UK boards challenged on ethnic diversity ‘positioning’

An independent UK report, published 5 February, highlights a mismatch between some boards’ action and their “positioning” on diversity. It makes a series of recommendations and provides a tool for directors and companies.

The research, carried out by the Cranfield University School of Management for the UK’s Financial Reporting Council, was used in the latest update to the independent Parker Review, which first reported in 2017.

The report, Ethnic Diversity Enriching Business Leadership, concluded that the reporting on board diversity, and ethnic diversity specifically, has improved over the past two years. However, it called for further action by some boards, saying, “The business case for diversity was endorsed in positioning diversity, but it was much less likely to be evidenced in their actioning.”

The report found that of the companies that provided data, 37% of FTSE 100 companies don’t yet meet the target of one director of colour on their boards by 2021. The research also revealed that 69% of FTSE 250 companies have not yet reached this target, which is set for 2024.

Report author Sir John Parker said there was a suspicion that company cultures are not actively encouraging talented minority executives and nonexecutives to choose roles in businesses, “when they feel they can leave corporate life and do just as well as entrepreneurs, without some of the responsibilities”.

Sir Jon Thompson, the FRC’s CEO, said that the UK Corporate Governance Code and the Stewardship Code require companies and investors to pay attention to promoting diversity and inclusion. He added: “For future corporate reporting the FRC expects to see better and fuller presentations, not only of company diversity policies, but of the outcomes these achieve.”

The Parker Report recommendations include:

• Companies should report diversity of culture, geography, and nationality alongside (rather than as a proxy for) ethnicity. Further, the report recommends that FTSE 100 and FTSE 250 companies use “unambiguous language” when referring to race and/or ethnicity.
• There should be a focus on ethnic diversity at the board level and in the pipeline. The report also found that while there was an increased number of initiatives to increase ethnic diversity within top UK companies, “the number … is still very low, and [they] mostly focus on general progression rather than specifically increasing ethnic diversity in senior management”.
• Diversity should be included in the board evaluation. The report said: “If boards endorse the business case for diversity … then a logical way of measuring the effectiveness of the board would be to assess its diversity. We found that this was often not the case.”
• Both meritocracy and diversity should be considered priorities that “go hand in hand” — rather than competing opposites. Conflating diversity with reassurance of merit “is an indicator of subtle bias that associates diversifying boards with ‘lowering the bar’”, the report said.

The report also contains a toolkit for directors, which provides nine questions for boards to address to accelerate progress on ethnic diversity. It also details three areas where a company should examine its practices and behaviours: leadership and culture, the employee life cycle, and data tracking and reporting.

— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.