Out-Law / Your Daily Need-To-Know

Report finds limited progress on boardroom ethnic diversity

Out-Law News | 06 Feb 2020 | 11:19 am | 2 min. read

More than one third of FTSE 100 listed companies still have no ethnic minority representation on their boards three years after a major report set a 2021 target.

The Parker Review, published in 2017, made a series of recommendations and set a target for all FTSE 100 boards to have at least one director from an ethnic minority background by 2021. However, 31 out of 83 FTSE 100 companies that responded to an information request from the review committee have not yet met this goal, while 119 of 173 respondents from the FTSE 250 have not done so either. The review set a 2024 target for FTSE 250 firms.

Committee chair Sir John Parker said that the updated report (43-page / 2.9MB PDF) showed that there was "still much more work to be done to reap the undeniable benefits that diverse leadership provides".

"Ethnic diversity needs to be given the same level of boardroom focus that finally led to increasing female representation on boards, which has seen real progress in recent years," he said.

Webster Martin

Martin Webster

Partner

The relative success with gender diversity on boards has shown that change happens slowly but surely, and can be achieved by voluntary methods.

"UK businesses must focus further on the recommendations in the report, increasing alignment of the board with its customer base at home and overseas. They must also address the key challenges of recruiting board talent now and in the future, recognising the significant demographic changes taking place in the UK and international markets in favour of ethnically diverse candidates," he said.

Listed companies are also failing to set measurable targets for improving boardroom ethnic diversity and, where such targets exist, to report progress against them, according to additional research by the Financial Reporting Council (FRC). The FRC, which passed its findings to the Parker Review committee, found that just 14% of FTSE 100 companies and 2% of FTSE 250 companies set measurable objectives for board ethnic diversity, while none reported progress against those objectives.

The Parker Review committee has refreshed its recommendations to firms to focus on better reporting and building and mentoring a cross-sector talent pool of future leaders and senior managers. Executive recruiters should also be much more proactive in marketing highly talented ethnic minority candidates for roles. The FRC has reminded firms of their duties under the revised UK Corporate Governance Code, which incorporates a renewed emphasis on succession planning and clearer diversity reporting requirements.

Corporate governance expert Martin Webster of Pinsent Masons, the law firm behind Out-Law, said: "The lack of progress is clearly disappointing, but change was never going to happen overnight".

"The relative success with gender diversity on boards has shown that change happens slowly but surely, and can be achieved by voluntary methods. Newly empowered nomination committees need to keep a firm focus on the benefits of diversity of all kinds, both in the boardroom and among senior management," he said.

The Parker Review committee's report also contains practical examples of good practice designed to help businesses and those responsible for recruitment to implement its recommendations. Corporate governance expert Tom Proverbs-Garbett of Pinsent Masons said that these recommendations would assist companies both in boosting diversity and in reporting on their efforts to investors and employees.

"Initiatives such as employee-led grassroots groups which support the developer of under-represented groups into more senior roles nationally and internationally, 'blind' selection processes for recruitment even to internal roles and a public statement of intent by setting targets are all generally replicable in other businesses," he said.

Corden Helen

Helen Corden

Partner

This research will increase the pressure for mandatory ethnicity pay gap reporting.

"Initiatives like these will also, one suspects, greatly assist the drafting of the forthcoming 'section 172' statements and in fulfilling employee engagement obligations, making reporting much more meaningful to investors," he said.

Diversity and inclusion expert Helen Corden of Pinsent Masons said that the research would increase pressure on the government to introduce mandatory ethnicity pay gap reporting, as proposed in a consultation in late 2018.

"Consultation in relation to such reporting closed over 12 months ago and draft regulations are awaited," she said.

"If the ethnicity pay gap reporting regulations follow those related to the gender pay gap, then companies will need to report on the percentage of black, Asian and minority ethnic (BAME) employees throughout their organisation. This will shine a spotlight on potential barriers to progression, especially to senior management and board level," she said.