Approach to boardroom ethnic diversity is unsatisfactory
New research from the Financial Reporting Council (FRC) shows that over half of FTSE 250 companies (52%) fail to mention ethnicity in their board diversity policy, and most of the FTSE 350 do not set measurable ethnicity targets.
Just 14% of FTSE 100 companies set measurable objectives for board ethnic diversity while for FTSE 250 companies the figure is a meagre 2%. Even where objectives have been set, no FTSE 350 companies report progress against them. To address this failing, the FRC expects much improved reporting by companies under the new UK Corporate Governance Code which promotes diversity in appointments and succession plans, including ethnic diversity.
The research, undertaken by Cranfield University’s School of Management, also found that whilst 11% of FTSE 100 and 4% of FTSE 250 companies plan to increase ethnic diversity in the succession pipeline, most focus on general progression rather than specifically focusing on senior management.
The 2020 Parker Review, which includes the FRC research, showed that 150 companies out of 256 (59%) did not have at least one director of colour on their Boards, with less ethnic diversity observed on the boards of FTSE 250 companies: 37% of FTSE 100 companies, and 69% of FTSE 250 companies, do not currently meet the Parker Review target.
To improve ethnic diversity, the Parker Review recommends each FTSE 100 Board should have at least one director of colour by 2021 and by 2024 for the FTSE 250.
The FRC’s analysis also found:
- 3% of the FTSE 100 and 11% of the FTSE 250 do not have a policy on board diversity.
- Over half of FTSE 100 companies (54) provided little elaboration in their policy beyond some acknowledgement of the value of board diversity.
- Only 21 FTSE 100 companies specified ethnicity in director succession planning.
Sir Jon Thompson, CEO of the FRC said:
“The UK’s record on boardroom ethnicity is poor. It is unacceptable that talented people are being excluded from succession and leadership simply because companies are failing to put in place appropriate policies on boardroom ethnicity, are not setting targets or are not monitoring their progress against policies.
“A more diverse boardroom leads to better business outcomes, which is why the UK Corporate Governance Code, and now the UK Stewardship Code, requires companies and investors to promote diversity and inclusion. We will monitor closely how companies report on their policies or explain their lack of progress, in this area.”
The UK Corporate Governance Code was strengthened in 2018 to promote diversity including of gender, social and ethnic backgrounds in UK boardrooms. A separate section of the annual report should include a description of the board’s policy on diversity, including any measurable objectives it has set, and progress on achieving those objectives.
The FRC expects to see better quality commentary on all aspects of diversity in future reports.
A copy of the Parker Review can be read here.
About the Financial Reporting Council (FRC)
The Financial Reporting Council (FRC) regulates auditors, accountants and actuaries, and sets the UK’s Corporate Governance and Stewardship Codes. The FRC promotes transparency and integrity in business. Their work is aimed at investors and others who rely on company reports, audit and high-quality risk management.
For further information visit https://www.frc.org.uk/
