On October 12, 2017 the Parker Review Committee, led by Sir John Parker, published its final report (Report) into the ethnic diversity of UK boards. This follows the report that the Parker Review Committee published in November 2016 which summarised the findings of their review so far and was prepared for consultation purposes.
The Report notes that UK citizen directors of colour represent only about two per cent of the total director population and 51 out of the FTSE 100 companies do not have any directors of colour. The Parker Review Committee believes that it is important that FTSE 100 and FTSE 250 companies change the way they approach the issue of ethnic diversity in the boardroom and the pipeline and as well as highlighting clear business reasons for increasing ethnic diversity on UK boards, the Report includes a number of recommendations as follows:
Increasing the ethnic diversity of UK boards
- Each FTSE 100 board should have at least one director of colour by 2021 and each FTSE 250 board should have at least one director of colour by 2024.
- Nomination committees of FTSE 350 companies should require their human resources teams or search firms (as applicable) to identify and present qualified people of colour to be considered for board appointment when vacancies occur.
- Relevant principles of the Standard Voluntary Code of Conduct for executive search firms, which have been used successfully for gender-based recruitment, should be extended on a similar basis to apply to the recruitment of minority ethnic candidates as board directors of FTSE 350 companies.
Development of candidates for the pipeline and plan for succession
- FTSE 350 companies should develop mechanisms to identify, develop and promote people of colour within their organisations to ensure over time that there is a pipeline of board capable candidates in their managerial and executive ranks that appropriately reflects the importance of diversity to their organisation.
- Led by board chairs, existing board directors of FTSE 350 companies should mentor and/or sponsor people of colour within their own companies to ensure their readiness to assume senior managerial or executive positions internally or non-executive board positions externally.
- Companies should encourage and support candidates drawn from diverse backgrounds, including people of colour, to take on board roles internally (e.g. subsidiaries) where appropriate, as well as board and trustee roles with external organisations to give experience and develop oversight, leadership and stewardship skills.
Enhanced transparency and disclosure
- The board’s policy on diversity should be described in the annual report and this should include a description of the company’s efforts to increase, amongst other things, ethnic diversity within its organisation, including at board level.
- Companies that do not meet board composition recommendations by the relevant date should disclose in their annual report why they have not been able to achieve compliance.
The Report includes “Questions for Directors” in Appendix A and a “Directors Resource Toolkit” in Appendix B to help existing boards deliver on the recommendations of the Report. Appendix C sets out case studies, with organisations providing practical examples of the steps they have taken to improve diversity in their organisations and within their executive and board ranks.
The Report notes that based on the current rates of turnover amongst FTSE 100 directors, the Parker Review Committee estimates that to reach an ethnically diverse mix similar to that of the overall adult working population by 2021 (approximately 15 per cent), one in five new board appointees would need to be a person of colour. Taking into account typical board appointment cycles, they calculate that this would mean that, on average, each FTSE 100 company would need to appoint one minority director in the period to 2021.
The Parker Review Committee plans to stay intact at least through 2021 and will meet at least annually to assess efforts being made and progress in relation to the Report’s recommendations. It encourages FTSE 350 companies to adopt the recommendations on a voluntary basis but notes that if there is insufficient progress it may endorse that the recommendations (or relevant parts) become mandatory.
(Ernst Young, Press release, 12.10.17)
(Parker Review Committee, Final Report, 12.10.17)