Diversity, Inclusion, and The Parker Report: What does it mean for UK Companies and Directors?

Earlier this year, the Parker Review Committee (PRC) published an updated report focusing on improving ethnic diversity of UK businesses – the Parker Report.

Mercedes Fraser, Assistant Manager, and Susan Fadil, Senior Director – Fund & Corporate Services explore its impact, and diversity and inclusion (D&I) for companies and directors.

Incoming Deadlines for Diversity and Inclusion

We are now six months away from the target deadline of December 2024 for each FTSE 250 company to have at least one ethnic minority director on its board.

At the end of 2023, 96% of the FTSE 100 and 70% of the FTSE 250 had met this target. The 50 largest private companies were set the same target to meet by 2027 with at least 44% having achieved this.

However, the review recognises that there is still work to do to increase ethnic minority representation at senior management level and so extended the scope of the review by asking listed companies to give information about the percentage of their senior management who were from ethnic minorities, and by asking them to set their own targets for what this percentage should be at the end of 2027.

The review recognises that companies that operate in different UK regions will likely be influenced by the different levels of ethnic diversity in these regions, ranging from example from London where 46% of the population is from an ethnic minority background compared to the West Midlands (23%) and the North East (7%)[i].

JTC recognises that achieving these targets is a work in progress for many, ourselves included.  JTC’s intention is to ensure that the Board complies with the recommendations of the FTSE Women Leaders Review on gender diversity and the Parker Review on ethnic diversity before the end of 2024. 

What has JTC’s Corporate Governance Team Done to Help its Clients Comply?

For those that have not met these targets, we ensure that diversity remains a key agenda item for Boards.

Diversity policies have been reviewed to ensure they are fit for purpose and include more than just gender diversity. Indeed, while there has previously been a strong focus on gender diversity there has recently been a shift to expound on diverse representation.

The Listing Rules, for example, now require publicly traded companies with a premium or standard listing for financial periods beginning on or after 1 April 2022, to include in their annual reports a “comply or explain statement” setting out whether the company has met various diversity targets within its accounting period including gender identity, whether at least one individual on its board of directors is from a minority ethnic background and ethnic diversity of executive management.

We have also assisted Boards, often led by the nomination committee chairs, to review succession plans with diversity in mind. This may mean being more intentional by selecting executive search firms where diversity is high on their agenda, or thinking of more long-term strategy by offering a board apprenticeship which could provide a way of growing a pool of diverse candidates.

The Barriers to Implementing Change

Where companies have failed to provide adequate explanation for their lack of diversity, shareholders and proxy agencies are becoming less open to attempted justifications with some proxy agencies recommending voting against the Nomination Committee chairs or chairman of the Company where diversity targets have not been met.

Clearly, crucial talks need to take place at the board level, raising the question of why so many organisations are still behind on these targets?

Perhaps one barrier to progress is that leaders hold back in making progress in race equity because of “the fear of making inappropriate statements or being labelled racist”.

Language is frequently perceived as a barrier to action.

It may be useful for directors to receive diversity language awareness training to give them the confidence to discuss the topic effectively. We sometimes see board members and advisers shying away from in depth discussions on board composition in relation to diversity due to their unfamiliarity with the correct descriptive terms to use, particularly where wider non-gender diversity issues are concerned.

In the UK now, there is a general move away from using the acronym BAME (Black, Asian, and Minority Ethnic) due to its standardising assumptions.

Such assumptions include a presumption of shared identities and experiences across swathes of the population, and a belief in uniform societal inequalities, belying diverse challenges, barriers, and stereotypes. Research indicates that many individuals from ethnic minority backgrounds do not identify with this term. This emphasises the need for caution in its usage.

The Parker Report encourages those in leadership to dispel any fears of making mistakes whilst navigating conversations around diversity by adapting an open attitude with thoughtful questioning, highlighting that mistakes made should be taken as learning opportunities.

In terms of fulfilling the new diversity targets, a common issue and rationale appears to be a perceived lack of diversity in the candidate pipeline, particularly at a senior management level. Lack of diversity in organisations is a systemic issue, thus a multifaceted approach is necessary, including opportunities for individuals early in their careers as well as a deliberate commitment to keeping and cultivating diverse talent.

Employers should as much as possible tackle barriers to entry.  According to EY[1], removing these barriers should be led at CEO level, actively advocating diversity and inclusion (D&I) efforts.  Ways to accomplish this:

1. Establish mentorship schemes and host learning sessions for senior executives and managers. This would ensure that diversity goals and ambitions are on the agenda at the top level, subsequently becoming part of a company’s strategy.
2. Business strategy alignment – integrate it into decision making, talent development and organisational goals.
3. Hold executive leaders accountable for D&I outcomes through the setting of measurable targets and track progress.
4. Address implicit bias at the systemic level. Implement fair hiring practices, promote transparency, and foster an inclusive culture.
5. Shift from diversity training to leadership development coaching. Equip leaders with the skills needed to lead diverse teams effectively.

Leveraging existing forums, such as the Confederation of British Industry’s ‘Change the Race Ratio’ would also be helpful as these bodies provide support to organisations to be able to implement action plans to achieve diversity targets.

Overall, it is imperative that companies begin implementing changes within their organisations to move the needle on diversity.

At this point, reaching these targets may appear to be an added difficulty to succession and strategy planning; nevertheless, developing an action plan that priorities diversity and increases organisational transparency will be the catalyst for change.

How can JTC help?

JTC as a trusted governance advisor to Boards can help review and implement your D&I framework to ensure that your Board and organisation keep abreast of D&I developments.

Remember, fostering diversity enriches business leadership and contributes to better decision-making.

If you would like to find out how JTC can help, please contact Susan Fadil.

[1] Getting in and Getting on report

[i] Ethnic group, England and Wales – Office for National Statistics (ons.gov.uk)