Cultural Diversity

As improvements continue in gender representation on major corporate boards, attention is increasingly turning to cultural diversity.

In the UK, a review led by Sir John Parker is calling for FTSE 100 boards to add at least one director of colour, outlined in the "Beyond One by 2021" report.

The review calls out the lack of ethnic diversity on UK corporate boards, noting that only 8% of directors on FTSE 100 boards are people of colour, of which only 1.5% are UK citizens. The industry-led review argues that increasing ethnic diversity is important, in fostering connections with shareholders, customers and stakeholders and supporting diversity of thought in governance practice.

Sir John Parker, who led the review, describes this call to action in summarizing the reports findings:

“Many business leaders would agree that Boards that embrace gender and ethnic diversity benefit in their decision making, by drawing on an array of skills, experience and diverse views. We hope the recommendations made for consultation, will heighten awareness of the growing pool of talent in the ethnic community, and help to strengthen boardrooms across the UK and keep corporate Britain at the forefront of global business.”

The Parker Review is recommending action, with a call for all FTSE 100 boards to have at least one non-white director by 2021 and each FTSE board by 2024. The review recommends that boards be required to report on this recommendation on a comply or explain basis, as well as improving diversity policies and pipelines to target people of colour.

What are the business benefits of increased ethnic diversity on boards?

The report highlights perceived business benefits from improving the representation of people on colour on corporate boards.

Internal Business Benefits

Inclusive leadership & Avoiding Group Think 
  • A board capabale of drawing on a range of thought, experience & expertise
Corporate culture
  • A board that reflects a company’s commitment to diversity
  • A board that reflects the breadth of a company’s ambitions, including those of its employees, customers and communities

External Business Benefits

Brand Value
  • A board capable of enhancing and protecting the corporate brands by acting consistently with articulated corporate culture and values
  • A board that reflects the fact that sales of FTSE companies are made increasingly outside the UK and consumers want to align themselves with brands that reflect their priorities.
Recruitment
  • A board committed to identifying, attracting, retaining and promoting the best talent, irrespective of background
  • A board that can develop the global talent pool into corporate leaders to deliver long-term strategy.
Supply chain
  • A board that is capable of appreciating and managing risks associated with global resourcing, which invariably requires an understanding of cultural sensitivities

Parker Recommendations The Parker Review considered, but rejected, the concept of a statutory quota to drive greater cultural diversity on boards. Instead, the review proposes voluntary measres reported on a ‘comply or explain’ basis, including:

  • Each FTSE 100 Board should have at least one director of colour by 2021, and each FTSE 250 Board by 2024, on a comply or explain basis;
  • Nominations committees of all FTSE100 and 250 companies should require search firms to proactively identify people of colour for consideration;
  • Executive search firms should include ethnic diversity in their voluntary code of conduct;
  • Boards should proactively develop candidates for the pipeline and plan for succession; and
  • Companies should report on cultural diversity in narrative form.

The report is out for industry comment, with the review’s final recommendations and findings to be published in 2017.

The UK government’s Business Minister Margot James has supported the draft recommendations: “People of colour are in general more likely to go on to higher education compared to their white peers. Yet this research shows they are less likely to be in leadership positions in business.”

“Whether due to failures in recruitment, or lack of internal opportunities or outright discrimination, the result is the same. Business and society at large are losing out on talent. This isn’t necessarily because of discrimination. But it is about culture change, about breaking bad habits.”

Questions for Directors

The draft report includes suggested questions for boards and directors to engage with on ethnic diversity.

Leadership

  • Does our board succession plan include criteria that would bring forward qualified candidates from ethnically diverse backgrounds?
  • Have we recently considered, and disc used with the executive, how the ability to deliver our strategy would be strengthened by having greater diversity of background, experience and insight at the board?

Effectivenes

  • Can we evidence that our board has enough constructive and diverse thught being expressed to avoid “group think” and to provde insight into the trends that will ipact our markets, customers, employees, and other key stakeholders?
  • Can we evidence the fact that we have asked our HR team or recruitment consultants to identiffy and present to us candidates that represent ethnicallyy dicerse backgrounds to join our board?

Accountability

  • Would the outside world (specificallu customers, suppliers, partners, regulators, and legislators? Currently see our board as appropriately reflective of our stated values, our communities in which we operate and the people in our organisation?
  • Do we have an internal process to identify, develop and promote high potential minority ethnic employees in order to develop “board-ready” candidates for internal subsidiary and external aapointments, and can we evidence that?

Remuneration

  • What evidence do we have that our remuneration policies promote diversty and do not favour any particular sub-group?

Relations with Shareholders

  • Have I recently asked our shareholders about the role they see diversity (incluing ethnicity) playing in our board composition, the overall company and the delivery of our strategic objectives?