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London — For fund manager Katie Potts, setting mandatory quotas for women on corporate boards of technology start-ups is a bad idea. Not because she’s against diversity, but because she says there just aren’t enough suitable candidates.
“There are simply not enough experienced women in the sector and of suitable calibre to fill a third of board posts” in the smaller tech company space, the founder of UK-based Herald Investment Trust said in the company’s annual financial report on Tuesday. Many start-ups also struggle to compete for talent against bigger companies such as Alphabet, Apple and Facebook, she said.
Small software and tech companies make up a bulk of Herald’s holdings, and her funds will be “pragmatic” when voting on mandatory quotas and “overly burdensome” regulations, Potts said, citing “instances of unsuitable candidates being appointed and doing real damage”.
Potts’s comments put her at odds with the growing push for more gender and racial diversity in corporate suites, with such metrics drawing greater scrutiny from regulators and investors alike. Last week, Norway’s sovereign wealth fund, the world’s biggest, urged companies it invests in with boards where either gender has less than 30% representation to set targets to address the issue.
In an interview, Potts elaborated on the challenges faced by smaller companies in complying with some of the gender-equality requirements.
“It’s a nuanced issue in which we want the most suitable candidate to fill the position,” she said. “In this case, especially for smaller companies already battling bigger companies for the best candidates, it’s not easy to find good non-execs.”
Board positions also tend to be taken up by people towards the end of their careers, most of whom are men, Potts said, adding that this may shift in the next generation.
For Potts, increased regulation on such fronts has meant companies spend more time demonstrating compliance, which she and the fund managers at her firm find frustrating. Herald prefers to work on a case-by-case basis with the management at companies it invests in on environmental, social and governance (ESG) concerns rather than a practice she characterised as “box ticking”.
Investment strategies adhering to ESG criteria have boomed over the past year. Demand for climate-focused exchange-traded funds (ETFs) is at a record high and accelerating thanks to favourable policies, with global inflows tripling to $89bn in 2020, according to a Bloomberg Intelligence report by analyst Shaheen Contractor.
Potts acknowledged the increasing pressure on companies to comply with ESG metrics. Momentum has picked up with movements such as the Extinction Rebellion, which began in the UK in 2018 and staged protests against environmental degradation and the threat it poses to social collapse.
“I recognise the aims of the Extinction Rebellion demonstrators sleeping in the street in which I live, but I arrogantly believe that we at Herald have done and will do far more to help alleviate global warming through appropriate investment of primary capital in emerging technologies,” Potts said in the annual report.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.