Lack of race equality has been an issue for many years but it hit the headlines with force in 2020 and many have fought hard to keep it on the agenda to drive positive change, particularly in relation to equal opportunities in the workplace. Transparency, diversity on boards and ethnic pay gap reporting have become buzzwords in this area with many regulators and businesses striving to achieve and showcase their progress. However, in light of recent developments, one cannot help but question whether momentum has been lost.

Ethnic diversity on boards

The Parker Review Committee first set out its targets for ethnic diversity on boards five years ago. It published its update report with the results of its latest survey of FTSE 350 companies’ boards on 16 March 2022. The Report indicated that, as at 31 December 2021:

  • 89 FTSE 100 companies met the target of having at least one director from a minority ethnic group on their board by the end of 2021 (an increase from 74 in 2020). It was reported that a further three FTSE100 companies had also committed to the target and were in the advanced stages of recruitment.
  • 233 FTSE 250 companies responded to the survey and, 128 of those reported that they had ethnic diversity on their boards, representing progress towards meeting the Parker Review target for all such companies to have ethnic minority representation on their boards by 2024.
  • 16% of all FTSE 100 board positions and 10% of all FTSE250 board positions are currently held by directors from an ethnic minority background.

This sounds promising until one reads that the overwhelming majority of the board positions referred to above are non-executive roles. Further, only three FTSE 100 and five FTSE 250 companies who responded to the survey had a Chair from a minority ethnic background. Not so great.

The Report therefore recommended that continued attention is focused on this issue, emphasising that this, together with the growing experience of recently appointed minority ethnic non-executive directors, will help generate growth in the number of people from ethnic minorities in senior and influential roles within companies. In other words, the progress made is good, but there is no room for complacency.

New FCA rules on diversity and inclusion on boards

On 20 April 2022, the FCA published its policy statement and final rules on diversity and inclusion on company boards and executive management following the consultation it had launched in July 2021.

The policy statement introduces amendments to the FCA’s Listing Rules and Disclosure and Transparency Rules and apply to companies with certain securities listed on UK regulated markets. The new rules are effective for accounting periods starting on or after 1 April 2022, though companies that wish to comply sooner are encouraged to do so.

The new rules introduce diversity targets and companies in scope are required to include, in their annual financial reports, a “comply or explain” statement confirming that they have either met those targets or, if not, an explanation as to why not. The targets align with those set by the FTSE Women Leaders Review and the Parker Review and, with regard to ethnicity, are that at least one member of the board is from an ethnic minority background.

The rules also require numerical disclosure on the ethnic background and sex or gender identity of their board, senior positions (Chair, CEO, CFO, senior independent director) and executive management team in a standardised format.

It is hoped that the formalised targets and transparency required by these rule changes, together with mounting pressure from investors to see progress in diversity and inclusion, will drive further change. However, this will take time and how companies go about meeting the requirements of the new rules, or “explaining” any failure to meet the targets remains to be seen.

Ethnicity pay gap reporting

Ethnicity pay gap reporting is accepted as an effective way of demonstrating the culture of an organisation as being inclusive and an environment where people can succeed and earn well, whatever their ethnicity. If the figures do not paint such a picture, the exercise of gathering the data highlights issues and provides organisations with the opportunity to focus on, explain and address them going forward. A number of organisations, including the CIPD, support ethnicity pay gap reporting and the CIPD has produced an Ethnicity Reporting Guide for employers for these purposes.

On 17 March 2022, just as commentators were wondering what mandatory ethnicity pay gap reporting would look like and how employers could begin to prepare for it – in the expectation that it was, surely, on the way - the Government published a policy paper, within which it confirmed its position on ethnicity pay gap reporting: the Government will not be legislating for this “at this stage”.

Instead, the Government has committed to “support employers across the UK who want to publish their ethnicity pay gaps”, through the Department for Business, Energy and Industrial Strategy publishing new guidance on voluntary ethnicity pay gap reporting in “summer 2022”.

This was a surprising (and disappointing) outcome for many given the number of calls for introducing mandatory ethnicity pay gap reporting over recent years, most recently in the report by the House of Commons Women and Equalities Committee (published in February 2022) calling on the Government to introduce this by April 2023.

The Government responded to that report on 11 May 2022, confirming again that it will not be introducing mandatory ethnicity pay gap reporting (due to the challenges this would present), but will provide guidance to employers who wish to do this voluntarily. The reaction of the Chair of the Women and Equalities Committee, Caroline Nokes, that the “Government’s…response…makes clear that what is lacking in this administration is not resource or know-how, but the will or care to foster a fairer and more equal society” appeared to echo the view of many.

Are we making progress?

In short, progress IS being made in improving race equality in terms of pay and access to senior positions in the workplace, notwithstanding the pace and the Government’s current reluctance to take legislative action to speed this up. It is important to recognise this progress and to applaud all those who have contributed (and continue to contribute) to making it happen. However, there is still plenty of room for improvement and it is imperative that those committed to progress in this space keep it on the agenda to ensure that it is not forgotten and does not become less of a priority. This is particularly so at a time when competition among employers to attract the best talent has, it seems, never been so stiff. Let’s keep up the momentum!