FTSE 350 boards have been challenged to ensure they set targets for ethnic diversity among senior managers by December this year. The country’s largest private companies have also been tasked to begin disclosing on the ethnic diversity of their leadership.
The challenges come in this year’s Parker Review examining ethnic diversity in boardrooms. Significant progress has been made in the FTSE 350 since the Parker Review was launched in 2016, but it has been clear that much of that was achieved through the appointment of non-executives.
The focus is now on diversity among executives and the most senior managers. David Tyler, the Parker Review chair, says the switch to new targets “will help enhance the performance of business and the opportunities of ethnic minorities”.
Voluntary targets were first set in 2017 when the Parker Review called on FTSE 100 boards to have at least one board director from an ethnic minority by 2021—“one in 21” as it was dubbed. FTSE 250 companies were tasked with meeting the same target by the end of 2024.
Results have been good, though past reports have expressed some concern. As of December last year, 96 of the FTSE 100 had one board director from a minority group, compared with 47 in 2016. The FTSE 250 currently scores a 60% rating with almost two years to go until their deadline.
But of the 190 ethnic minority directors in the FTSE 100, 159 are non-executives. The other 31 are a mix of chairs and executives, making up 10% of all chair/executive director positions.
However, as some note, the 10% is some way from the percentage of ethnic minorities in the population, which stands at 18%. That figure is likely to grow, with even the Parker Review saying it could be 20% by 2030.
Status quoted
According to Randall Peterson, director of the Leadership Institute at London Business School, the organisation behind a Financial Reporting Council report on board diversity, says there may be structural reasons for less progress on ethnic diversity than on gender.
“Change for race has been much slower than change on gender in the boardroom. Our research for the FRC reveals one possible reason for this—that people from a higher socioeconomic status (SES)/social class background find it easier to adjust to boardroom culture.
“Many of the women appointed to boards early on were high SES, whereas there can sometimes be an additional challenge of lower SES when appointing non-white directors.”
Peterson adds that the test of permanent change in boardrooms may be turnover of non-white directors. “Those that are more concerned about how it looks and do not listen will tend to have greater turnover,” he says.
The Parker Review has resisted the idea of publishing a uniform target for ethnic minority managers, saying a “one size fits all” approach is not appropriate.
“It would not be the right way to tackle this important issue—either for companies or for ethnic minorities,” says the report.
“The proportion of ethnic minorities in comparison to the population as a whole can be very different across geographic regions within the UK as well as in the international locations where UK listed companies operate.”
Widening the net
Private companies are also now a concern of the Parker Review. The 50 largest will be invited to disclose data on ethnic diversity every year, from December. They have also been given a target of having one ethnic minority director on their main boards by the end of 2027.
“We encourage other private companies over time to adopt a similar approach,” the report says, “and we believe they will be influenced by pressure from their stakeholders to meet best practice.”
The Wates corporate governance principles for private companies, published in 2018, already suggest that companies should “promote diversity” when making boardroom appointments and have policies on diversity and inclusion that should “consider targets and aspirations”.
There have been clear signs that the boardroom diversity focus would shift from non-executives to executive and management roles, and this Parker Review has made it official. But it’s also put private companies in the spotlight. These are good things.