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Denise Keating

Sir John Parker published the first version of his report into ethnic diversity on boards in November 2016. As with the Parker Review’s spiritual predecessor the Davies Review, the irony of a call for greater ethnic diversity, being led by the familiar white faced male that personifies UK boardrooms, is indicative of the challenges, and just how few non-white board directors there are in the UK’s biggest companies. Article by Denise Keating, Chief Executive, Employers Network for Equality & Inclusion (enei).

Boardrooms are back on the agenda following the publication of Sir John Parker’s first report on ethnic diversity on boards. The findings are a stark reminder of how far away UK boards are from being representative of the general population. The review developed from a call by former Secretary of State for Business Sir Vince Cable in late 2014 exhorting business leaders to build upon the progress made by the Davies Review in increasing gender diversity on boards by drawing attention to the lack of ethnic diversity on boards. At the time, Sir Vince Cable claimed that non-white representation on FTSE 100 boards was only around five percent of the total director population. Two years later the Parker Review’s analysis has added precision to Sir Vince Cable’s claim – of the 1,087 FTSE 100 board positions, there are only 90 individual non-white directors, ( eight percent of the total) with non-white UK citizens representing a mere 1.5 percent of the total director population. This figure of 1.5 percent stands out, especially in the context of ethnic diversity in the wider UK population where approximately 14 percent of people are from a non-white background. Whilst the review did not analyse the FTSE 250, it expects representation in the UK’s next largest 250 companies to be no better.

That the boards of the UK’s leading companies do not represent the ethnic diversity of the UK will come as no surprise to anyone who has followed the Davies Review into women on boards and other research by Green Park and the Cranfield University School of Management. The surprise is just how far away the FTSE 100 is from being representative of the wider UK. It is impossible to speak of the Parker Review without making reference to the review being conducted simultaneously by Baroness McGregor-Smith into the barriers to progression faced by BME individuals at work, the findings of which will provide a greater insight into just why non-white UK citizens are disproportionately failing to reach board positions. Coincidentally, McGregor-Smith’s recent announcement that she will step down from her role as CEO at Mitie will decrease BME minority representation in the FTSE 250 even further. The initial Parker Review report delivers three recommendations to business (subject to consultation). Like the Davies Review, its recommendations speak softly to form a voluntary stimulus to trigger behavioural changes in the boardroom, backed up by the big stick of Government action should the recommendations not be achieved.

The first recommendation is to increase the ethnic diversity of UK boards, calling for every FTSE 100 board to include at least one non-white director by 2021, followed by every FTSE 250 board including at least one non-white director by 2024. The Davies Review called for 25 percent female representation across the FTSE 100, which was at least in part delivered through a reduction in the overall number of directorships, indicating that by putting a figure rather than a percentage on its expectations this latest review hopes to close down loopholes that enable business to meet the letter of the review’s recommendations without meeting the spirit. This recommendation also takes aim at executive search firms, calling for those commissioned to identify candidates for board positions to present non-white candidates for those board vacancies and to update the Standard Voluntary Code of Conduct for executive search to include ethnic diversity in the same way as it includes gender diversity. The Parker Review does not go so far as to call for the implementation of the “Rooney Rule” (where a non-white candidate must be shortlisted for the role) stating an initial preference for pursuing voluntary change rather than compulsion.

The focus on executive search firms is an important one. The Review found that these firms have no shortage of non-white candidates on their databases. However, their first priority is to identify a successful appointment; they do not get paid if they fail. This discourages risk taking behaviour, meaning that candidates are presented who will be a good fit with the existing board rather than candidates who may be more diverse and offer a new approach. Companies must be proactive in saying that they want a diverse mix of candidates presented for the role to avoid becoming stuck in a cycle of affinity. The second recommendation is to develop candidates for the pipeline and plan for succession. This review dovetails with the aims of the McGregor-Smith Review in its call for greater development of BME talent. Public sector organisations, most notably the Civil Service, have implemented a number of initiatives to address underrepresentation of ethnic minorities at senior levels within their organisation, albeit to varying degrees of success. With a few exceptions, diversity in private sector organisations where the Public Sector Equality Duty does not apply ranks significantly lower in organisational priorities, often limited to a small part of the overall HR function. Development of the pipeline and ensuring that succession planning is inclusive of minority talent is critical to ensuring non-white employees are able to progress and build the experience required to take on board positions.

This second recommendation also sets out a number of actions to support organisations develop non-white talent, including mentoring of BME employees by board directors and encouraging diverse talent to build experience and skills through lower profile board roles, for instance with subsidiary organisations or not for profits, where there is an urgent need for greater non-white representation; according to the Charities: Inclusive Governance report published in November 2016 by Inclusive Boards ethnic diversity amongst not for profit boards is currently even lower than the FTSE 100. Removing the barriers to BME development is neither quick nor easy, as equality legislation has moved these barriers underground from being organisational to cultural. Progression is as dependent on line manager biases, who one socialises with and the never defined concept of “organisational fit” as it is on performance and ability. Headline grabbing initiatives such as name blind recruitment are a fantastic way of reducing the impact of these barriers in recruitment, but all too often organisations fail to build in good practice throughout the employee life cycle.

What is measured gets managed and this is never truer when what is measured is then published in an organisation’s annual report. The Parker Review’s third recommendation is to enhance transparency and disclosure, calling for the board’s diversity policy to be recorded in annual reports, alongside a description of what the board has done to meet that policy. Whilst it is only right that the board is held accountable for diversity throughout their organisation in the same way that they are held accountable and rewarded for other results and metrics, there is a trend for politicians to see the annual report as a silver bullet for reporting. With gender pay gap reporting and mandatory publication of pay ratios being added to annual reports in the next few years, we may begin to see “report fatigue”, where there is so much information being published that only parts of it are analysed and challenged.

In summary, looking at the lessons learnt from the Davies Review it is highly likely that increasing the number of non-white members of FTSE boards will ultimately be achieved through government, peer and public scrutiny. It would also be unsurprising, although of course disappointing, if the increase in non-white directors is largely delivered through the appointment of non-white people in non-executive directorships, as seen by the Davies Review. Additionally, meeting the Review’s target of one non-white director on every FTSE 100 board by 2021 requires only 53 companies to act, meaning that almost half of the UK’s largest companies need to take no action; one of the main risks from this review is therefore complacency. The true success of the Parker Review’s legacy and that of Baroness McGregor-Smith’s review will be seen not from the inevitable headline grabbing achievement of minority representation on every FTSE board, but by the action taken by organisations to meet the second recommendation in the review. Developing and advancing non-white talent in organisations traditionally dominated by white management will never win plaudits or headlines, but with global politics more uncertain than at any time since the Cold War the ability to access and service new cultural markets as traditional markets become more insular will be vital to commercial success and survival. This will only be possible with employees from a non-white background not only in the boardroom, but fully represented in responsible and decision making positions throughout the organisation.

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