Companies urged to increase Boardroom ethnic diversity

A report seeking to increase the ethnic diversity of UK Boards has been published by the Parker Review Committee. The Committee was set up following the success of the push to increase gender diversity, led by Lord Davies from 2011. Linklaters partner Tom Shropshire is a member of the Committee and Linklaters helped to produce the report.

The report shows that a disproportionately low number of Board positions in FTSE companies are held by directors of colour, especially when looking at UK-based directors of colour. Of the 8% of FTSE 100 directorships held by directors of colour, only 1.5% of are UK citizens, despite the fact that 14% of the total UK population is from a non-white ethnic group. Seven companies account for over 40% of the directors of colour, whilst 53 of the FTSE 100 do not have any directors of colour at all.

The report also notes that the composition of the UK population and its workforce has changed dramatically over the past 40 years and is expected to continue to evolve. The UK is predicted to become the most diverse country in Western Europe by 2051, with over 30% of the population potentially coming from ethnic minority or migrant backgrounds.

The purpose of the report

The aim of the report is to enhance diversity of all kinds in order to strengthen decision-making in the Boardroom and maintain the global competitiveness of UK firms. To achieve this the report, entitled Beyond One by '21, makes a number of draft recommendations. It also contains appendices designed to help Boards, including key questions to consider, warning signs or "red flags", a resource toolkit and case studies (to be included in the final report).

Recommendations

The recommendations target three key areas and are as follows:

Increasing the ethnic diversity of UK Boards

  • Each FTSE 100 Board should have at least one director of colour by 2021 and each FTSE 250 Board by 2024.
  • Nomination committees of all FTSE 100 and 250 companies should require their human resources teams or search firms to identify and present qualified people of colour to be considered for Board vacancies.
  • The principles of the Standard Voluntary Code of Conduct for executive search firms, used for gender-based recruitment, should be extended to apply to the recruitment of minority ethnic candidates as FTSE 100 and 250 Board directors.

Developing candidates for the pipeline and plan for succession

  • FTSE 100 and 250 companies should develop mechanisms to identify, develop and promote people of colour within their organisations to build a pipeline of Board capable candidates and make sure management and executives appropriately reflect the importance of diversity to their organisation.
  • Led by Board Chairs, existing FTSE 100 and 250 Board directors should mentor and/or sponsor people of colour within their companies to ensure their readiness to assume senior managerial or executive positions internally, or non-executive Board positions externally.
  • Companies should encourage and support candidates from diverse backgrounds, including people of colour, to develop their experience and skills by taking on Board roles internally (e.g. on subsidiaries), as well as Board and trustee roles with external organisations (e.g. for trusts and charities).

Enhancing transparency and disclosure

  • A description of the Board's policy on diversity should be set out in a company's annual report and should include a description of the company's efforts to increase ethnic diversity within its own organisation, including at Board level.
  • Companies that do not meet Board composition recommendations by the relevant date should disclose in their annual report why they have not been able to achieve compliance.

Next steps

There will be a consultation period for comments to be taken and a further report with final recommendations and findings of the Review is to be published in 2017. The Committee anticipates that it will be possible to reach an ethnically diverse mix similar to that of the overall adult working population by 2021 and that progress made should be assessed at the end of 2021.

Companies will find that the draft recommendations are familiar as they are similar to those made under the Davies initiative to increase the number of women on Boards. It also seems likely that the final recommendations will be substantially similar to these initial proposals. As all listed companies, under the UK Corporate Governance Code, are already tasked with considering diversity within their organisations, companies may wish to begin to consider now the situation of their organisation, using the material in the report to guide their approach.

Click here for the press release, from where you can download a copy of the report.