Diversity: a competitive differentiator for your board’s talent strategy
Alban Aubrée, EY Luxembourg Private Equity Assurance Services Partner & ILA Board Member
sustainability, and digitalization – these are some of the hottest topics in Europe
in 2023 according to EY’s 2023 board priorities report, but which is the most
pressing in Luxembourg? There is one overarching trend which permeates all
business areas: talent. And, in the context of European Diversity Month this
May, boards have an opportunity to set the standard for crucial facets of
the talent agenda – diversity, equity, and inclusion (DE&I).
the talent landscape and Luxembourg board priorities before diving into
understand DE&I in Luxembourg, it is worthwhile first having a broad
understanding of the talent agenda. The outlook is mixed when it comes to
talent competitiveness in Luxembourg. While the Grand Duchy has made it to the
top ten most attractive countries for highly skilled workers in the OECD Talent
Attractiveness Research (2023), it contrastingly dropped
from third to seventh place in the IMD World Talent Ranking in December 2022. Regardless of
perceptions, the reality is that recruiters in the Grand Duchy have
historically struggled to fill vacancies in banking and technology, but this
now extends to financial services, asset management, audit and law firms (among
others). Many companies are understaffed and struggle specifically when it
comes to filling conducting officer positions. Recent commentary from the
Chamber of Commerce uncovered that upwards of 250,000 new employees must be
recruited in the next seven years to keep pace with the growing economy.
Boardroom Barometer survey conducted earlier this year, Luxembourg boards ranked
“Regulatory and societal changes” and “Climate change and sustainability” in
the top oversight topics for 2023. The resilience of a firm, and its
ability to progress in these areas – like regulation or sustainability –
ultimately hinges on the strength of its workforce. While the number one focus
for boards will most likely continue to be of a financial nature – in
Luxembourg, a top priority is “financing and capital allocation” – we
cannot deny the increasing importance of human capital. Firms in Luxembourg
need to think creatively about how to attract and retain their staff. Workers
need to be appropriately incentivized, and provided with growth and development
opportunities, so that they are encouraged to stay the course. The
responsibility of the board in setting the tone of the talent strategy should
not be underestimated, and one area where a more deliberate role can be played
is diversity and inclusion.
composition and structure sends a clear message to talent
approach needs to be adopted when it comes to talent. Boards can – and should – lead
by example, specifically when it comes to composition and structure; an
important, but sometimes downplayed, element in talent attraction and
retention. This is where DE&I comes into focus. Having a board which
represents a range of genders, cultures, races, abilities, backgrounds,
languages, careers, experiences, mind, and skill sets (among others), is a signal to
the labor force that all types of people are welcomed at the firm. Not only are
representative boards more likely to make better decisions, and reduce the
risks of groupthink, but they also signal to the talent pool that people with
different perspectives are valued at the most important and senior levels of
business and governance.
diversity moves forward for European financial services boards
on one element of diversity, EY’s Boardroom Monitor (2022) data shows that Europe is
advancing its efforts to diversify in financial services: over 50% of board
appointments over the past year were female, compared to 42% the year prior. The
EU has set a gender quota for boards in Europe which may explain this: 40% of
non-executive directors and 33% of all directors in EU-listed companies (with
250+ workers) will have to be women by 2026. As it currently stands,
the overall gender proportion for boards of financial services institutions in
Europe is 58% male and 42% female, so progress is accelerating.
Luxembourg this rule will only impact a handful of companies, the quota is not yet met, but it is still early days. At mid-2022, this quota was met for
boards of public institutions, while for private companies representation sat
at 34%. Looking at Luxembourg’s
neighbours, EY research shows that progression towards the goal is at varying
stages: the percentage of females in boards in financial institutions (banks,
insurers and asset managers) sits at 29.3% for Germany, 38.3% for France and
38.6% for Belgium. It is also worth noting that women are less likely to have
worked in C-suite roles before their board appointment: 51% of women, compared
to 62% of men, hold or have previously held a C-suite role, and the average
tenure of female directors is 54 months, compared to 66 months for men.
competitive advantage waiting to be unlocked
the diversity topic is concentrated on gender, but of course the conversation
actually extends far beyond this. Looking outside the boardroom, Luxembourg is considered
highly diverse. Almost 50% of the population is foreign, making Luxembourg the
EU Member State with the highest relative proportion of non-national citizens.
Over 170 nationalities are represented and while French, German, Luxembourgish
and English are the most dominant languages in a work context, other languages
are also widely spoken. In fact, two out of three residents speak four
languages or more, according to Statec. In the EY Luxembourg Attractiveness
Survey (2022), “the unique pool of multilingual, highly skilled talent” was
cited as positively impacting decisions for foreign investment in Luxembourg’s
finance hub by 48% of investors, making it the second motivating factor for foreign
investment. In the Global Talent Competitiveness Index (GTCI) (2022) Luxembourg
ranks 1st in its external openness to business and people.
statistics illustrate that the openness of the Grand Duchy in welcoming
foreigners as well as its multilingualism, help to attract talent from across
the globe. Those firms who leverage this, and hire for diversity at the junior
level, should be able to grow a rich pipeline of talent, and in so doing lay
the groundwork for more representation in senior leadership and governance
roles (bottom-up). On the other end (top-down), a more diverse – and
potentially younger – board will likely be better prepared to tackle challenges
and opportunities related to talent attractiveness, as they are arguably more
attuned to the new and emerging expectations of society today, and have a
better grip on both financial and non-financial talent related factors.
some of the efforts boards are making to diversify?
We see many
boards currently in the process of reshaping their role as a strategic advisor.
Given the specific current-day challenges, boards are increasingly seeking out
members with unique backgrounds and experience across an array of topics, e.g.,
ESG and sustainability, cybersecurity, IT, politics, talent, etc. Some boards
are looking at more creative ways to get specialist input for their
decision-making. For example, they may set up dedicated committees to give
closer attention to certain topics while others may bring in external expertise.
The role of the board chairperson is also becoming a crucial ingredient for a
diverse and inclusive board – such person needs to be able to listen to,
understand and appreciate the contributions of all board members. As a
knock-on, we are seeing the importance of education and training being elevated
by and for boards, specifically with regard to the soft skills related to DE&I.
While board diversity may not be the number
one, two or three priority for Luxembourg’s boards, it certainly forms part of
the method for successfully achieving these top priorities. In Luxembourg, we
are really fortunate to be situated in a melting pot of diverse talents. The sooner boards appreciate this and place DE&I at the heart of their talent
strategy and board composition, the more equipped they will be to tackle the
challenges of today and tomorrow.
Luxembourg Private Equity Assurance Services Partner & ILA Board Member