Diversity in the Boardroom continues to be a key focus for boards. We saw in 2017 that the Parker Review had recommended that by the end of 2021 that FTSE 100 companies would not lack a person of colour as a director on their boards ‘One by 21’ and FTSE 350 companies to match that target by 2024.
Parker Review 2021
On 12 March 2021 the Parker Review released an update on ethnic diversity on UK boards. This recognised significant improvements in board diversity for FTSE 100 companies. In November 2020 it is reported that there were 74 FTSE 100 companies and, as of March 2021, 81 companies with ethnic representation now on their boards. This shows an increase by 29 companies since January 2020, who are including diversity when appointing directors.
The continuous pace of progress for board diversity makes the recommendation set by the Parker Review a realistic one. Based on the voluntary data survey carried out in November 2020, 118 of the FTSE 100 board positions are of ethnic minority. Over the FTSE boards as a whole, 36% of these directors are British and 42% of the 118 directors are women. This has dramatically increased by 42% since 2020.
Although we can see a vast improvement in diversity across the boards, there are some companies, such as JD Sports PLC and London Stock Exchange Group Plc who do not yet match the recommendations set by the Parker Review and Just Eat Takeaway PLC, did not provide any information at all to the data survey, highlighting there is still room for improvement in terms of board diversity and a willingness to share the data.
And while the above is a good start, there is a much slower pace regarding ethnic minority directors in functioning roles in FTSE 100 companies. The survey found that only five CEO positions are held by those with an ethnic minority background, all of which are men, and from the six CEO/Chair positions held, only one was a woman occupying the Chair role. Again this continues to highlight the many barriers that women are still constantly facing in the board room.
Hampton-Alexander Review
The latest review congratulated those businesses who have reached the 33% target, of having diverse boards or those that will reach it by the end of 2021, but outlines that there is still more work to do. So what are the ‘Next Steps’ on the journey to diverse boards? We have seen there has been success in increasing the number of women on boards, but that number still dramatically lags that of men. More companies must take faster action. Those who still have a majority of male voices on the board have to stop portraying the ‘One and done’ approach. There needs to be more up-standers and less by-standers implementing these changes.
The Government Equalities Office (GEO) reported that there are still many candidates that belong to under-represented groups, who have the sufficient qualifications but that are not recruited due to the many stereotyping issues that lead to biased opinions of their ability.
These candidates, that usually are women or ethnic minorities, also lack access to the same range of social networks as those who are male or of white back grounds. This has a huge impact when it comes to the appointment process, as there simply is not enough clarity on the type of criteria for board positions and the search consultancies that many businesses use to recruit, do not always have links to those diverse candidates. It is absolutely vital that the CEOs and Chairs signify the importance of diversity to those search consultancies when compiling their short lists.
Initiatives and Aims
Many companies have created initiatives and aim to fight the lack of diversity for individuals in boards. Some have mentoring schemes designed for junior members to work with senior members to accelerate career progression by sharing their expertise and knowledge. One of the benefits of this is that is opens the barriers into high level networks that a more junior member may not have been privy to.
The Professional Board Forum initiative, facilitates women who have the relevant skills and experience required for NED roles to meet with Chairs from FTSE100 and FTSE 250 to make connections with the business leaders who can influence the UK boards and appointments.
A positive forum, such as this benefits the companies as much as the candidates helping them achieve the goals set by the Parker Review in 2017.
Even though the impact from COVID-19 has affected the recruitment process for boards, the progress has been extremely promising and FTSE companies are benefitting from more diverse leaderships enabling them to rebuild themselves in a better manner, after the pandemic.
Director’s toolkit for implementing the recommendations for diverse boards
Below we outline some red flags and recommendations for the board to help implement the key recommendations from the 2021 Parker update and keeping in line with the requirements of the 2018 UK Corporate Governance Code:
Investigation
Red Flags
If the board currently does not have any directors of colour; the profiles of those holding senior positions is not ethnically or gender diverse; or if the terms ‘fit’ or not the correct ‘type’ are used in regards to candidates not being appropriate.
Recommended Actions
The board should initiate discussions to understand; what an ethnically board would look like; why there are no directors of colour on the board? Is this due to a lack of focus on the board’s part or is there a shortfall of talented candidates?
Nomination committees should provide search consultancies with accurate descriptive briefings of potential candidates, to ensure people of ethnic backgrounds are positively included in lists for NEDs. The Nomination Committee should, itself also be as diverse as possible.
Consensus and commitment to change
Red Flags
If the board only consists of those with similar professional backgrounds or similar qualifications; there is a high level of not reporting or opting out of reporting of personal information in regards to ethnicity; or the board or senior management lacks the resources to collect sufficient data to analyse diverse profiles.
Recommended Actions
The board should task senior management with introducing a sufficient mechanism that can conduct a robust, reliable and accurate analysis of their employees.
This data would inform the board of the diversity of their employees and would benefit companies where it is apparent that there is under-representation of people of colour.
Response
Red Flags
There have been many diversity programmes implemented but that have not delivered results. Are there senior management or board members that do not mentor any people of coloured skin within the organisation?
Recommended Actions
The board implements a process to ensure that there is no bias consideration when assessing employee’s performance reviews.
Board diversity is good governance and diversity reflects the real world. Businesses have a broad range of customers, clients and stakeholders and bringing a diverse and representative board together brings a more varied range of talents, perspectives, ideas and solutions together for the good of the all. And whilst a diverse board is shown to have a direct correlation to an increase in financial performance, it also has an extremely positive effect on a companies’ brand and reputation.
The days of lip service are well and truly over.
This article was originally written for and appeared in the ICSA magazine www.icsa.org.uk