain in place for far longer than in other industries. The Swann study found that most mining board members have held their seat for more than five years, with approximately 23% holding their seat for more than nine years.
According to Board Ex data, this stands at approximately double the UK average. Interestingly, the average tenure of mining board members remains roughly in line with the national average. This implies that many mining board positions are replaced very frequently, while many others are held by very long-standing members.
The white paper’s commentary says: “Mining is a small community, and directors often rotate within the sector. While this allows the transfer of knowledge and expertise, it can lead to a risk of stagnation, and the lack of fresh perspective has the potential to pose a challenge for the growth of the sector.”
Kent agrees, saying: “I am a strong supporter of term limits at the board level, and I do believe that having fresh and new ideas on the board can be the right way to go. I believe studies have shown that the ideal tenure is between four to six years. There is a lot of value in having people who understand the business very well when it comes to innovation.”
However, the white paper also acknowledged the advice of a governance service company: “Glass Lewis does not recommend expelling directors on the basis of lengthy tenure alone. However, they may recommend voting against long-tenured directors when lack of board refreshment may have contributed to poor financial performance, lax risk oversight, or other concerns. In conducting their analysis, they consider board tenure over nine years as lengthy.”
Again, the statistics show smaller companies as the ones furthest from average. The Swann report says that companies earning less than £50m ($68m) per year have the majority of board members who have remained in place for more than nine years.
Smaller companies, smaller boards, bigger issues?
These companies make up 75% of those in the survey, but seem to look less similar to the average company than higher-earning companies.
Kent explains: “Smaller companies lack the networks and they definitely cannot pay for a recruiter. It’s not just that they don’t have the networks, the people that they do hire onto the board are often the wrong people.
“As an example, I know of a company where the two guys that are running the company brought in another guy they had known for years, who didn’t seem like a good fit but who they trusted implicitly. That’s okay for now, but you want to try and grow the company and that member might not have a clue on how to grow.”
As ESG investment rises, ESG directors remain hard to find
Elsewhere in the white paper, ICMM’s Butler said: “The second issue the report addresses is the low representation on mining boards of people with health, safety, environment, or community experience, which is stated as only 5% for London-listed companies.
“In this context, ICMM’s Mining Principles explicitly require members to assign accountability for sustainability performance at the board and/or executive committee level. This too represents a trend in the right direction.”
Swann found that only 3% of board members had experience with environmental, social, and governance (ESG) issues. A smaller 2% of board members had experience in health and safety issues. Interestingly, of the combined 5% with experience in either field, approximately half are women.
Kent says: “There’s two groups of thought around this: is it a box-checking exercise, or is it a true directional change? A lot of companies have figurehead board members that can appeal to investors, but true change has to come from the CEO, and if they are not invested in an area, then it probably won’t happen.”
However, 2021 could mark a turning point for ESG awareness. In 2019, 52 countries committed to the Extractive Industries Transparency Initiative Standard. Starting this year, the Standard requires companies to disclose significant amounts of ESG data, including environmental impacts, spending on social causes, and amounts of public engagement.
How to build a better board for your mining company
The white paper makes several recommendations to improve the boards of mining companies. These include establishing permanent slots for board members with ESG experience, balanced representation for women, and having efficient succession planning in place. It also recommends regular independent board assessment.
So, what fixes an ineffective board? Kent says: “I think a lot of this comes down to hiring right. Right now, a lot of wallets are tight, so companies will not want to spend money on recruiters. Finding the right people can be hard if you’re looking through your contact book. Getting a subject matter expert requires a lot of research, so company leaders should aim to find the right networks and know where to advertise. It’s a big problem, especially among startups.”