Nasdaq Governance Solutions discuss how the Parker Review has impacted ethnic diversity in boardrooms

In this article Nasdaq Governance solutions discusses the Parker Review, what the study reveals,  and how it has influenced ethnic diversity in the boardroom.

The Parker Review has been pivotal in advancing ethnic representation at the board level as the Hamilton-Alexander Review has been advancing gender balance. However, the challenges of ethnic diversity are perhaps of an even greater magnitude.

One reason could be that, until fairly recently, some would speculate that ethnic diversity has not received the same board focus as the Hampton-Alexander Review.

When organisations look at diversity – by which I mean all types of diversity – a recent and I think very important change is the comparatively recent recognition that diversity should be accompanied by ‘inclusiveness’. This recognises that people from diverse backgrounds, whether by gender, ethnicity or any other demographic, must be what I would term ‘positively welcomed’. This means organisations and their boards need to look at, and if necessary, change their behaviours and social norms so that diverse individuals are not only effectively integrated but are also afforded the freedom to express their diversity. I think organisations have realised that without inclusivity, diversity can descend into a numbers game - a box-ticking exercise - with little thought being given to how best to embrace people with different backgrounds and perspectives. In this scenario, improving diversity is seen as having an instrumental value only, rather than being seen as something intrinsic, meaning something to be valued in itself. Diversity and inclusivity really do need to go hand-in-hand, with exclusivity being given as much importance by boards as hitting their diversity targets.

Returning to the Parker Review, although boards have doubtless given the same attention to ethnic representation as other diversity initiatives, there is perhaps a danger of ‘siloring’ diversity, whereby attention is focused on each demographic separately. If this happens,’silo thinking’ can emerge, with boards being drawn into ‘hitting the numbers’ game I mentioned earlier, rather than looking at the underlying issues, such as making sure diversity is fully represented in the pipeline, and if not, that action is taken to correct this. Silo thinking can be exacerbated by the use of quotas, which are demographic-based and overlook the need for diversity to be accompanied by inclusiveness to be truly effective. I think quotas have their place, but they need to be used carefully. 

So how then are listed companies shaping up in improving ethnic representation on their boards? The Parker Review Committee provided an update in March using FTSE 100 company data from November 2020.

The headlines from the Parker Review update were that 74 companies reported having a director from a minority ethnic group on the board (and therefore met the ‘one by 21’ requirement), with 21 companies having no such ethnic representation. More positively, if you account for those board appointments made in the period after November 2020, the number of companies having a director from a minority ethnic group increased from 74 to 81 and conversely that the number of failing companies was reduced to 14.

What’s also interesting from these figures - to me at least - is they only account for 95 FTSE 100 companies. What about the five missing companies? If you look at the Parker Review update, you will see that two companies reported they could not provide the information requested. A further three companies failed to respond at all. Whilst acknowledging that determining ethnicity is not straightforward and that companies were reporting during the COVID-19 pandemic, some commentators will have been surprised that five FTSE 100 companies were apparently unable to provide the information requested. Although reporting under the Parker Review is voluntary (as it is for Hampton-Alexander), the vast majority of companies nonetheless complied, and one would have expected all of the companies to have reported their ethnic board representation, especially given the heightened attention on racial and ethnic diversity in the workplace generally.

When the Parker Review Committee published the results of its latest study of FTSE 100 companies, Sir John Parker, who lead the review, said: ‘This survey of FTSE 100 companies represents significant progress towards the target’. Sir Philip made this statement in the knowledge that a substantial number of companies had previously not met the target. Unfortunately, despite the upbeat tone of the latest survey, there are still a number of FTSE 100 companies that have yet to embrace ethnic representation on their boards. And the clock is ticking because the ‘one by 21’ target is required to be met by the end of this year. As the Parker Review Committee noted, it will be ‘challenging’ for companies to hit this target that was set back in 2017.

Indeed, when drilling down into the latest Parker Review figures, it becomes harder to square the upbeat ‘significant progress’ statement, particularly when looking at ethnic representation on the key functional roles of boards. To use the Parker Reviews own language: ‘progress remains slower’. If you look across those FTSE 100 companies who responded with information, only five CEOs were from an ethnic minority group; the equivalent figures for the position of chair and CFO were only two and four, respectively. Of these 11 appointments, only one was a woman.

Tellingly, perhaps, when Sir John Parker was commenting on the most recent results, he said, ‘Ethnic diversity needs to be given the same level of board room focus that finally led to increasing female representation on boards which has seen real progress in recent years.’ This is interesting because it suggests that in some cases boards may have focused more on gender diversity than ethnic diversity. I think there may be some truth in this, although that’s not to suggest, of course, that this has been a deliberate policy of boards. That being said, it’s certainly the case that FTSE boards will be under pressure to improve ethnic diversity, particularly those companies who are not compliant with’ one by 21’ recommendation. We are sure to hear much more about this as we move into the second half of 2021.

The March report from the Parker Review concerned FTSE 100 companies only. An update will be published later this year on ethnic minority representation within FTSE 250 companies, the target here being ‘one by 24’. This means FTSE 250 boards have three years to go before they need to fall into line. It will be interesting, nonetheless, to see the state of play when figures for the FTSE 250 are released.

I will leave the final words to Sir Kenneth Olisa, an advisor to the Parker Review, who eloquently said: ‘The next challenge will be to make that achievement [one by 21] sustainable. There would be little point in hitting our target only for us to return to business as usual in January. As the Hampton-Alexander Review has shown us recently, there is much more to be done on the pipeline to bring minorities into executive committees and, ultimately, in the boardroom. Board diversity is a driver of competitive advantage - talent must rise up the corporate pyramid no matter what colour it is.’

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. or its subsidiaries.

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