On 13 March 2023, the Parker Review Committee published its update report on Improving the Ethnic Diversity of UK Business. This update details the progress made by FTSE 350 listed companies in meeting objectives for ethnic minority representation in 2022, and launches new targets to improve ethnic diversity of FTSE 350 senior management teams and large private businesses. Overall, the update shows progress, but with some work still to be done by the FTSE 250 (and a call for a broadening of companies’ focus to senior management below the board).
The Parker Review was commissioned in 2015 as a business led and government backed review, looking into the ethnic diversity of the management and boards of UK companies. The Review considered improvements that should be made to UK boards, so that their ethnic and cultural diversity reflects the diversity of their employee population and the communities in which they operate. Objectives of the Review include to increase the ethnic diversity of UK boards, develop candidates for the pipeline and for executive succession, and to enhance transparency and disclosure.
The first Parker Review report was published on 12 October 2017, with subsequent updates provided in 2020, 2021 and 2022.
2022 voluntary census results
The latest survey results show which FTSE 100 companies continue to meet the “One by 2021” target of having at least one director of colour by the end of 2021, and the progress made by FTSE 250 companies towards the “One by 2024” target of having at least one director of colour by the end of 2024.
“One by 2021” in the FTSE 100
As of December 2022, the FTSE 100 had 96 companies with at least one ethnic minority director. The proportion of FTSE 100 ethnic minority directors is now 18%, which is in line with proportion of the population that identifies as ethnic minorities according to the 2021 census (17%). Although 4 companies did not meet this target, overall, this is a material increase from 47 companies in 2016, when the Parker Review started.
The key findings for FTSE 100 companies are:
- As at December 2022, 47 FTSE 100 companies had one ethnic minority director on their board, with 27 FTSE 100 companies having two ethnic minority directors and 22 FTSE 100 companies having more than two ethnic minority directors;
- 190 out of 1,064 board positions in the FTSE 100 are held by 178 ethnic minority directors (18%), compared to 155 directors in 2021; and
- Seven ethnic minority directors occupy a CEO position, with six individuals in Chair roles and nine in CFO roles. The majority of ethnic minority directors are NEDs.
“One by 2024” in the FTSE 250
As of December 2022, 149 of the 224 FTSE 250 companies that submitted sufficient data to the Parker Review had an ethnic minority director. This proportion of 67% target achievement is up from 55% in 2021, with the proportion of FTSE 250 ethnic minority directors now 11%, up from 10% in 2021. These increased proportions compared to 2021 indicate that the 2024 target for each FTSE 250 company to have at least one ethnic minority director is attainable, although more progress will be required to meet this target.
The key findings for FTSE 250 companies are:
- As of December 2022, 121 FTSE 250 companies had one ethnic minority director on their boards, with 21 FTSE 250 companies having two ethnic minority directors and seven FTSE 250 companies having more than two ethnic minority directors;
- 188 out of 1,749 board positions in the FTSE 250 companies that responded are held by 178 ethnic minority directors (11%), compared to 169 directors in 2021; and
- Fourteen ethnic minority directors occupy a CEO position, with five individuals in Chair roles and 10 in CFO roles. The majority of ethnic minority directors in the FTSE 250, as in the FTSE 100, are NEDs.
The Parker Review Committee highlighted that the proportion of FTSE 250 companies that currently meet the “One by 2024” target increases to 73% if only trading companies are assessed (that is, if the Investment Trust Sector (which accounts for a third of FTSE 250 companies) is excluded). The update highlights that Investment Trusts may face more challenges in meeting the target, as these companies tend to have fewer directors and fewer employees, and are often based outside mainland Great Britain (e.g., in the Channel Islands) where there are fewer residents from ethnic minorities.
The next phase of the Review
The Parker Review Committee has been considering how best to encourage equality of opportunity that goes beyond board level representation. To facilitate this objective, the Parker Review has now expanded the scope of the Review to include two new targets.
Targets for senior management
The Parker Review’s new request for FTSE 350 companies is to set and report on their own ethnic diversity targets for ethnic minorities within senior management by December 2023. It is intended that these percentage targets would be achieved by December 2027.
The annual reporting requirements for FTSE 350 companies will be to publish (alongside their chosen target):
- The number of people within senior management
- The number of people within senior management who self-identify as being of an ethnic minority
Senior management is defined as members of the Executive Committee (or equivalent) and those senior managers who report directly to them. Where a company defines senior management differently, it can continue to use its own wider definition of senior management if set out in the Annual Report, although the Parker Committee recommends using an aligned definition.
Companies are asked to consider a range of relevant data points in setting targets, including the most recent census data on ethnic diversity in the regions and countries in which their senior management is located, the ethnic diversity of the company’s sector, current senior management ethnic diversity, the ethnic diversity of the talent pipeline or wider market and any other relevant matters.
Self-determined targets were determined to be a fairer approach than a fixed target, to account for the variance in ethnic diversity and ethnic minority representation within different regions where companies operate.
Targets for large private companies
The Parker Review’s other target is that the 50 largest private companies (as defined in the FTSE Women Leaders Review) report on ethnic diversity and representation in senior leadership in a similar manner as for gender reporting. These 50 largest private companies are asked to bring themselves in line with the targets of the Review for FTSE 350 listed companies by December 2027, by having at least one director of colour by the end of 2027, and setting an ethnicity target by December 2024 for their senior management team (with associated progress reporting requirements).
This approach has been taken in order to minimise reporting requirements and avoid the complexities of deriving a list through a different means, and is considered to fit well with the Wates corporate governance principles, which include principles relating to balance and diversity.
The broadening of the Parker Review targets to include senior management and large private companies dovetails with a number of other recent diversity updates companies should be aware of:
- For reporting on financial periods beginning on or after 1 April 2022, the Listing Rules applicable to the majority of companies listed on the London Stock Exchange require that a statement is included in annual financial reports setting out whether the company has met specific board diversity targets (a “comply or explain” requirement). Listed companies will also have to publish details of their diversity policy in their corporate governance statement, and provide enhanced disclosure regarding ethnicity, and gender identity or sex of the board and executive management (see more here).
- The FTSE Women Leaders Review published its most recent report in February 2023, showing women's share of board seats within the FTSE 350 reached 40% for the first time in 2022, three years ahead of plan.
- The European Banking Authority published a report on 7 March 2023 regarding diversity practices and the gender pay gap at the level of the management body.
Overall, the progress towards the Parker Review targets is positive, but it is clear there remains work to be done. It will be important for UK companies to ensure they are not seeing the board diversity targets as “one and done” metrics, and that they continue to foster a variety of perspectives and voices and build the diversity of their senior management below the board, as well as their talent pipeline.