The Parker Review, One Year In

On 12 October 2017, the Parker Review published its Final Report on the ethnic diversity of UK boards, entitled “Beyond One by ‘21”. The Parker Review was created in 2015 to tackle the obstacles to ethno-cultural diversity in the boards of Britain’s largest companies. It is led by Sir John Parker, a former member of the Davies Review on board gender diversity. The Review published in November last year a consultation paper taking stock of the ethnic diversity in the FTSE 100 boards and proposing measures to increase the ethnic minority representation in these boards.

Previous to this consultation paper, several studies highlighted a lack of ethnic diversity at the higher levels of British business organisations. A 2014 study by Green Park revealed that over half of FTSE 100 companies had no non-white board members, while two-thirds had no full-time non-white executive directors. The study also found that some industries are more diverse than others. National resources, telecoms and banking/finance are the most ethno-culturally diverse sectors, while areas such as utilities, engineering and transport are the least diverse. Another 2014 study by Business in the Community found that between 2007 and 2012 there had been no progress in the representation of Black, Asian and minority ethnic (BAME) people in leadership positions in UK businesses. Although one in 10 UK employees belong to the BAME family, only one in 13 occupy management roles, and one in 16 are top management. Following these findings, in September 2014 the Financial Reporting Council announced that it considered opening consultations on updating the UK Corporate Governance Code on a number of diversity matters, including narrative reporting on ethno-cultural diversity.

Similar to these studies, the Parker Review report published this month found that the boards of UK’s largest companies are unrepresentative of their work force, customer base, supply chains and the British society more generally. The UK population has changed significantly over the past 40 years and boards have yet to reflect these changes. Currently, approximately 14% of the total UK population is made of “persons of colour” or from a “non-white” ethnic group (i.e. have evident heritage from African, Asian, Middle Eastern and South American regions).[1] At the same time, there are only 8% of directors of colour in the FTSE 100. Fifty-one of these companies do not have any directors of colour, while seven companies account for over 40% of the directors of colour. Only six people of colour hold the position of Chair or CEO in the FTSE 100. The report estimates that people of colour will form 20% of the total UK population by 2030, and 30% by 2051.[2] Faced with these trends, and with a demonstrated systemic failure by British businesses to draw on an appropriate range of ethnicities in selecting their leaders, the Parker Review proposed a series of objectives and recommendations covering three main areas.[3]

  • Increasing the ethnic diversity of UK boards

The Review proposed a target of minimum one director of colour in each FTSE 100 board to be attained by 2021, and FTSE 250 by 2024. Nomination committees of all FTSE 350 companies should require their internal HR departments or executive search firms to include qualified people of colour on the list of candidates for board appointments. Furthermore, the Review recommended that executive search firms apply the Standard Voluntary Code of Conduct developed in the context of gender-based recruitment to the recruitment of minority ethnic board candidates for FTSE 350 companies.

  • Developing the pipeline

FTSE 350 boards should implement systems to develop and promote persons of colour within their organisations. Such systems should ensure that the company has a viable pipeline of internal board candidates who appropriately reflect the importance of diversity in their organisation. Board members should also mentor and sponsor people of colour within their own companies to ensure their readiness to assume senior managerial or executive positions internally, or non-executive roles externally. In addition, companies should foster the leadership and stewardship skills of employees with diverse backgrounds, including people of colour, by encouraging them to take board roles within the company or the larger corporate group, or trustee roles with external organisations.

  • Enhancing transparency and disclosure

The Review recommended enhanced transparency on the policies and processes that companies have in place to monitor and increase the ethnic diversity within their organisation, including at board level. Companies should disclose in their annual report their progress towards the 2021/2024 targets, and, where applicable, explain why they have not been able to achieve compliance.

These recommendations were included in the consultation paper and carried forward in the Final Report without significant amendments. According to the latter document, the feedback received was overwhelmingly in support of the proposals, as drafted. One notable discussion point was the voluntary nature of the recommendations. In the course of drafting the consultation paper, the Review considered two alternative regulatory tools for achieving ethnic diversity in leadership: (i) statutory quotas (e.g. a mandatory requirement that each public company have at least one ethnic minority director); (ii) mandatory diversity in board candidate shortlists (e.g. a requirement that nominations committees ensure that shortlists include at least one person of colour). The Parker Review considered each of these options and concluded that, on balance, a voluntary approach is more realistic and appropriate. This approach was fully endorsed by the stakeholder feedback received during the consultation process.[4] Several commentators, however, argued that the transparency and disclosure obligations should be mandatory, with clear explanations of the link between a company’s diversity policy and its overall strategy.[5]

Another interesting point concerned the usage of the terms “people of colour” and “director of colour”. Several stakeholders took issue with this terminology and suggested instead more popular formulations, such as BAME (Black, Asian and minority ethnic). After reviewing this matter extensively, the steering committee of the Parker Review concluded that no single noun or group of nouns would be perfectly suitable. The terminology used in the consultation paper and the Final Report was deemed adequate, as it is wholly inclusive of the global stakeholders of FTSE 100 and FTSE 250 companies. The committee further reasoned that the terminology itself is secondary to the spirit of the report, and is clear enough to allow an adequate implementation of the recommendations.[6]

Given the timeframe of the recommendations, the Parker Review is expected to remain active at least until 2021, and monitor the progress towards these objectives. The consultation paper and the Final Report highlighted that, should there be insufficient progress, the Review may revise its approach and propose that the recommendations become mandatory. It is worth noting that the recommendations of the consultation paper were acknowledged and supported by the report on corporate governance reform in the UK published in April 2017 by the Business, Energy and Industrial Strategy Committee appointed by the House of Commons. In addition to these proposals, the Committee recommended that the Financial Reporting Council update the UK Corporate Governance Code and make explicit the issue of ethnic diversity by adding a reference to ethnicity wherever there is a reference to gender. Moreover, it was recommended that the revised Code require disclosure of information on diversity in the company’s board and workforce, covering diversity of gender, ethnicity, social mobility, and diversity of perspective, as well as a statement of how accurately the board composition mirrors the diversity of both the workforce and the customer base. The recommendations in the Parker Review consultation paper were also supported by the UK Government’s response to the green paper on corporate governance reform in the UK, published in August 2017.

In parallel to the work of the Parker Review, another review examined the issues affecting black and minority ethnic (BME) groups in the workplace. The McGregor-Smith Review, led by Baroness Ruby McGregor-Smith, was established in 2016 at the invitation of the Secretary of State for Business, Innovation and Skills. Its final report, entitled “Race in the Workplace”, was published in February 2017. It revealed that, in contrast to their white counterparts, BME people have 12% lower employment rates and are more likely to work in lower paid and lower skilled jobs, despite being more likely to have a degree. The key recommendations called on companies with more than 50 employees to tackle barriers to BME progression by publishing an annual breakdown of their workforce by race and pay band, drawing up five-year diversity targets, and nominating a board member to oversee progress on these targets.

Finally, it is worth mentioning an interim report published by the Trades Union Congress earlier this year. The report, entitled “Let’s Talk about Racism”, was compiled from a survey of over 5,000 Black and minority ethnic (BME) workers.[7] It unveiled that that racial harassment, bullying and discrimination remain prevalent in many British companies. BME workers who took part in the survey reported having experienced racist abuse and violence, excessive surveillance and scrutiny by supervisors and managers, restricted access to training and promotion opportunities, or unfair disciplinary actions. The report also found that many BME workers do not have the confidence to raise these issues with their employers, for fear of being labelled as trouble makers or forced to leave their job. The report made several recommendations for companies and the government. The former include strong equality, diversity and dignity policy with zero tolerance for racism, clear and simple procedures for up-the-ladder reporting of racism, and transparency on BME pay, recruitment, promotion and dismissal. The latter include tougher action against harassment and discrimination at work and legislation making employers responsible for protecting BME workers against racism by third parties, such as clients, contractors and customers.

[1] The Parker Review Committee, “A Report into the Ethnic Diversity of UK Boards: Beyond One by ‘21” Final Report (12 October 2017) 7.

[2] Ibid.

[3] Ibid at 46-49.

[4] Ibid at 14.

[5] Ibid. at 15.

[6] Ibid.