The Parker Review has recently published its final report into ethnic minority representation at the highest level in UK companies. The report urges businesses to improve the ethnic and cultural diversity of their boards in order to better reflect the modern day communities in which they operate.
Led by Sir John Parker, former chairman of one of the world’s largest mining companies, the Parker Review carried out an industry led assessment into ethnic diversity. This followed a similar review into gender diversity carried out by the earlier Davies Review.
The report acknowledged that progress has been made in terms of gender diversity but found that boards still do not reflect the broad range of stakeholders they seek to engage and represent. Based on the analysis contained in the Review, some companies already maintain a diverse board: Fresnillo PLC and Antofagasta PLC, for example, both have boards of which 70% are ethnic minorities. However, some large companies, such as EasyJet and Sky, do not have any ethnic minorities on their respective boards.
The Parker Review wants UK companies to remain competitive, global leaders and highlights that greater diversity can be a means of benefitting from wider experience, expertise and thought.
The three main recommendations are to:
- increase the ethnic diversity of UK boards;
- develop a pipeline of candidates; and
- enhance transparency and disclosure.
Increasing ethnic diversity of UK boards
The Review proposes that the boards of all FTSE 100 companies should have at least one director from an ethnic minority by 2021. FTSE 250 companies should aim to achieve this by 2024. Currently, only 85 of 1,050 directors in FTSE 100 companies are from an ethnic minority. Although these targets are voluntary, failure to make any positive changes will require an explanation from the company.
Fifty-one of the FTSE 100 companies have no board members from ethnic minorities and only six individuals who hold the position of Chairman or CEO are people of colour.
The Review does not aim to dictate from where candidates should be sourced as suitable and credible candidates can come from a variety of backgrounds, genders and nationalities. The decision on recruitment should be made by the company based on its individual strategy and needs and there is no need for a company to dive in to an appointment.
However, the Review did provide recommendations on the role of nomination committees, in particular that they should require the company’s HR team to seek out non-white candidates for vacancies so that these individuals can be considered by the board when suitable vacancies arise.
Developing a pipeline of candidates
Companies should put in place mechanisms to identify, develop and promote people of colour from within to ensure that a pipeline of competent board position candidates is in place.
In addition to this, existing board directors and chairs should take time to mentor people of colour within their companies to ensure that they are ready to take on a more demanding role.
Candidates from diverse backgrounds should be encouraged and supported to take on board roles, both internally and externally. This will help candidates to develop the required leadership skills that will enable the talent pool to grow. Companies have been urged to monitor their pipeline and to record and track the progress being made in ethnic diversity. This should be reported on a regular basis.
Transparency and disclosure
A description of the diversity policy adopted by the company should be set out in its annual report. This should outline the efforts being made to increase ethnic diversity, including at board level.
As mentioned, the board composition targets are not compulsory, but any companies that do not meet the requirements should disclose in their annual report why they have not been able to do so.
As with many other areas of corporate governance, if a company is able to show that steps are being taken to tackle ethnic disparity this can help to improve the public image and reputation of the business.
The Parker Review is the latest in a plethora of corporate governance reforms and recommendations that have dominated the corporate sector in recent months. Read a recent Talking Business blog for more on the upcoming corporate governance changes.
In the most recent corporate governance related publication, the Government outlined its support for the Parker Review and highlighted that improving the diversity of boardrooms can help improve decision-making and also gives boards access to a wide range of social perspectives, talent and experience.
The aim of the Parker Review is to highlight to companies the importance of ethnic diversity in modern business. It will be interesting to monitor how boards develop as the first deadline approaches in 2021.