Small Talk: Small businesses are failing to hire more female directors

It doesn’t seem unreasonable to think that young, fast-growing and innovative small businesses are likely by their very nature to be less conservative than their larger and more staid counterparts. But it’s always a mistake to jump to conclusions, as a study of some of Britain’s best private companies reveals: it turns out these businesses are way behind when it comes to the number of women they employ at board level.

When Approved Index, a business-to-business services marketplace, looked at the board composition of the Fast Track 100, an index of the fastest-growing and most entrepreneurial companies, it discovered that women accounted for just 8.4 per cent of directorships. By contrast, the latest figures for FTSE 100 and FTSE 250 companies are 22.8 per cent and 15.6 per cent respectively.

Approved Index’s Trilby Rajna was shocked by the numbers. “Despite start-up firms being heralded as the pioneers for innovation, the culture is far from progressive,” she says. “Emerging entrepreneurs do not have the excuse of a history of bad cultural practices to latch on to – they should know better.”

It is difficult to explain these businesses’ failure to hire more women directors, even at non-executive level, but the figures are getting worse rather than better. In 2010, the number of women on the boards of Fast Track 100 companies was higher. And since then, with large companies responding to Government pressure on diversity, the differential between their men-to-women ratios and those of the Fast Track companies has quadrupled.

The failure of these entrepreneurs spells double trouble. First, it does not bode well for the success of the business themselves – evidence suggests that it makes sense to embrace board diversity not only because equality is important, but also because companies with women directors tend to outperform.

A survey two years ago by Credit Suisse looked at 2,400 companies and concluded investors would have earned higher returns by putting their money into businesses with female board members than those run only by men. Thomson Reuters research warned that companies with entirely male managements also appeared to be more volatile.

The second problem is that these fast-growing businesses are the large companies of tomorrow. Progress has been made on board diversity at the biggest firms in recent years, chiefly thanks to the Government’s threat of quotas unless more women appointments were made – the FTSE 100’s proportion of female directors is up from just 12.5 per cent in 2011. But that trend may go into reverse as the Fast Track companies rise up the ranks.

So what can be done? If quotas were judged to be too heavy-handed for large publicly owned companies, they feel even more inappropriate for smaller private businesses. Nevertheless, we do at least need to start hearing from policymakers and business groups on this issue – exciting start-up businesses are rightly praised for their innovation and ambition, but they largely escape criticism for failures such as this.

More fundamentally, however, we need to move towards a culture that encourages female entrepreneurship. The Gender Global Entrepreneurship and Development Index, published last year, put the UK sixth out of 17 countries in a ranking of the best places to be a female entrepreneur, behind the US, Australia, Germany, Mexico and France.

The study concluded that the UK was particularly poor at encouraging women enrolled in higher education to think about starting their own businesses rather than working for someone else. It also put the UK 17th out of 17 on the willingness of women to take risk in the workplace, which suggests we haven’t done enough to give women the belief they can make the leap to entrepreneurship.

Government intervention is imperative, the study concluded, because supposedly gender-blind policy doesn’t support female-owned businesses to the same extent as it does firms that are owned by men.

Games firm aims to double in size

Gaming isn’t just for fun: a professional community of players of games such Call of Duty and Fifa now competes for large cash prizes in competitions organised and screened online by companies such as Gfinity, which plans to float on the Alternative Investment Market. The firm has 300,000 registered users and sells tickets to these gaming events – both to competitors and to those who simply want to watch. It runs 5,000 competitions every week.

This is a bigger business than many realise. One League of Legends tournament final attracted 32 million online viewers.

Gfinity is the brainchild of Neville Upton, who sold his Listening Company business to Serco in 2011 for £35m. The business hopes its Aim flotation will raise £3m, giving it a market capitalisation of £12m, and wants the money to help it towards its target of doubling in size to 600,000 users.

Growing companies raise £1.6bn

The latest Bank of England Funding for Lending figures have disappointed those who hope the banks might lend more to small businesses. But while last week’s figures showed a further decline in credit being extended to small companies, a study from the market analyst Beauhurst suggests we may be seeing a shift away from debt towards more of an equity culture.

This year is a record breaker for equity raising, Beauhurst’s analysis reveals. In the first nine months growing businesses raised £1.62bn of equity capital – 9 per cent more than in the whole of 2013 and miles ahead of the 2011 total of £1.1bn.

While debt can be useful to businesses as they struggle with working capital shortages, equity capital provides a more solid base for long-term growth. It also gives entrepreneurs access to the wider skills and experience of their investors – something bank debt can’t match.

Small Business Person of the Week: Laurence Shaw, CEO, Anomaly 42

“We launched three years ago because we recognised a demand for a company that could help organisations cut through all the noise they hear about data. They are constantly told that data can transform their businesses, but they don’t know how to go about doing it – there is so much data and the quantity is expanding so fast that the insights they need are hidden in plain sight.

“Our business set out to help organisations find the needle in the haystack. We provide a platform into which companies can plug in order to find meaning in the data they hold – and can act on.

“We work with financial services companies and clients ranging from government departments to telecoms companies.

“My background is in both IT and financial services. I started at Unilever where I gravitated towards business systems. Then I went to Drexel Burnham Lambert when it set up in the City following the Big Bang, and eventually I launched my own business services company. That eventually got sold and I worked for a series of firms before coming up with the idea for Anomaly42 with colleagues.

“Our instinct was that there would be a huge appetite for a firm like ours that could provide people with the context they needed to assess their data, and that has proved right.”