UK reporting watchdog issues
diversity warning

The majority of the UK’s leading companies are failing to act on boardroom ethnic diversity, a major report by the Financial Reporting Council (FRC) reveals.

The report, which reveals most of the FTSE 350 do not set measurable
ethnicity targets, has fuelled concerns that companies will fail to meet the
recommendations set out in the Parker Review – with the deadline to meet
Parker’s targets now less than two years away.

Launched in 2016, the independent review by Sir John Parker into the ethnic diversity of UK companies, states FTSE 100 and FTSE 250 boards should have at least one director of colour by 2021 and 2024 respectively.

The FRC’s latest report, which is designed to provide an update of the
Parker Review, shows over half of FTSE 250 companies (52%) fail to mention
ethnicity in their board diversity policy.

Meanwhile, just 14% of FTSE 100 companies set measurable objectives for
board ethnic diversity. For FTSE 250 companies the figure is a meagre 2%. Even
where objectives have been set, no FTSE 350 companies report progress against
them.

According to the research, directors of colour hold just 178 of the
2,625 director positions recorded across the index.

The FRC’s survey also revealed 3% of the FTSE 100 and 11% of the FTSE
250 do not have a policy on board diversity, while 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.

To address this failing, the FRC has warned it 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 study, undertaken by Cranfield University’s School of Management,
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.

Worryingly, over a third (37%) of FTSE 100 companies, and two-thirds
(69%) of FTSE 250 companies do not currently meet the Parker Review target,
according to the 2020 review.  

Sir Jon Thompson, chief executive officer of the FRC, berated the UK’s
record on boardroom ethnicity, labelling it as “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,” Thompson said.

The UK Corporate Governance Code was strengthened in 2018 to promote
diversity including gender, social and ethnic backgrounds in UK boardrooms.

Under the Code, 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.