Female Fund Manager Opposes Gender Quotas for Startup Boards

(Bloomberg) -- For fund manager Katie Potts, setting mandatory quotas for women on corporate boards of technology startups 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 caliber to fill a third of board posts” in the smaller tech company space, the founder of U.K.-based Herald Investment Trust Plc said in the company’s annual financial report Tuesday. Many startups also struggle to compete for talent against bigger companies like Alphabet Inc., Apple Inc. and Facebook Inc, 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 where 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 toward the end of their careers, most of whom are men, Potts said, adding that this may shift in the next generation.

Compliance Time

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 ESG concerns rather than a practice she characterized as “box ticking.”

Investment strategies adhering to environmental, social and governance, or ESG, criteria have boomed over the past year. Demand for climate-focused exchange-traded funds is at a record high and accelerating thanks to favorable policies, with global inflows tripling to $89 billion 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 like the Extinction Rebellion, which began in the U.K. in 2018 and staged protests against environmental degradation and the threat that poses to social collapse.

“I recognize 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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