The Parker Review: 'A Report into the Ethnic Diversity of UK Boards'

In October 2017, the Parker Review Committee, led by Sir John Parker, published its final independent report into the ethnic diversity of UK boards. Our Corporate Governance team consider the key findings of the report.

The report notes that while there has been a sharper focus on gender diversity in recent years, the attention given to ethnic diversity has been minimal. The report finds that the boards of the UK’s leading listed companies currently neither reflect the fast-changing ethnic diversity of the UK generally nor the stakeholders that those companies seek to engage and represent specifically.

The report highlights a number of key facts, including:

Diversity in the UK - approximately 14% of the total UK population is a “person of colour” or from a “non-white” ethnic group. This is up from just over 2% in 1971. That proportion is expected to be closer to 20% by 2030, and 30% by 2051.
Directorships - only 85 of the 1,050 director positions in the FTSE 100 (as at the end of July 2017) were held by people from ethnic minorities and only 2% of director positions were held by people from ethnic minorities who were UK citizens.
Global revenue - the FTSE 100 index currently derives more than 75% of its sales from outside the UK, and for the FTSE 250 that proportion is over 50%.
Population growth - it is estimated that, between 2015 and 2050, one-half of the world’s population growth will be concentrated in nine countries, five of which are in Africa and three in Asia.

The report concludes that, in order for UK companies to continue to flourish and to be global leaders in business over the longer term, change is urgently needed.

Greater ethnic diversity across boards will not only reflect the progress that is being made in diversity, equality and inclusion generally, but will ensure that a company’s leadership more accurately reflects its workforce and, significantly, its customer base, allowing it to remain relevant and competitive in an increasingly challenging and diverse marketplace.

To address the current imbalance in the boardroom and, in so doing, improve board performance and effectiveness, the Parker Review Committee issued the following recommendations:

Increasing ethnic diversity

The board of each FTSE 100 listed company should have at least one director of colour by 2021. FTSE 250 listed companies should aspire to the same target by 2024.
Nomination committees of all FTSE 100 and FTSE 250 listed companies should require their HR teams or search firms to identify and present qualified people of colour for consideration when board vacancies arise.
The relevant principles of the voluntary code of conduct for executive search firms in the context of gender-based recruitment at board level should be extended to apply to the recruitment of minority ethnic candidates.

Pipeline and succession planning

FTSE 100 and FTSE 250 listed companies should develop mechanisms to identify, develop and promote people of colour to ensure a pipeline of board-ready candidates and to ensure that their managerial and executive ranks appropriately reflect the importance of diversity to the company.
Led by the chairman, directors of FTSE 100 and FTSE 250 listed companies should mentor and/or sponsor people of colour within their own companies to ensure that they are properly prepared for senior managerial or executive positions internally, or non-executive board positions externally.
To develop experience, leadership and stewardship skills, companies should encourage and support candidates drawn from diverse backgrounds to take on board roles internally (for example, at subsidiary level) as well as appropriate board and trustee roles externally.

Transparency and disclosure

A description of the board’s policy on diversity should be set out in the Annual Report. This should include a description of the steps taken to increase, amongst other things, ethnic diversity within the company, including at board level.
Companies that do not meet the board composition recommendations by the relevant date should disclose in their Annual Report why they have not been able to achieve compliance.

In addition to the recommendations, the report includes “Questions for Directors”, a “Directors’ Resource Toolkit” and various case studies which are designed to help listed companies enhance the ethnic diversity of their boards and meet the report’s recommendations.

The Parker Review ran alongside the work on ethnic diversity and the labour market led by Baroness McGregor-Smith and fully endorses the recommendations published by the McGregor-Smith Review.

The Parker Review: A Report into the Ethnic Diversity of UK Boards