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The importance of taking diversity reporting seriously

Author: ICAEW Insights

Published: 07 Sep 2021

There’s no denying that in the future accountants will have to do more reporting on diversity. Peter James, ICAEW’s Head of Regulatory Policy, provides an insight into how probate firms have paved the way and how firms benefit from adopting a solid diversity reporting policy.

While it’s certainly not new, the importance of diversity (and reporting on it) in the workplace have gained traction in the last couple of years, and as Peter James notes, “arguably last year’s renewed attention on the Black Lives Matter movement has acted as a further catalyst for companies to make diversity a strategic objective.”

ICAEW has been collecting diversity data from probate firms since 2015, after becoming a legal regulator of probate in 2014. And since 2017, ICAEW has been sending out a biennial diversity reporting survey, with an external agency managing most of that data in order to comply with GDPR. So while probate firms are ahead of the curve, James explains why the accountancy sector would benefit from following suit. 

For ICAEW, it all started with the equality duty in the Equality Act 2010 and a 2011 amendment which included accountancy bodies if they acted as a regulator. While the Financial Reporting Council (FRC) was excluded, the Legal Services Board (LSB), which was set up in 2010 after the Legal Services Act 2007, fell under the new legal requirements. 

The Legal Services Act has eight statutory objectives, one of which is diversity. In 2011, the LSB set out their expectations around this objective for legal regulators and the firms they regulated. This included the requirement to monitor. James explains, “they informed ICAEW what they expected us to do as a regulator. They indicated the questions they thought we should be asking, which covered about six or seven of the current nine protected characteristics.”

The data that comes out from the annual survey is analysed and benchmarked with data from both the Solicitors Regulation Authority (SRA) and the Office for National Statistics (ONS) to provide a useful national barometer. Essentially, the aim is to make best use of that data, what it might inform, and to convey messages to the firms explaining what the data is telling them and what it might mean for their practice. 

One of the possible answers in the survey for most of the questions is “prefer not to answer”. While firms initially questioned how useful it would be to collect diversity data if, for instance, half of the answers fell into the “prefer not to answer” category, James explains that it’s actually a rather insightful answer. “It could be telling you that your workforce is not sufficiently confident to be authentic and doesn’t feel able to be open in the workplace as to who they are. That could make them vulnerable to a potential breach of ethical standards.”

James elaborates, “if someone is hiding part of who they are as a person and a client finds that out, there is a risk the client could use that information to influence their decision making and their judgement.”

In fact, James unfortunately had this happen to him. “Being a gay person back in the late 80s, when you still kept it under the radar, a finance director became aware of my orientation and tried to encourage me as an auditor to accept dodgy accounting policies using that knowledge. It needed my ethical integrity to counteract that.” 

So even “prefer not to answer” is in the early stages of monitoring one of the most important answers because it's telling firms that staff are unsure or uncomfortable about disclosing information.

“However, once you start getting beyond that, then you're starting to get rich information that tells you about your practice.” And combined with ONS data, it's mirroring what's happening in the community as a whole. 

This is particularly important in the context of probate because death is not discriminatory across all the diverse strands. But it gives you the opportunity to maximise the services you can deliver to the different communities. There is a commercial benefit in understanding the diverse make-up of the local community a firm operates in, as well as in employing staff that can mirror that community and create empathy in service delivery. 

James reckons that around 80% of accountancy firms don’t measure diversity yet. And considering that 40-45% of ICAEW firms are sole practitioners, it doesn’t appear to be a surprising figure. Yet diversity monitoring could still be relevant for sole practitioners. 

A recent survey by the SRA unearthed that some complaints were initially considered an unconscious bias issue towards certain ethnicities among sole practitioners. However, once the data was further analysed it became apparent that, while there was evidence of some discrimination, a bigger factor was the linkage of higher complaints to sole practitioners (where the minority/certain ethnic community ratios were higher). The issue was that sole practitioners do not employ compliance officers, as larger firms would do to counteract these areas of risk. The message to the regulator was that more help was needed for sole practitioners in matters of compliance.

ICAEW consequently took some of that messaging from the SRA to make sure that sole practitioners are better briefed on what happens on the regulatory front. So even when the issue isn’t a diversity issue, reporting and collecting diversity data could help with identifying and addressing other business issues. 

While probate has been a great example of how beneficial diversity monitoring and reporting is, the aim is for all accountancy firms to eventually adopt the same policy. While there might not be the capacity yet to collate all of this information, James hopes that in as little as four years this could become a standard procedure across all member firms. This autumn, ICAEW will publish the results of its March 2021 probate diversity survey. Alongside the survey, it will release a toolkit that will be available to other firms to help with diversity reporting. 

The FCA, PRA and the Bank of England have recently issued a consultation paper on diversity which includes the application of diversity monitoring for the firms they regulate. These recommendations could apply to the 2,000 firms ICAEW authorises for investment business. In addition, the FRC has taken a greater interest in this area in the last couple of years and may also require this for the 2,500 firms ICAEW authorises for audit. ICAEW is proactively developing the tools necessary to monitor and is well placed to aid firms along this journey.

Read the Probate Diversity Report 2021

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