The Parker Review - 'At Least One by '21'

Hot on the heels of the FTSE Women Leaders Review, which was published last month, the latest Parker Review (the Review) into ethnic diversity of UK FTSE 100 and FTSE 250 boards was published on 16 March 2022. 

The Review provides a progress update on the Sir John Parker Review Report, which was first launched in 2016 to examine the levels of board-level diversity across FTSE 100 and FTSE 250 companies. At that point in time, only 1.5 per cent. of directors of FTSE 100 companies were UK citizens from an ethnic minority background. The Review shows that significant progress has been made, although there is still some way to go, particularly in relation to the appointment of executive directors from an ethnic minority background.

The Review’s findings

The most notable update is that one of Parker’s key targets – that each FTSE 100 board should have at least one director from a minority ethnic group by the end of 2021 – has largely been achieved, with 89 per cent of FTSE 100 companies meeting the target by the end of 2021. An additional five appointments have been announced in 2022 so far, bringing the success rate up to 94 per cent. by May 2022.

The target set for FTSE 250 companies was a longer-term goal of one director from a minority ethnic background by the end of 2024. Current progress is good, with 55 per cent of FTSE 250 companies meeting this target. If Investment Trust companies on the FTSE 250 are excluded (as these companies frequently have a smaller number of directors on the board), the proportion of companies meeting the target increases to 61 per cent.

Equally promising, given the continuing focus on gender diversity on boards and the recognition of how intersectionality affects diversity and inclusion, was the fact that 49 per cent of those from minority ethnics groups on FTSE 100 boards were women.

‘One by ’21’ does not mean ‘one and done’

Despite overall positive progress having been made in the last five years, the Review noted that there were no grounds for complacency. There is still a need for companies to continue expanding the scale and depth of initiatives designed to help foster diversity and inclusion at all levels of organisations. The target of one minority ethnic director is only one step towards increasing diversity and allowing individuals to reach their full potential, whatever their ethnic background.

The Review points out that appointing one director from a minority ethnic background is not a panacea for a general lack of diversity in an organisation, and credits recent movements such as Black Lives Matter for moving the subject of race to the forefront of public discourse, which has helped shape the way companies view diversity at every level of their workforce. 

Areas for improvement

The majority of Board positions held by those from minority ethnic backgrounds are non-executive directorships. There are only eight minority ethnic Chairs in the FTSE 350 (three in the FTSE 100 and five in the FTSE 250) and 22 minority ethnic CEOs (six in the FTSE 100 and 16 in the FTSE 250).

These figures are perhaps unsurprising, given that most companies will typically only have two executive director positions (CEO and CFO) and the pace of change will be influenced by the level of turnover in those positions. It does, however, indicate that further progress is needed in this area. It is hoped that, as has been the case for gender diversity in boardrooms, a more ethnically diverse NED population will influence recruitment decisions, leading to a growth in numbers of minority ethnic directors in both executive and non-executive positions. Companies may also be influenced by their peers in creating a more diverse board, given the light that the Review shines on each company’s efforts and progress.

The Review intends that a more ethnically diverse leadership will be accompanied by initiatives at all levels of the business to attract and retain diverse talent. The general view expressed in the original Parker report was that a proportion of minority ethnic board appointments had been made by way of recruiting ‘ready-made’ candidates from outside the organisation. Companies should focus instead on how they can embed diversity considerations into their succession planning processes and ensure proper representation within the talent pipeline, increasing transparency and enabling employees to aspire to board-level positions.

The Review also noted that while it had no authoritative data on the point, there was value in pinpointing specific minority ethnic groups that face the greatest barriers in reaching senior positions in organisations. In this regard, it is important that organisations take greater steps to apply an intersectional lens to their recruitment and talent development strategies.

On a related note, on 17 March 2022 the Government published 'Inclusive Britain', which makes a commitment to break down unfair barriers in the workplace to ensure employees are not being discriminated against unfairly or are less likely to progress due to their ethnic or social background. To this end, the Government will support employers by publishing guidance on voluntary ethnicity pay gap reporting in summer 2022 but has stopped short of making reporting mandatory at this stage. The guidance will include case studies of companies already reporting and give employers the tools to understand and tackle pay gaps within their organisations.

As the Inclusive Britain report notes, terminology can be important when tackling diversity. The term ‘BAME’ has been the subject of some criticism as a racialised, ‘catch-all’ phrase that fails to recognise crucial differences between ethnic minority groups. The Government has agreed to drop the use of this term and instead aim to be as granular and specific as possible when referring to different ethnic groups. Organisations can also take these recommendations on board by considering how their current use of terminology in the workplace or in wider staff communications might be counterproductive to their diversity agendas. Avoiding language that draws a binary distinction between people from ethnic minority and ethnic majority backgrounds will hopefully be a step forwards in creating a more inclusive environment.

In general, the Review strikes a positive note in reporting the current progress against the 2021 targets, but does indicate that one director from a minority ethnic group is intended to be the first step towards increased diversity at every level in FTSE 100 and FTSE 250 companies, rather than a tokenistic gesture. As diversity and inclusion programmes are more key than ever to attracting and retaining employees in a fast-moving jobs market, it will be interesting to see how companies evolve to ensure all employees can thrive.