Parker Review highlights some progress

On 16 March 2022, the Parker Review Committee published its updated report on the ethnic diversity of FTSE 350 boards. The report is based on voluntary census information provided by 333 of the FTSE 350 companies at the end of last year. It comes five years after the publication of the Committee's first report in 2017. The latest report suggests that the UK has reached a point that back in 2017 seemed a long way off – one of the Committee's key targets, that each FTSE 100 board should have at least one black or ethnic minority director by the end of 2021, is very close to being achieved. As at the end of 2021, 89 FTSE 100 companies had achieved this target. 128 FTSE 250 companies are also already meeting the target of having a black or ethnic minority director on all boards by December 2024. If this progress continue, the December 2024 target for all FTSE 350 companies may be met.

The report emphasises that there are two principle reasons for having increased ethnic diversity on boards:

• to enhance long-term profitability and sustainability of businesses; and 
• to enhance the cohesiveness of our society – a visible and beneficial step in the right direction towards creating a fairer business environment.

Whilst the 2022 report looks at FTSE 350 companies, the key principles and points it highlights are applicable to all companies.

The report highlights that, although huge strides appear to have been made, a large majority of black and ethnic minority directors in FTSE 350 companies are in non-executive director (NED) roles. Within the FTSE 350, there are only eight ethnic minority executive chairs, and 22 ethnic minority CEOs.

The report suggests that, whilst a positive step forward, this does not quite reflect where board representation should be. Companies should do more than appoint black or ethnic minority NEDs before they can claim diversity at board level. Those making key decisions for a company should reflect wider society more closely. Representation at senior levels helps to create role models and social norms within the workforce. Diversity needs to filter through from the top.

Financial Reporting Council research

The updated Parker Report also shares research being carried out on behalf of the Financial Reporting Council on the barriers preventing individuals from ethnic minority groups achieving senior representation in FTSE 350 companies. The Financial Reporting Council will publish their full report later this year. 

The research suggests that companies are putting in place the structures to create change, but that the actions taken and the outcome of these initiatives are not being widely reported.  The report encourages companies to publicise their efforts, and the outcomes they achieve. By reporting on actions and outcomes, companies can set an example in terms of positive progress, and can focus on lessons learned to achieve better results in future.

The research has found that some companies are using recruitment at board level, based on both merit and diversity, as an effective way to increase the representation of ethnic minority groups. Examples include working with executive search consultants who are signatories of the Voluntary Code of Conduct and requiring diverse shortlists.

TUC analysis of data on ethnic diversity

In contrast to the positive strides evident in the updated Parker Report, the Trade Union Congress (TUC) has published data this month which shows that a disproportionate number of black, minority and ethnic (BME) workers are engaged on zero-hour contracts compared to white workers (4.3% compared to 3%). This percentage gap widens even further when you compare BME women against white men – 4.7% of BME women are on zero-hour contracts compared to 2.4% of white men. BME women are the most disproportionately affected group (4.7%), followed by BME men (4%). White women are also significantly more likely to be on zero-hour contracts (3.6%) compared to white men (2.4%).

The analysis, based on ONS figures, shows that in the last quarter of 2021 more than a million (1,030,000) people were on zero-hours contracts – an increase of 40,000 on the same quarter in 2020. The TUC analysis links the disproportionate number of BME workers on zero-hours contracts with mortality rates in the pandemic. It suggests that the types of jobs those workers are doing, and the low pay they receive for doing them, have contributed to COVID-19 mortality rates. The TUC analysis also shows that BME workers have excessively felt the effect the pandemic has had on the economy. Unemployment rates amongst BME workers is twice that of white workers. It shows that BME women are the worst affected, with one in 12 BME women currently unemployed, compared to one in 29 white people. This is apparently connected to the work women do in the hospitality and retail sectors which have been hit hardest by the pandemic. 

As a way of tackling structural racism and inequalities in the labour market, the TUC is calling for:

• a ban on zero-hours contracts, by giving workers a right to a contract which reflects their normal hours of work;
• decent notice of shifts and compensation for cancelled shifts; and
• the introduction of ethnicity pay gap reporting to expose the pay disparities BME workers face, and increase the pressure on employers to act and reduce this gap.

These items are all on the government's agenda in the forthcoming Employment Bill, although it appears that ethnicity pay gap reporting will not be introduced. 

Inclusive Britain

On 17 March 2022, the government published its response to the Commission on Race and Ethnic Disparities' report into key actions to improve equality in the UK. The response, titled "Inclusive Britain", sets out more than 70 actions that the government commits to take with the aim of reducing racial disparities across the country.

These include:

• new guidance for employers on positive action in the workplace by December 2022;
• creation of an "Inclusion at Work" panel by spring 2023; and
• new guidance from the Equality and Human Rights Commission on the use of artificial intelligence in selection processes, to avoid biased decisions or perpetuating bias.

Notably, Inclusive Britain states that mandatory ethnic pay gap reporting will not be introduced, although it does encourage voluntary reporting.

What can companies do to improve diversity?

Companies should be actively seeking to improve diversity and remove disparities in their workforce.  Failure to do so may have reputational consequences. It will also start to put employers in a better position if and when ethnicity pay gap reporting does become mandatory.  Below are some ways in which companies might seek to do this.

• Ensure diversity in the workplace is a priority: Companies should implement initiatives, set targets and collect data to understand how they can achieve this goal. Data has shown that, at board level, bigger companies continue to increase the number of people from ethnic minority groups but fall short when it comes to racial and ethnic disparities in the wider workforce. It will take time to establish an effective way to increase diversity in the workforce and no one size fits all, but companies need to keep pushing for a diverse workforce.
• Maintain and demonstrate fair and transparent processes and systems: As workplaces evolve and become more diverse, businesses should keep internal processes and systems under review to ensure they remain relevant and are applied fairly. This includes ensuring all groups feel they have fair access to progression opportunities.
• Develop and demonstrate a culture of learning: The updated Parker Report highlights the importance of detailing the actions companies implement to allow for reflection and learning. There is nothing to suggest that an approach a company takes now need be the same approach they take in two years' time. Every company needs to find a plan of action that works for them by detailing successes, failures and future ideas.
• Demonstrate strong leadership and inclusion: Companies should lead by example and show a real commitment to both diversity and inclusion from senior level down.

Takeaway

The Black Lives Matter movement and the pandemic have brought the disparities between black and other ethnic miornity workers and white workers into sharp focus. Many companies have already begun taking steps to eradicate these inequalities. The Parker Report shows us that progress is being made amongst the FTSE 350.  Although this progress is slow, it can only be a positive step forward in that we are now seeing far greater diversity on company boards than we did five years ago. Significant changes will still need to be made before these changes are reflected amongst the workforce more generally. Employers need to look at their policies and approaches to equality and diversity within their workforce at every level to ensure black and ethnic minority groups are proportionately represented throughout. As the Parker Report suggests, ethnic diversity enhances long-term profitability and sustainability of businesses, enhances the cohesiveness of our society and is a visible and beneficial step in the right direction towards creating a more equitable and fair business environment.