Geopolitics, talent, sustainability, and digitalization – these are some of the hottest topics in Europe in 2023 according to EY’s 2023 board priorities report[1], 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).  

Understanding the talent landscape and Luxembourg board priorities before diving into DE&I

To 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)[2], it contrastingly dropped from third to seventh place in the IMD World Talent Ranking in December 2022[3]. 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[4].

 In EY’s 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.

Board composition and structure sends a clear message to talent

A top-down 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.

Gender diversity moves forward for European financial services boards

Zooming in on one element of diversity, EY’s Boardroom Monitor (2022)[5] 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[6]. 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.

 While in Luxembourg this rule will only impact a handful of companies[7], 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%[8]. 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. 

A serious competitive advantage waiting to be unlocked

In Europe, 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[9].

These 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.

What are 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.

EY Contact:

Alban Aubrée

EY Luxembourg Private Equity Assurance Services Partner & ILA Board Member

+352 42 124 8839

Alban.Aubree@lu.ey.com

[1] EMEIA board priorities 2023: how to shape tomorrow’s board agenda today

[2] What is the best country for global talents in the OECD?

[3] World Talent Ranking 2022

[4] Luxembourg's growing economy causes staff shortages in several sectors

[5] Financial boardrooms across Europe accelerate female and sustainability appointments

[6] Parliament approves landmark rules to boost gender equality on corporate boards

[7] Taking gender quotas on board(s)

[8] More women on boards, but Government's objective not met

[9] The Global Talent Competitiveness Index 2022