Earlier this month, the Parker Review Committee published its latest survey results of FTSE 100 companies, showing which FTSE 100 companies have met the “One by 2021” target of having at least one director of colour by the end of 2021. The key findings show that:
- 74 FTSE 100 companies had ethnic representation on their boards as at the 2 November 2020 official feedback cut-off date, compared to 52 in January 2020 (and by March 2021, a further seven FTSE 100 companies confirmed that they had appointed a director from a minority ethnic group);
- 21 FTSE 100 companies who completed the survey had no ethnic representation on their boards as at November 2020;
- 124 out of 998 board positions in the companies that responded are held by 118 ethnic minority directors (12 per cent), compared to 95 directors in 2020; and
- only five ethnic minority directors occupy a CEO position, with two individuals in Chair roles and four in CFO roles.
Although three companies did not submit responses and two were unable to provide the requested information, the significant uptick in companies meeting the target (with only 19 FTSE 100 companies yet to reach it) suggests that the goal of 100 per cent compliance by the end of the year is firmly in reach.
The Parker Review was commissioned in 2015 and looked into the ethnic diversity of the boards of UK Companies. The Review considered improvements that should be made to UK boards, so that their ethnic and cultural diversity reflects the diversity of their employee population and the communities in which they operate. The Review set out objectives and timelines for promoting greater diversity and provided board members of UK companies with a toolkit for addressing the current lack of diversity. Its recommendations broadly covered targets for increasing ethnic diversity in FTSE 350 boards, developing and supporting a pipeline of candidates and encouraging disclosure to monitor progress.
The first Parker Review report was published on 12 October 2017, with subsequent updates provided in 2020 and 2021. Although the pace of progress towards the “One by 2021” target was initially slower than hoped, it appears that there is now some meaningful momentum towards the target as the 31 December 2021 deadline approaches.
The Parker Review Committee previously highlighted a number of obstacles faced by FTSE 350 companies seeking to achieve ethnic diversity, including:
- Low board membership - where the number of board members can be as low as two to three (e.g. in a number of investment firms), there are fewer opportunities to appoint new board members;
- Long service of board members - as some contracts allow board members to serve for a term of up to nine years, there would be a significant time period before such companies would need to consider appointing new members; and
- UK executive headhunters – it has been highlighted that there has been a failure of executive headhunters being able to provide a sufficient number of ethnic minority candidates for executive roles.
Despite the challenges faced, there has been significant progress towards the Parker Review target in the last year, especially given the changes that the COVID-19 pandemic has had on the process for recruiting board members.
It is hard not to attribute at least some of the dramatic improvement in boards’ ethnic diversity to the resurgence of the Black Lives Matter movement, following the death of George Floyd in 2020. It remains to be seen whether the increase in compliance with the “One by 2021” target since February 2020 is a gesture to avoid reputational damage or an indication of support for long-term diversity and inclusion. Whatever the motivation, the direction of travel is positive and the reputational consequences of being one of the few non-compliant outliers may prompt those sitting on the fence to strive a little harder to achieve the “One by 2021” goal.
Further incentives to improve diversity may come from investors and the pressure that they can deploy. Legal & General Investment Management (LGIM) has stated that it will begin to engage forcefully with companies who do not currently have appropriate diversity at board level. In a statement released in October 2020, LGIM said that it would vote against the re-election of any nomination committee chair in a FTSE 100 company that continued to have an all-white board by 2022. Steps such as this could provide some added bite to the Parker Review’s voluntary targets.
Following the 2021 deadline for FTSE 100 companies, focus will shift to FTSE 250 companies. The Parker Review Committee will survey FTSE 250 companies by the end of 2021, and those companies will have until 2024 to appoint at least one board-level director of colour.
The Parker Review intends to move away from fixed targets and towards its overall aim of a more diverse boardroom, when articulating the next steps beyond “One by 2021 / 2024”. The Parker Review targets are not intended to be the end goal. The Review Committee also hopes to focus diversity efforts further down the pipeline, below boardroom level, to ensure that a steady stream of qualified ethnic minority candidates can move up the corporate ladder and progress into executive positions. The Committee has stated its hope that the changes it achieves are sustainable and, ultimately, that it can make boardrooms fully representative of British society.