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Californian lawmakers shake-up the governance landscape in life sciences

 

Putting women on company boards is seemingly just too difficult. For the past few years, voluminous evidence showing the considerable advantages of a gender-balanced board of directors has trickled through to most leaders. Data from multiple studies and publications show the gap between the representation of men and women in boardrooms, strengthening the case for change. But despite the data, there has been nothing greater than incremental improvement when looking at women’s participation in boardrooms.

Such is the intractability of this problem, that we have seen governments around the world make various interventions to coerce business into acting. In countries such as Norway, Germany and France, quotas have been introduced to make companies add women to their boards. In the UK, the government chose not to introduce a quota, but instead set an ‘aspirational target’ with a thinly veiled threat to introduce a legal requirement should companies not act. The response was that the largest companies (FTSE100) boosted the numbers to 25% and are going beyond towards a revised target, while the FTSE 250 play catch up, although the cadence of progress has stalled throughout.

Now California, a US state with an economy larger than the UK and seven times greater than Norway, decided that it would act by introducing Senate Bill 826, requiring public companies to have at least one woman on their board by the close of 2019. Companies are then required by the close of 2021 to add further women based on the size of their board (i.e. the number of members). Boards of four directors must have one woman, boards of five directors are required to have two women, and boards of six or more members are required to have at least three. This bill means that public companies up and down the state of California are forced to diversify their boards through the addition of women, either within a year or within the next three. Of course, since the bill passed, many have spoken of the unconstitutional nature of this law and expect it to receive a legal challenge. This notwithstanding, the law imposes considerable challenges upon public corporations.

California is universally renowned for its technology industry and these companies will be under pressure to act. Also, the San Francisco Bay Area and San Diego in the south of the State are two of the biggest life science clusters anywhere in the world, and so this new law unquestionably impacts the biotech, pharma, medtech and life sciences service companies across the sector. The lingering question is – how much will they be affected?

Liftstream has authored multiple reports examining the data of gender representation in the life sciences sector and so we’ve delved into our data to see what the impact of Bill 826 might have on the life sciences sector.

We, therefore, selected publicly listed companies from across the sector who on their regulatory filings list California as their headquarters. This encompassed biotechnology therapeutics companies, biotech services, pharma and health technology.  Given that the law ultimately considers the board size, we focused on this issue first. Of course, adding a woman to a current board, without anyone stepping off, would increase the board size and could push the board to the next level of requirement. Conversely, to reduce the number of women needing to be appointed, companies may shrink the size of the company board – a pattern which has been witnessed in other places where mandatory thresholds have been set. For the purposes of our calculations, we assumed that boards would remain the same size through the 2019 and 2021 periods.

Fig 1. The average size of the board of public life sciences companies in California expressed in the number of directors.

If companies are to add women directors in the numbers required by the new law, it is imperative to question where this talent will be sourced from. Boards overwhelmingly prefer to select board members with board experience, and so knowing the participation of women on life science boards gives us a baseline population of sitting directors who may form the predominant target group for other board roles. It is true that a proportion of the current sitting directors will be from out of State, however, the fact they are serving on the boards of Californian companies implies a willingness by them to continue to do so.

Fig. 2. – Participation of women on boards expressed as a percentage of all serving directors across each category of public life sciences companies in California.

Women make up between 10.8-14.2% of boards across the different company types we looked at (Biotech Therapeutics, Biotech R&D, Other Biotech, Pharma, Medical Technology, Health Tech). Fig. 2. clearly shows that public biotechnology therapeutics companies in California have the lowest participation, which might also be attributable to it being the largest group of companies (n=140).

As we look to the most immediate challenge of having at least one woman on the board by the end of calendar 2019, it requires to understand just how many companies are currently without women serving as directors. Fig. 3. shows that in the case of biotechnology therapeutics companies and biotech R&D services companies, more than 50% of companies have no women on their board. This is consistent with previous data Liftstream has published as far back as 2014, which highlights the glacial progress that is being made.

Fig. 3. Percentage of companies within each category with all-male boards.

Across all public life sciences companies in California, this means that 126 women directors will need to be added to the boards of these companies by the end of calendar 2019. This total figure is broken down across the sub-category of companies, as shown in Fig. 4. Here again, we see that biotech therapeutics companies have the greatest task ahead of them with 73 women needing to be appointed, should the net size of the board of these companies remain constant and all current women directors remain in-situ. Perhaps one of the more important aspects of this requirement being met is that boards clearly do not operate in a vacuum. Directors resign, are asked to step down, retire, die, choose to reduce their board roster in favour of other roles, and depart for many other reasons – essentially it is a revolving door for men and women. In our study (A Public Reality for Women in Biotech Boardrooms) of 177 biotech companies that went public between 2012 and 2015, we showed a net increase of 15 women were added to these 177 boards over this time and up to 2016. The data published here just for California shows that five times as many women need to be added by the end of 2019. This underlines the magnitude of the task facing companies as they compete for women to serve on their board.

Fig. 4. The number of companies required to add one woman to their board by end of 2019.

Therefore, we can expect a near-term talent battle to insue as companies meet the 2019 requirement. To deliver upon the 2021 commitments, a veritable war will rage. To understand the implications of the law by 2021, we looked at the current companies, the composition of their boards, and the board sizes. From this, we were able to assess the deficit that each company faces were it to fix its board to the current size and not lose any of the current women serving. As it stands today, based on the current number of public companies, the total number of additional women required to serve on the boards of life sciences companies throughout the state of California would be 456 by 2021. The majority of these would be required by biotechnology therapeutics companies which require some 278 women to serve.  All of which needs to be achieved against a backdrop of life sciences companies from other states seeking to add directors; other sectors from within California and other regions hoovering up director talent to serve on their boards too; and many women reaching maximum capacity in terms of board roles.

Fig. 5. Number of women which need to be added to boards by end of 2021

To add further context to this, in every category of company except pharma, over 90% of companies would need to add women to their boards by 2021. This is not only an astonishing number, but it highlights the problem that this law was introduced to tackle.

Fig. 6. Percentage of companies needing to add women to their boards by end of 2021

While companies have made some effort to diversify their boards, the data show that far too few companies have anything approaching gender-balanced boards, and many have no gender diversity at all. It is little surprise then that regulatory intervention has been the result. Now it is over to companies to act.

 

Liftstream is a human capital services company delivering executive and board level searches to the life sciences sector, as well as advisory services to boards on governance and leadership. Our diversity and inclusion consulting service provides the required expertise to help companies transform their organisational culture. You can contact us to discuss your board and leadership requirements at info@liftstream.com. If you would like to discuss a free executive session on diversity and inclusion, please contact karl.simpson@liftstream.com. 

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Plaudits, Progress and Partnerships – One important lesson in the push for equality!

 

By Karl Simpson, CEO, Liftstream

Winning is wonderful, it truly is, particularly the recognition which accompanies it. And we are very grateful to have scooped the latest ‘Commitment to Diversity’ award at the Xconomy Awards earlier this month. I commend Xconomy for making this an award category worthy of recognition and I credit all those amazing people, some of which were also finalists, for making tremendous contributions to the field of diversity and inclusion across life sciences.

This year, we were nominated for our work in partnership with the Massachusetts Biotechnology Council (MassBio) and the immediate past Chair of the Board, Abbie Celniker. Beyond the award itself, which is given following an arbitrary judgement by a panel, it delivers to me a clear message that the power needed to push for change and a more inclusive industry lies in partnership and greater levels of collaboration.

It is a privilege to encounter so many people who are deeply devoted to improving the lives of people employed across the life sciences sector, by making the workplace a fairer, more equal and inclusive place. Whatever the motivation for their earnest and noble efforts, they should be commended. As CEO of Liftstream, I am unrelenting in my pursuit of progress on this matter, and I apply my discretionary effort across many areas of the world. That said, I partially knew at the beginning of this mission, and I certainly know it now, that collaboration with other passionate and like-minded people and organisations, would allow me to have a far greater impact and achieve outcomes otherwise unattainable.

Our work with MassBio on diversity has spanned many years and so to have been jointly awarded is a validation of this sustained partnership. MassBio has been a strong partner with great conviction and we’re pleased to have been at their side in this effort. Successively, the organisation has shown a commitment and courage to take the issue on. In the push for greater equality you encounter some strong supporters, but overwhelmingly you are met with dismissive glances, subtle grunts of discomfort and good old fashion resistance. Therefore, MassBio deserves lashings of praise for the stance they’ve taken, especially given their prominence in all things biotech.

Liftstream has been lucky to have many great partners, yet, as I engage with leaders from some organisations representing important stakeholders in the drive for equality in life sciences, I see evidence of some parties wishing to push their own narrow agenda and somehow ‘own’ their chosen issue. However, this is a complex problem, and the report published by MassBio and Liftstream shows just how complicated it can be. There are many interrelated and interdependent elements which contribute to the wide-spread inequality that today severely impacts the careers of women, and even more so the careers of racial minorities.

The drug industry has spent the past 20 years breaking down walls and seeking the best science and the most talented people with the best ideas, wherever these exist. The siloed, narrow focus of companies was abandoned in favour of collaboration and more openness because it was thought it would spur innovation. So far that experiment seems to have been largely right.

And so it must be with another big industry challenge; the deep inequality that currently inhibits the sector from being as competitive, innovative and sustainable as it can be. To solve this problem we need individuals and groups to come together and find common purpose. To set aside the personal motive or any individual recognition that they might achieve, and to focus on a cause greater than ourselves or the organisations which employ us. For in collaboration exists untold promise for solving these deep-rooted and complex problems, and the potential for changing the sector for the current and future generations in a way which will be meaningful and lasting. At Liftstream, our goal was, and remains, progress on equality. It just so happens that our willingness to work with others has brought us plaudits.

 

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Liftstream nominated for Xconomy ‘Commitment to Diversity’ award

For the second year running Liftstream has been nominated as a finalist for the ‘Commitment to Diversity’ award. This year we have the pleasure of being nominated alongside our wonderful partner MassBio and their Chairwoman – Abbie Celniker. the nomination would seem to recognise the research and advocacy work that Liftstream and MassBio have been doing on the issue of gender diversity in the life sciences industry of Massachusetts.

In late 2017 we published the study ‘Opening the Path to a Diverse Future’, a 140-page report that publishes important findings that provide the life sciences industry with a better understanding as to why women are not fully represented at every level of the industry. This has been followed up with actions and advocacy which has received widespread attention.

We are of course proud and honoured to have been nominated. We hope this year we win!!

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Tackling the lack of gender diversity in life sciences by turning the ‘Red Flags’ to ‘Green’

In the past 13 years, I have heard almost every conceivable excuse why a company has neither truly committed to appointing women nor been successful when trying. Many of these are well rehearsed and follow a very similar pattern. Some of them were perfectly illustrated in a recent review by the UK government into the progress of UK companies adding women to corporate boards. This review featured extraordinary comments by Chairmen and Directors of FTSE 350 companies such as “women don’t want the hassle or pressure of sitting on a board” and “there aren’t enough women with the right experience to sit on a board – the issues are extremely complex”, revealing attitudes which stand in the way of better progress. These views echo many of the comments and attitudes I hear across the life sciences sector. I call them ‘Red Flags’, as they deter women from showing genuine interest in joining a company, usually because the underlying sentiment is disingenuous or alarming.
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Is there a pay-gap in your company?

 

Women are not seeing as many higher-range pay raises as men, and fewer women than men also report being compensated fairly. In our recent study of Massachusetts’ life sciences cluster published with MassBio, we found gender-specific differences which showed that women are more likely to receive a pay rise in a range of 0–2% and 2–4%, whereas men prevail in the 4–6%, 6–10%, and >10% categories.

Interesting disparities come to light when taking into consideration the level of employment. With the exception of contributor level (when an individual is performing technical or operational responsibility independent of supervisory responsibilities), a greater proportion of men had a pay rise in the range of 6% and more. This shows that when progressing through the career ladder, women are likely to secure smaller pay increases. This clearly illustrates a gender disparity, which, when accumulated over time, contributes to a gender pay-gap.

Not surprisingly, across most levels of employment, women view compensation as less fair, compared to men. Furthermore, segmenting the data by company size, we found that women working in large companies (>1000 employees) are the least satisfied with the fairness of the compensation, followed by women working in small and medium-sized enterprises (SMEs) (~40% and ~30% respectively report it is unfair). In both cases, a smaller proportion of men reported unfair pay (27.8% and 20.9% in large and SME companies respectively).

The data shows that overall, women are on the wrong side of the compensation bias. Whether it be real or perceived, women are disadvantaged in their attainment of the level of compensation awards seen by men. This has far-reaching implications for the sector, and for individual companies. The level of transparency, fair process, and equality must be addressed if talented women are to be retained and progressed in the life sciences talent pipeline.

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#ElevateMyBio

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What is your post-IPO plan?

 

Preparing a board and management team for the journey towards becoming a public listed company requires extensive planning to ensure that they are ready for all that being public throws at them. Leaving this too late can have negative implications for the company because the company’s leadership could be insufficiently skilled, the cadence of change becomes too high, and the disrupted board continuity can weaken the company’s governance.

Therefore, it is reasonable to think that companies preparing for IPO and becoming public would exhibit a more progressive approach to board composition and governance. After all, the benefits of boardroom diversity are well evidenced and have been widely discussed for quite some time. Additionally, public companies are overall viewed as promising businesses, and one would hope for a more progressive boardroom culture. Furthermore, the scrutiny of public companies should push the boards towards increasing the participation of women.

However, in our study of companies that conducted IPO between 2012-2015 in the USA we found that the gender composition of the boards was consistent with the previous findings and show that cumulatively women hold 10.9% of the board seats. This data clearly shows the scale of the situation as the number of board directors reached 1289 directors, with just 140 board positions occupied by women. Although the 177 companies studied might have chosen to apply changes to their boards in the run-up to IPO, the representation of women on the board at IPO is consistent with the market average and implies that women were not a considerable part of any pre-IPO inflow to the boards.

Nevertheless, we found that in the post-IPO period, perhaps driven by public scrutiny, the companies from 2013–2015 IPO years indeed introduced changes to their board composition, and the number of diverse boards (having at least one seat held by a woman) increased. However, having analysed whether women were consistently present on the board every year after IPO, we found that the number of diverse boards decreased, even below the level of IPO. This shows that boards have so few women on their boards (often only one, with an average board size of 7.5), that if one woman director leaves, it contributes to noticeable fluctuations in the number of diverse boards. This effect is a result of a lack of critical mass.

This also shows that despite embarking upon a board transition, although being increasingly educated about the benefits gender diversity, the group of new public listed companies which filed for IPO within 2012–2015 showed very little progress in incorporating gender diversity into the leadership and governance system of their boards. Any small improvements observed do not translate into a sustainable, effectual or transformative change to the system which currently prevents boardroom gender diversity in the biotech sector.

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#ElevateMyBio

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Has your board reached a critical mass?

 

Over 50% of biotechs across US and European markets have all-male boards [1]. Also, in only 7% of biotech companies, more than a quarter (25% or more) board directors are women. More importantly, our data show that biotech boards have so few women directors (often only one, with an average board size of 7.5), that if one-woman director leaves, it contributes to noticeable fluctuations in the number of diverse boards.

This effect is a result of a lack of critical mass. The critical mass principle suggests that in order for a diverse board to out-perform that of a single gender, there must be a high enough number of women (i.e. 3, or 30% of total number), for female members of the board to be seen as individuals and not as ‘diversity figureheads’.

This number is significant because initiatives like the 30% Club and also the UK’s Davies Report signal that achieving over 25% of women on boards across the industry would create adequate internal market diversity to become self-perpetuating. In biotech, this would signal a transformation in 93% of companies.

This level of gender diversity on the boards will clearly require a significant shift in culture in biotech but will offer important advantages. Building a critical mass of women on boards would not only enhance performance results of companies but would dampen the effect of losing women from boards through normal turnover. Greater numbers of women directors per company’s board would bring a sustained level of gender diversity that would be culturally transformative. Nevertheless, although a sustainable change in boardroom diversity seems hard to achieve without creating the critical mass, efforts of companies to add women board directors can contribute to an overall change.

In fact, a cumulative analysis of newly public biotech companies (IPO 2013-2016) showed that the number of boards that had at least one woman did grow. The change between 2013 and 2016 shows that 9% more companies had at least one woman on the board, signifying that for the first time in any of our studies, the number of all-male boards in studied companies was below 50%. This must be taken as a positive signal.

Continue the change and get started!

#ElevateMyBio

critical mass

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Are you taking the right path?

 

As Liftstream aims to tackle the implicit challenge of progressing women up the career ladder to the C-suite and board, understanding the functions in which they work is important in determining why they might not be scaling the ranks towards the top.

In our study of Massachusetts Biotech Cluster published with MassBio we found that manufacturing, a function quite often cited as being male-dominated, proportionally had 6% men working in it, and only 2% women. Men also were proportionally better represented in engineering, IT, sales, development, finance, marketing and business development. Women, on the other hand, were proportionally better represented in research, legal, human resources, admin, PR, and operations. Finally, we found that 4 times as many men as women occupied positions in the Executive Committee (8% men vs 2% women).

These subtle differences may suggest that the career pathways women are taking are, in aggregate, less likely to guide them towards the position of CEO, therefore closing off the most obvious path to the boardroom. If one aim is to introduce more women into the CEO position, then their functional experience must be contributing to this. We need to encourage women to participate in functions where they have not traditionally done so in large numbers. To do so, companies should seek to implement balanced recruitment and promotion measures for all functions, intentionally making all functions more diverse and therefore more attractive to women and men. Equally this means that functions with disproportionately high numbers of women working in them should balance these functions with more male employees.

Liftstream uses evidence to shape the future workplace of life sciences companies. #ElevateMyBio

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Should you separate the role of CEO and Chair?

 

The Chairperson and CEO are the power-axis of most company leadership structures. There are arguments for and against combining the CEO and Chair roles. Clearly, the vacancy of a Chair position provides an opportunity for the CEO to consolidate power by combining both posts. This allows the CEO, who has the greatest influence on a company’s culture, to begin to set the cultural tone from the board too. Whereas, the presence of an independent Chair allows the board to create a value system and to task the CEO with delivering it across the organisation.

Liftstream, along with many experts of corporate governance, is an advocate for splitting the role of CEO and Chairman, but we also advocate reviewing individual context to explore the company’s needs, strengths and weaknesses, as well as environmental factors – all of which would help to determine the right governance model. However, a trend for more independent governance is winning out across the biotechnology industry, placing combined CEO/Chairs very much in the minority. In our study of San Diego public biotechnology corporate boards, we found that 82% of companies have split the CEO and Chair roles, a figure which is consistent with the year over year increase in this role separation witnessed across broader indices. Similar statistic was also reported in our 2017 study of 177 biotech companies which conducted an IPO in the USA between January 2011 and December 2015.

Companies which are enlightened to the benefits of good governance and split CEO and Chair roles, often show a stronger commitment to diversity. This, as some commentators suggest, is what leads to these companies outperforming their peers. We believe we found a confirmation of this hypothesis in our study of the boards of directors as biotech companies transfer from private to publicly listed. Within the group of companies which had separated the role of CEO and Chairperson, diverse boards were the majority. Additionally, a larger proportion of all-male boards had the role of CEO and Chairperson combined. For the first time, we have found a clear link between separating the Chair and CEO roles and increased gender diversity of the board.

We can conclude that separation of the Chair and CEO contributes to an enlightened board presiding over an inclusive and diverse culture, and similarly, we see the effect of the culture on the financial performance of the companies with diverse boards. This mandates the need for continued research to establish the degree to which the power and cultural dominance brought by unifying the Chair and CEO roles shapes board diversity, versus the diverse board which chooses to separate these functions.

Liftstream uses evidence to shape the future workplace of life sciences companies. #ElevateMyBio

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Why don’t you simply ask?

 

Opportunities for women to move into leadership positions are not materialising as frequently as they are for men: C-suite women are much less likely to be contacted for a potential board position than C-suite men. In our survey of companies within Europe and the US, we found that 59.4% of C-suite men but just 16.0% of C-suite women have been contacted in relation to non-executive director (NED) positions.
Biotech companies use two main routes to appoint new board members: personal networks, and executive search firms. Among many factors influencing the boardroom appointments, the two most common are the lack of structure in the recruitment practices of many Start-up and SMEs (which frequently results in appointments from within the immediate network of today’s leaders), as well as the presence of unconscious bias. Unconscious or unintentional bias is shared by both men and women. Awareness of bias, however it is termed, is low amongst today’s biotech leaders, despite the existence of established processes and tools for reducing such unconscious prejudices in our decision making. The onus is on individual leaders to question their approach to the hiring process and to put in place processes to minimise unconscious bias.

 

 

Additionally, our research did find that in some instances women are turning down leadership opportunities and that they do so more frequently than men. Caring responsibilities, outside of the workplace, remain more of a deterrent for women who might be seeking such positions than their male equivalents; however, a larger factor affecting a woman’s decision to turn down board positions is the current biotech leadership environment, its setting and culture – which continues to ensure a male-dominated leadership team.
Despite this variety of factors, our research indicates a general belief, amongst those in biotech leadership that: ‘the door is open for women on boards, but they don’t want to step through it.’ Such an attitude will not lead to an increase in female NED appointments. To improve composition and diversity of experiences of biotech boards companies must evaluate their approach to recruiting and promotion and take steps to ensure that the natural and unconscious biases that we all have are not causing sub-optimal hiring decisions.

Liftstream uses evidence to shape the future workplace of life sciences companies. #ElevateMyBio
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