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Talk of progress on ethnic board representation ‘premature’

Author: ICAEW Insights

Published: 29 Jul 2022

Targets set out by Parker Review for ethnic minority representation on boards risk being a tick-box exercise, experts warn.

Despite encouraging headline statistics among the UK’s largest companies, organisations are continuing to pay lip service to the ethnic diversity of their boards because they see it as a box-ticking exercise rather than a driver of growth, experts warn.

The murder of George Floyd in the US in 2020 drew attention to racial inequalities across all swathes of society, including business. However, since the pandemic, there’s a concern that momentum on positive organisational change has been lost. “There has been a drop off in activity since the many commitments post George Floyd,” warns Arun Batra, a Senior Director of Diversity, Equity and Inclusion at Snap Inc who used to run EY’s global diversity consulting business. 

It has been five years since the Parker Review Committee first set out its targets for ethnic diversity on boards. However, the main results of its most recent update report across the FTSE 350, published on 16 March, suggest that any talk of real progress remains premature, despite encouraging headline figures.

The report found that as of 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. Meanwhile, 128 of the 233 FTSE 250 companies that responded to the survey reported that they had ethnic diversity on their boards; the Parker Review target is for all such companies to have ethnic minority representation on their boards by 2024.

However, while 16% of all FTSE 100 board positions and 10% of all FTSE 250 board positions are currently held by directors from an ethnic minority background, the overwhelming majority of those board positions are non-executive roles. Only three FTSE 100 and five FTSE 250 respondents had a Chair from a minority ethnic background.

Amanda Trewhella, Managing Associate in the Employment team at Freeths LLP, says that despite progress, it is too early for companies to be congratulating themselves. “If the minority ethnic directors are non-executive directors, they are unlikely to be in true positions of leadership or power.” While targets can be helpful to assess progress, there is a danger that companies see this as a tick-box exercise that does not need further thought once the minimum level is achieved, Trewhella adds. 

Yet the business benefits of diversity are undeniable. Henley Business School’s Equity Effect research found that those organisations that actively worked in practical ways to improve ethnic diversity as well as reduce racism in their organisations had 58% higher revenue than those that didn’t.

Dr Naeema Pasha, Director of Equity, Diversity and Inclusion at Henley Business School, explains: “This vast difference is because harnessing diversity improves engagement and creativity and feeds innovation and output. However, our research showed that tackling race diversity was ranked the least important strategy by leaders. Only a fifth engaged in targeted training and development (21%) and only a quarter actively run diverse recruitment programmes (25%). 

“If UK businesses want to improve revenue and become more competitive, then tackling racism and improving diversity should be moved to the top of the strategy,” Pasha adds.

Debbie Tembo, Diversity, Equity and Inclusion Partnerships Director at global inclusion consultancy Creative Equals, says companies need to understand that better representation means more than just one director from a minority ethnic group. “The argument that talent does not exist is merely an excuse for leaders to hide behind. Organisations need to look at their existing talent pipeline, invest in that talent and work out a programme to accelerate that talent into their boardrooms,” she says.

“It's not the job of Black business professionals to guide their White allies through this process. Now is the time for business leaders who are in positions of privilege, knowledge and influence to take action to ensure we have better ethnic diversity on our boards.” 

Plans to introduce mandatory ethnicity pay gap reporting remain vague, despite a report by the House of Commons Women and Equalities Committee published in February this year calling on the government to introduce this by April 2023. In March the government published a policy paper confirming that it would not be legislating for it “at this stage”. 

Instead, the government has committed to “support employers across the UK who want to publish their ethnicity pay gaps” with new guidance on voluntary ethnicity pay gap reporting due to be published this summer. A spokesman for the Department for Business, Energy and Industrial Strategy told ICAEW Insights that while there was no set date for the guidance yet, officials were working at pace to get it across the line in due course.

In the meantime, it is hoped that new Financial Conduct Authority rules on diversity and inclusion on boards, effective for accounting periods starting on or after 1 April 2022, together with mounting pressure from investors, will galvanise action. The new rules introduce ethnic diversity targets aligned with the Parker Review 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. 

Chris Parke, CEO and co-founder of consultancy firm Talking Talent, says: “Despite impressive milestones, the recent push towards greater diversity in the boardroom is all too often defined by ‘external’ pressures, either from consumers or business associates. The concern here is that many businesses still consider c-suite level diversity as a ‘tick-box responsibility’, rather than an essential next step for growth.

As a result, Parke says businesses were not only failing to achieve diversity at the top level, but were also failing to explore what diversity can achieve for business competitiveness. “Diversity truly is a strength for business, but in order to realise this, businesses will need to expand their understanding of what a ‘board-ready’ candidate really is, and instead embrace the potential of ‘diversity of personality’.

“While outright discrimination still plays a part in producing and maintaining non-diverse boards, the pervasiveness of the all-white/all-male boardroom is also a result of stereotypes and preconceptions surrounding leadership, whichhas led to leaders tending to conform to a narrow set of characteristics; usually that of a headstrong and competitive ‘alpha male’.”

Snap Inc’s Batra, meanwhile, believes that without clear processes and equity guardrails through each stage of the talent life cycle, companies are unlikely to achieve equitable outcomes when it comes to senior level ethnic representation both at board and executive level. A toolkit produced by Batra for the 2021 Parker Review sets out best practice.

“Organisations looking to drive long-term change should forensically examine their practices and behaviours in relation to leadership and culture, the employee life cycle from talent attraction through to exit, and data tracking and reporting.”

Arun Batra from Snap Inc and David Tyler, new Chair of the Parker Review, are speakers on an ICAEW webinar, Improving the ethnic diversity of UK boards, available on demand.

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