Following the release of the FTSE Women Leaders Review two weeks ago (on which you can read our blog post, here), the latest Parker Review (the Review) measuring ethnic diversity at the top of the UK’s biggest companies was published on 11 March 2024.
The Review aims to encourage greater representation of ethnic minority candidates in senior management teams and foster greater diversity in the future by focusing on the pipeline that will produce the UK’s next business leaders.
The Review is the broadest in the Parker Review series to date, which was commissioned by the UK Government in 2015 (and first reported in 2016), by assessing representation in private companies for the first time. Also, the Review is the first to consider ethnic diversity in senior management teams (a wider pool than the board, covering executive committee roles and direct reports to those roles). The data from the extended scope provides a more fulsome picture of the UK’s progress on ethnic minority representation.
The Review’s findings
FTSE companies
The overall outlook presented by the Review is positive and the progress made since 2015 (when only 8% of FTSE 100 directors were from an ethnic minority background) is very welcome.
Key positive takeaways from the Review include:
- 19% of FTSE 100 board positions are now held by individuals from a minority ethnic group (up 1% from the 2023 report), together with 13.5% of board positions in the 222 FTSE 250 companies that responded to the voluntary census (the Reporting FTSE 250 Companies) (up 11% from the 2023 report);
- 79% of Reporting FTSE 250 Companies have already met the ‘One by 2024’ target (meaning at least one ethnic minority director on the board), ahead of the December 2024 deadline. This represents a 12% increase from the 2023 report and shows momentum which, the Review hopes, will carry the remaining FTSE 250 companies to meet the target by the end of the year;
- There has been strong progress on the number of ethnic minority individuals serving in the most senior roles: there are now 12 ethnic minority CEOs in the FTSE 100 (an increase from seven in the 2023 report) and seven Chairs (an increase from six in the 2023 report); and
- Since last year, there has been a rise (from 49 to 56) in the number of FTSE 100 companies with more than one ethnic minority director and it is worth celebrating the efforts to move beyond a ‘one and done’ approach (a phrase used to describe the potentially tokenistic appointment of one ethnically diverse candidate to a board).
That being said, there are a number of areas that still need improvement:
- Four of the FTSE 100 companies have still not met the ‘One by 2021’ target, which is now more than two years overdue. This number is stubbornly low and has not changed since last year;
- Only 48 FTSE 100 companies voluntarily set senior management targets to be measured by the end of 2027. Of these 48 companies, there was a wide range of figures from just 5% (which is significantly below 17%, the proportion of the UK population that comes from an ethnic minority backgrounds) to a much more ambitious 45%; and
- Only 49 of the wider FTSE 250 voluntarily set senior management targets (with only 50 deciding to report senior management diversity data at all).
Private companies
The Review has followed in the footsteps of the FTSE Women Leaders Review and requested diversity data from the 50 largest private entities in the UK (as determined by annual turnover, workforce size, and contribution to UK business and the economy).
Thirty-six of the surveyed entities agreed to provide their board diversity data. Of the 36 respondents, 61% (22 entities) had at least one board member from an ethnic minority background, thereby meeting the 2027 target already.
The Review did not seek to cover senior management data for private companies this year, as it has done for listed companies. However, the Parker Review intends to expand the survey of private companies in future years to include senior management roles. We look forward to learning more about the ethnic diversity of private companies when the next review is released.
Guidance for business leaders
The Review includes an interesting section that aims to respond to some common concerns surrounding the topic of ethnic diversity and set out guidance to business leaders. In particular, the Parker Review highlights:
- Language as a barrier to action: a key reason business leaders hold back in making progress is due to the “fear of making inappropriate statements” or “being labelled racist”. The Review notes the evolving nature of race language, with use of the once common ‘BAME’ (Black, Asian & Minority Ethnic) now being considered inappropriate due to its homogenising assumptions;
- Addressing sensitive topics: the Review suggests that business leaders may find it useful to ask the most sensitive questions and grapple with the thorniest issues in conversations with professional coaches with expertise in equity and inclusion;
- Search 2.0: Search 2.0 is the proposed gold standard approach for inclusive leadership appointments that are scalable and sustainable, seeking to move away from ‘Search 1.0’ (the well-oiled machine that selects today’s leaders) and mitigate the impact of cognitive bias; and
- Informing ESG actions: the Review lists five suggestions to help companies align culture with business strategy.
The Review also acknowledges that individual minority ethnic groups have varying experiences and are typically underrepresented to varying degrees. For example, the data indicates that the percentage of directorships held by Asian individuals is roughly proportionate to their representation in the UK population. Conversely, the Black community is not proportionately represented at senior levels of business when compared to Black representation in the UK population as a whole. The Review has deliberately not set targets for individual minority ethnic groups, although this may be reconsidered in the future.
The next phase
To continue to see real progress, the Review sets out two main focus areas:
- Board targets: the Review has introduced board targets for private companies for the first time, with the top 50 private companies expected to have at least one ethnic minority board member by 2027.
- Senior management targets: the Review has invited FTSE 350 and private companies set their own targets for the share of ethnic minority individuals in their senior management teams by 2027. The Review has continued with the company-level approach rather than a more traditional centrally set target and it will be interesting to see how many companies rise to the challenge with ambitious targets.
On the second point, the Review expects that companies with global senior management teams will set more ambitious targets than companies with senior management teams in the UK only. Similarly, targets may be influenced by differences in ethnic diversity across the UK’s different regions, with a London-based company (where 46% of the population comes from an ethnic minority background) setting higher targets that a company based in the North-East (which has an ethnic minority population of 7%).
While ethnic diversity has come a long way since the original Sir John Parker Review Report launched in 2016, more focused efforts are needed to see real progress on ethnic minority representation. In particular, it is hoped that focusing on senior management roles, rather than board positions alone, will encourage greater diversity efforts down the pipeline to ensure a more diverse pool of corporate leaders in the future.
