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The benefits of monitoring diversity

A new ICAEW diversity reporting project will challenge the white, male, middle class dominance. Rachel Willcox finds out more

When it comes to the diversity of your workforce, is your firm “male, pale and stale”? If that’s not a question you’ve asked yourself lately, you may soon have to, as moves to make some practices divulge diversity data become a reality from March 2017.

While most businesses pay lip service to the need for diversity across all echelons of their employee base, there is still unconscious bias in the system. Despite compelling evidence about the business benefits of a diverse workforce, when it comes to leading by example, not all of them practise what they preach. And some experts describe tackling gender diversity as low hanging fruit in the quest for greater diversity.

Published in November last year, the Parker Review’s findings that, while 14% of the population identify as black and minority ethnic, only 1.5% of directors in FTSE 100 boardrooms are from a minority background make for a sobering read. What hope then that firms have appropriate representation of staff in terms of other protected characteristics, such as sexual orientation, socio-economic background or religious belief?

But now moves to encourage diversity among the legal profession could potentially pave the way for more widespread disclosure across the accountancy profession by drawing accountancy firms supplying reserved legal services such as probate into a diversity reporting regime.

The Legal Services Act 2007 includes a specific regulatory objective to encourage a “diverse” legal profession. Originally that objective was interpreted as diversity in the availability of services. But more recently the Legal Services Board (LSB) is stepping up its requirement that its authorised regulators, including ICAEW, collect and publish data on the diversity of staff within the firms under their jurisdiction.

In practical terms, this means that from March 2017 all firms regulated by ICAEW to provide reserved legal services – currently around 250 – must supply data to ICAEW covering age, gender, disability, ethnic group, sexual orientation and socio-economic background by job role. The Institute plans to publish summary diversity data every two years but stresses that individual firms will not be identified.

Although the Big Four have been monitoring the diversity of their businesses for years, the benefits of diversity monitoring for smaller firms sometimes fail to strike a chord. Of the 70 firms licensed for probate by ICAEW at March 2015, only 35 were in a position to supply diversity data.

The Equality Act 2010 already sets out to ensure employers do not discriminate against employees or job applicants on the grounds of a protected characteristic including age, race, sex, sexual orientation, disability or religious belief. But while legal obligations may have done little to broaden participation, there’s a growing recognition that failing to embrace workforce diversity could be commercial suicide. It’s one reason why ICAEW is considering rolling out the diversity reporting regime to all member firms.

“It’s not just about how you deal with people in the workplace, but also how you play to the community you serve,” explains Peter James, ICAEW’s head of regulatory policy, professional standards, who is responsible for organising the diversity disclosure reporting. The business benefits of diverse teams in terms of better risk management and avoiding what psychologists term “groupthink” are well documented. What’s also true, according to Susan Vinnicombe CBE, professor of organisational behaviour and diversity management at Cranfield School of Management, is that the number of clients asking firms to report on diversity at senior levels is ramping up. “Clients are saying, ‘I’m not working with a team of white men’,” she says.

Dr Nic Hammarling, head of diversity at business psychology firm Pearn Kandola LLP, agrees that client demands are driving focus in this area. “I have first-hand knowledge of firms losing clients because they weren’t putting teams forward that were diverse enough,” she says.

At the same time, the ability to attract, retain and motivate staff from all spheres of society has moved beyond a “nice to have” to a business imperative amid an increase in recruitment activity and a 62,000 surge in professional staff numbers across the 25 largest accountancy networks and associations in the UK over the last 12 months. But attracting diverse recruits into your firm isn’t enough; you also need to create an inclusive culture where everyone can reach their full potential, value difference and be themselves.

A bigger carrot may be the lure of public sector contracts that stipulate a commitment to diversity. “It’s important that firms can demonstrate they have diversity and where they don’t that they have an action plan. It’s important to understand where you are and the direction of travel,” says Sandra Kerr OBE, race equality director at Business in the Community (BITC).

Diversity monitoring is critical to opening your eyes to any unconscious bias and identifying any potential issues that may be preventing certain groups of people from progressing in their careers. “Diversity isn’t scary and it’s not about being PC. It’s a real business opportunity to understand different business groups and make sure you support them,” Hammarling adds.

Not everyone believes that government reviews focusing on specific strands of diversity help businesses develop a holistic attitude towards diversity. “If you’re going to get the benefits of diversity it has to be from a range of characteristics,” says Hammarling. “I don’t see that happening much in professional services, partly and ironically because things like the Davies Review have re-energised the focus on gender at the expense of other areas of diversity, resulting in a bizarre hierarchy of diversity issues.”

Certainly organisations have to regard diversity as an ethos rather than a box-ticking exercise dictated by a prescribed list of protected characteristics identified by the Equalities Act. There’s a Dilbert cartoon that sums up the sentiment nicely. When asked what he has learnt from his diversity training, he replies: “I can still call people fat and ugly.”

Hammarling is equally critical of diversity targets such as the 33% objective of women on boards of FTSE 100 companies by 2020, which she calls “stupid and short-sighted”, adding: “It’s got to be about what works for the business.”

While diversity quotas leave many experts cold, a public commitment to targets gets the thumbs up. “That is the right way to go. I’d like to see more people following the lead shown by the Big Four on gender and ethnicity,” says Kerr, stressing that any aspirational goals should be firmly based on local census data and population demographics. “It’s good for recruitment and you’re more likely to represent the clients you serve.”

Capturing diversity data isn’t without its challenges. Employers should be aware that information collected as part of such a monitoring process is “personal data” and must be processed in accordance with the data protection principles. Nor can you force staff to give you this information, so motivating them to volunteer data requires you to be explicit about how it will be used.

“Be clear about why you are collecting that information, what you will do with it and who will have access to it,” says Sally Bucknell, head of diversity and inclusion (D&I) at EY. Internal communication is key to boosting participation, in particular, illustrating how you have used diversity monitoring to positive effect, is a good way to engender trust among staff. “We run periodic campaigns about data monitoring and how it helps our employee networks and targeted leadership,” says Bucknell.

Cutting diversity data by the results of EY’s bi-annual employee engagement survey also gives the firm useful insight into the attitudes of different groups towards their work environment. Collecting lots of data is great, but be wary of “paralysis by analysis”, Bucknell warns. “It can become an excuse for inactivity.”

PwC uses the opportunity of twice-yearly mandatory compliance training to ask the firm’s 20,000 UK staff to volunteer diversity information. Individuals can also update information at any time through the firm’s self-service flexible benefits system. “The data is highly confidential but it can’t be anonymous if you want to track it through the firm. Without the data you can make lots of assumptions,” says Sarah Churchman, the firm’s head of D&I. “It enables you to look at underlying trends and set targets. You become more willing to intervene.”

With smaller firms there is a potential issue of how you publish data, particularly where individuals feel that a process of elimination would make it easy to compromise anonymity. ICAEW has facilitated the availability of an online questionnaire administered by a reputable third party for firms concerned about ensuring the anonymity of staff or worried about the administrative headache
of collating the information.

While monitoring diversity certainly helps organisations focus on their obligations as employers, Homa Wilson, a senior associate at law firm Hodge Jones & Allen LLP, questions whether the absence of naming and shaming means firms will simply go through the motions without addressing the root causes of their inequities. “Unless the information is made public there’s no incentive to remedy the problem.”

Admittedly, it’s what you do with the data that’s critical, says Janice Henson, head of skills and talent at Guidant Group. “We believe in focusing on specific areas to stimulate action and review your targets quarterly. But this isn’t a numbers game, this is about quality. Often it starts as a CSR initiative and then mindsets change.”

Once you have data on your current workforce, look at your vacancies and then make sure you educate hiring managers about diversity, Henson advises. “You can have the greatest policies in the world but what’s important is how they are interpreted at the coalface.”

BITC encourages employers to consider a combination of performance objectives linked to pay rewards, effective role models and reverse mentoring so the organisation understands the issues that people face. “It’s also about ensuring that interview panels are representative,” warns Kerr.

Ultimately, the objective of ICAEW’s diversity reporting project is to stimulate debate on diversity, and kick-start some serious introspection and comparisons with peers – but James is also confident that it will eventually result in change.

The reality is that there is no quick fix. Firms need to ask how they can transform their cultures, procedures and practices. But it’s not easy. If inequality is hidden, in some cases accidental, or subtly ingrained in the organisation, how do you spot it, let alone challenge and change it? Monitoring has to be the starting point.

The Financial Reporting Council’s plan to extend the narrative reporting requirements of annual reports to include diversity monitoring should help further focus. “That, backed up with corporate governance requirements, will nudge companies in the right direction,” says Vinnicombe. “Organisations are totally overrepresented at the top by white males and have to get to terms with how they are clearly overlooking and disadvantaging minorities.”

And if vast swathes of accountancy sector employees would prefer not to answer questions that may mark them out as different, that means true diversity is still a long way off, warns James. “The most important information for any business is the ‘prefer not to answer’ ratio. The less that occurs, the more authentic your workforce is likely to be.”

We all like to think we operate in a meritocracy but meaningful diversity monitoring could act as a much-needed wake up call to the fact that many people continue to recruit in their own image. “We have to open our minds to what merit looks like,” says Churchman. “And if we don’t feel a bit uncomfortable, we’re probably not doing enough to progress the diversity agenda.”

All firms accredited to perform the reserved legal service of probate are required to collect, report and publish diversity data about their employees.

Full details of ICAEW’s diversity reporting project including a model questionnaire are at icaew.com/probate

Originally published in Economia on 8 February 2017.