Leading a FTSE 100 company arguably makes you one of the most powerful people in the UK. Most blue-chip bosses make decisions that affect the lives of millions – how much we pay for energy, where our pension pots are invested and even the food we eat each day.
But cast an eye down the list, from Simon Borrows at 3i Group to Mark Read at WPP, and you’ll find that many have a similar profile. Well-educated white men with decades of experience in corporate globetrotting abound, even though the FTSE 100’s constituents range from student accommodation providers to some of the world’s largest oil companies.
Why is this the norm? And is it likely to shift any time soon?
Diversity: does looking the same mean thinking the same?
The sort of person who gets to lead a FTSE 100 company has been under the microscope for more than a decade. Over this period, several government reviews have examined the shortfall in female or non-white directors in blue-chip C-suites. Although progress has been made – companies on the index recently hit the overall targets of 40% female directors and at least one ethnic minority board member – there’s still a long way to go.
To bridge these gaps, a “much more concerted effort” is required from boards of large listed companies. That’s the view of Hephzi Pemberton, founder and CEO of Equality Group, a diversity and inclusion consultancy.
Noting that there’s never been a woman from an ethnic minority at the helm of a FTSE 100 firm, she says: “This makes me think that boards simply aren’t looking at succession planning properly. What an amazing easy win it would be to have the first woman of colour as a CEO in the FTSE 100. Why wouldn’t you want that accolade for your company?”
There are also few leaders who are known to be LGBT+. That seems incredible, given that one of the world’s most high-profile corporate leaders, Apple’s Tim Cook, came out as gay nearly a decade ago. Bosses with known disabilities are similarly under-represented – a situation that could improve since Elon Musk revealed in 2021 that he has Asperger’s syndrome.
Dr Fatima Tresh is a senior diversity, equity and inclusivity manager at EY and a member of the Parker review committee, which reports on the ethnic diversity of UK boards. She believes that there may be more LGBT+ and disabled bosses than we know. Indeed, it was only in 2007 that Lord Browne of Madingley quit as CEO of BP after being outed by the Mail on Sunday.
“Definitions at the moment feel more complex,” Tresh says. “Companies are much less comfortable talking about disability and sexuality as identities or categories. But, as we get more comfortable with the conversation, I expect we’ll be tracking and benchmarking against them too.”
Another potential category to examine, social class, is even more fraught – and subject to frequent public debate.
Boards often blame the limited supply of diverse candidates ready to step into senior roles. This excuse is “BS”, argues Pemberton, who blames generations of privileged white men for their failure to encourage women and people from ethnic minorities to succeed them as business leaders.
Underlying this problem is the tendency among leaders to identify potential in people whom they see as similar to themselves, says Tresh, who adds: “If they’re successful, they think people like them will also be successful.”
While some studies have made the business case for diversity, arguing that it boosts corporate performance, Pemberton believes that the moral case is clear enough to warrant action. “Most of us want to live in an egalitarian society that has less bias and fewer hurdles for people to get to the very top of companies,” she says.
Tresh agrees: “It’s the right thing to do. We are a diverse society, so we should have representation in the most influential positions in business.”
There has been some progress of late: a fifth of the CEOs appointed by blue-chip plcs in the previous financial year were from non-white backgrounds, including Wael Sawan at Shell and Anil Wadhwani at Prudential. The FTSE 100 is set to have its highest-ever number of female CEOs – 10 – when Debra Crew takes the helm at Diageo in July.
That could represent the start of a virtuous cycle, according to Tresh. “The more we diversify leadership, the more we’ll diversify that pipeline,” she says. “That’s because candidates will have more role models and people to build relationships with.”
Career: is there a formula for success?
What are the typical routes to the top of business and how did today’s CEOs find themselves on these? Becoming the leader of a large plc does not happen by accident. For all 97, it will have taken commitment and careful planning from an early age, along with support from senior mentors.
It’s striking that, whatever their initial specialism, virtually all are professional managers rather than entrepreneurs. There is only one founder-CEO: Tim Steiner, who was part of the trio that established Ocado back in 2000. Compare that with the S&P 500: more than 5% of the firms on this more tech-focused index still have a founder as a CEO or chairman.
As a result, it’s possible to sketch out the typical early career of a FTSE 100 CEO. After studying business or economics, they tend to join a major auditor, bank or consultancy, or perhaps a graduate scheme at a big corporation. About a quarter gained an MBA to aid their progression through the ranks.
The few who took less conventional routes include Andy Bird of Pearson, who started his career as a radio producer before moving to media giants Warner Media and Walt Disney; Michael Murray, an estate agent who was installed as Frasers Group’s CEO aged only 33 by his father-in-law, Mike Ashley; and Emma Walmsley of GSK, who studied classics at Oxford.
“Publicly listed businesses tend to play it safe. This is because they have to be able to justify their appointment to the shareholders,” notes Oona Collins, executive leadership coach and CEO of Potential Plus International.
Being a loyal servant helps: of the 65 CEOs who were appointed internally, half had been with their company for more than a decade.
Numerous others will be brought in at a senior level before being promoted to the top job. For instance, Dr Charles Woodburn became CEO at BAE Systems just over a year on from joining the company as COO.
This is becoming a popular approach for blue-chip firms, according to Collins. “It gives the future CEO a chance to assess the challenges, understand them and start making changes that may be needed in a more subtle way,” she says.
Lucy McGee is an expert in succession planning and a senior client partner at Korn Ferry’s board practice. She believes that it “reflects much better on a board to have some internal options when a CEO resigns”.
She explains: “The numbers suggest that you get a longer tenure and better shareholder returns from an internal appointment. It also sends a powerful message to other senior people in the organisation that there is a point in staying. The biggest businesses will have career development plans that will deploy potential leaders in different places to help broaden their experience as early as possible.”
McGee observes that external appointments are more likely if the business is “floundering”. A radical change in direction for the business can make an outsider’s perspective “very valuable”, she says. “This indicates to the shareholders that the company is going to do something really different.”
Since the start of the Covid-19 pandemic, external appointments have become twice as common. Some incoming CEOs have been clear about their change agendas. Tufan Erginbilgic started his tenure at Rolls-Royce this way in January. A newcomer to the aerospace industry, he warned staff at the company that the business was a “burning platform” on its “last chance”.
In the future, boards may start to cast their nets wider. Although CEOs with backgrounds in finance and operations dominate the FTSE 100 at present, Collins believes that more CMOs and CTOs will be appointed to the top job as marketing and digital know-how become more crucial.
Money: how much is too much?
While the rewards might seem more than adequate to most people, boards would actually like to pay their CEOs much more. That’s the view of Luke Hildyard, director of the High Pay Centre, a think-tank that criticises excessive executive compensation packages.
UK-listed businesses operate under the world’s strictest remuneration standards, according to Deloitte. A company must disclose a breakdown of directors’ pay and why it was awarded, as well as the ratio between the CEO’s pay and that of its average employee.
Such transparency has prompted relative restraint on the part of boards, given the British public’s general distaste for corporate fat cats.
“We tend to focus on FTSE companies because there’s so much more data available on them,” Hildyard says. That’s “slightly problematic” when the nation’s highest-paid bosses tend to lead private businesses. Denise Coates of Betfair, for instance, took home £263m last year.
Listed firms are also under pressure from many shareholders to maintain pay restraint. Berkeley Group, Compass Group, Ocado and Standard Chartered were among those that faced “significant” votes against their executive reward plans at their 2022 AGMs.
As a result, FTSE 100 bosses are paid considerably less on average than their equivalents across the Atlantic. In 2021, the median S&P 500 CEO raked in 2.25 times more, including bonuses and stock. When Laxman Narasimhan left Reckitt Benckiser for US coffee giant Starbucks last year, for instance, he increased his total potential compensation by more than 130%.
Some observers have argued that one of the factors behind the flood of British businesses choosing to list in the US is that they want to escape scrutiny over executive pay.
Boards certainly fret over losing talent to competitors. In Centrica’s latest annual report, the chair of its remuneration committee wrote: “We cannot expect to attract and retain leaders in the future if we do not meet our commitment to recognise and reward the performance and talent of our people,” justifying a 413% pay rise for CEO Chris O’Shea, despite the public’s fury over rising energy bills.
To navigate this tightrope, most companies have turned to benchmarking against other FTSE-listed firms.
“When business people are operating in an area of uncertainty such as this, they copy other people.” So says Sandy Pepper, professor of management practice at the London School of Economics and author of several books on executive compensation.
Paradoxically, this has put upward pressure on salaries. That’s because “copying tends to go one way”, he argues. If a remuneration committee sees that its CEO is underpaid, it’s likely to increase their pay, yet it would find it hard to pay them less if the opposite were true.
“Everybody pays over the odds because no one’s going to thank them for underpaying. The safest thing to do is to go with the crowd,” Pepper says.
As persistently high inflation erodes the pay of most ordinary workers in real terms, could this situation change? Several FTSE 100 bosses waived their bonuses or accepted temporary pay cuts during the Covid crisis.
But, more recently, CEOs at supermarket chains and energy companies have attracted flak for accepting large bonuses while their firms were making their customers pay ever more for their products and services.
For instance, the leader of the Liberal Democrats, Sir Ed Davey, said that it was “outrageous” that the outgoing CEO of Shell, Ben van Beurden, was awarded nearly £10m as he stepped down in early 2023.
Yet, for companies of Shell’s huge scale, such sums represent pocket change. Many would rather take a temporary reputational hit than risk losing their star performers. Meanwhile, the financial regulators are thinking about relaxing the transparency rules on executive pay to encourage more firms to list in the UK. Even bigger rewards for CEOs could be just around the corner.
What’s next for the FTSE?
While the financial benefits may be great, it takes a particular kind of character to make the personal sacrifices required to land the top job and then handle the stress it imposes.
Speaking about the demands of her role on a recent episode of BBC Radio 4’s Desert Island Discs, Amanda Blanc, CEO of Aviva, said: “I would like to say that you can have a work/life balance. But, genuinely, you live, breathe, sleep, eat it. You think about it constantly… It’s all-encompassing.”
And the job encompasses ever more by the year. These CEOs are not only the public faces of their companies; they also represent UK plc on the world stage. Then there are the soaring demands of institutional investors, which are becoming increasingly preoccupied with the need for effective environmental, social and corporate governance. More than 80 of the FTSE 100 link some percentage of their CEOs’ bonuses to the achievement of ESG targets – almost double the number that did so in 2020.
“This has always been a phenomenally challenging job and it’s not for everyone,” McGee notes. “Since Covid, the role has been demanding more resilience, learning and agility than ever.”
Perhaps as a result of this, almost half of the FTSE 100 have appointed a new CEO since March 2020. Each has had to deal with the consequences of supply chain disruption, the cost-of-living crisis and political turmoil. In the process, many have become “lightning rods” for wider problems, as O’Shea put it last year.
What remains to be seen is whether FTSE 100 boards and shareholders will stop playing it safe when choosing the public face of their companies. After all, the index contains companies with operations all over the globe, so what happens here in the UK might set the tone for the rest of the world.