UUÂãÁÄÖ±²¥

Diversity progress 'painfully slow' on racial and ethnic diversity in corporate companies. The employers' body, CBI (Confederation of British Industry), has recently launched its , and warns that business was likely to miss the 2016 government review targets set around diversity at work. 

With 37% of FTSE 100 firms having no ethic minority representation at board level, the CBI called for such firms to ensure they have at least one person of an ethnic minority background on their boards by 2021, asking companies to set clear targets for diversity within management and to publish progress annually.

See below for comments from our experts regarding the impact on Employment and Corporate Law:

Philip Thornton, UUÂãÁÄÖ±²¥ Employment Law

The ‘Change the Race Ratio’ campaign, being launched by the CBI, alongside companies including Aviva, Brunswick, Deloitte and Microsoft, has as its overall objective the achievement of an increase in participation in British businesses by persons from racial and ethnic minority backgrounds.

More specifically, it commits those companies that sign up to the campaign to a number of goals, including:

• FTSE 100 firms to have at least one racially and ethnically diverse board member by end 2021
• FTSE 250 to have at least one racially and ethnically diverse board member by 2024
• to take action to set clear and stretching targets to increase racial and ethnic diversity at executive committee level, and one step below that, and publish them within 12 months
• to establish a separate target for black participation at both those levels
• to disclose ethnicity pay gaps by 2022 at the latest
• to focus on recruitment and talent development processes to drive a more diverse pipeline

Although the legal framework for gender pay gap reporting is already in place, there is no parallel legal duty in relation to race or ethnicity. The government ran a consultation on introducing such a duty that closed in January 2019, but as yet no outcome has been published. This campaign is thus asking those that sign up to commit to complying with such a duty voluntarily, in the absence of a legal compulsion to do so.

The other goals listed above relate to increasing racial and ethnic diversity (a) in recruitment to employed positions, (b) in recruitment and promotion to senior leadership positions and also (c) in appointments to the office of director on company boards. Companies that sign up will no doubt seek to achieve these goals, at least in part, through initiatives aimed at encouraging a greater number of applicants for such roles, promotions and appointments who come from racial and ethnic minority backgrounds. However, it may also be the case that some companies want to take advantage of the positive discrimination provisions in the Equality Act 2010.

The default position under the Act is that any preferment of a person in the context of recruitment or promotion, or appointment to an office, that is done because of their ethnicity or race is unlawful. However, section 159 of the Act allows limited exceptions. One legitimate ground for using the exception in section 159 is where ‘participation in an activity by persons who share [a particular]… protected characteristic is disproportionately low’; that would often apply in this context. Even if it does, however, before a company can decide to recruit, promote or appoint one person ‘A’ instead of another ‘B’, it must be the case that A is (at least) as qualified as B. In other words, it is an exception that allows a person from an ethnic or racial minority background lawfully to be given preference where the candidate is of equal merit to another candidate who is not from that background. Note, however, that section 159 does not make it lawful for a company to adopt a policy of treating persons from ethnic or racial minority background more favourably in recruitment or promotion than others; the exception can only apply on a case-by-case basis where the relevant criteria are satisfied.

Jenisa Altink-Thumbadoo, Market Tracker, UUÂãÁÄÖ±²¥ Corporate Law

highlighted the under-representation of ethnic minorities at board-level and made several recommendations to FTSE 350 companies to address this. It set a target for each FTSE 100 board to have at least one director of colour by 2021, with FTSE 250 boards advised to reach this by 2024. As acknowledged by the campaign, progress has been slow. An update to the Parker Review in February 2020 revealed that 37% of FTSE 100 companies still do not have any ethnic minority representation on the board whatsoever.

In addition to prescribing targets for board representation, the Parker Review suggested that the board’s policy on diversity should be set out in the company’s annual report, alongside a description of the company’s efforts to increase ethnic diversity at both board level and across the organisation. This reflects the ethnic diversity reporting requirements that companies with a premium listing of equity shares on the Main Market of the London Stock Exchange are also subject to under the UK Corporate Governance Code. The four Commitments to Change undertaken by the Change the Race Ratio campaign signatories will put an increased focus on companies setting targets and publishing clear action plans.

Lexis®PSL Corporate and Market Tracker have been conducting research across the FTSE 350 to report on how diversity is being addressed in company annual reporting. At the UK’s leading companies there is still a lot to be done in this respect. Our findings indicate that only 40% of FTSE 100 companies set out measurable objectives to increase board diversity in their annual report and only 35% reported on the company’s progress towards these objectives. Nevertheless, our research also uncovered several noteworthy examples of companies aiming to create an inclusive culture in which a diverse range of talent can thrive, including the creation of BAME networks and forums, the identification of BAME role models across the business, and the introduction of programmes supporting the development of ethnic minority leadership.

Companies are also likely to experience added pressure from investors to increase board diversity. Our recent Market Tracker trend report on acknowledged that ESG (environmental, social, and governance) matters are currently high on the agenda, and likely to form the basis of future activist campaigns, as the movement towards responsible investing combines with the increasingly popular view that diversity plays a key role in company performance. A good recent example of the importance investors are placing on these issues is the announcement on 5 October 2020 by institutional investor Legal & General that it will vote against all-white boards that do not have a BAME director in place by 2022.

Further reading from UUÂãÁÄÖ±²¥ blogs

Bridging the Bar - a campaign to increase diversity

Legal & General warn FTSE 100 companies against all-white boards

BAME representation continues to remain low in largest UK companies

AGM season 2019 – Market Tracker Trend Report

Ethnic diversity: 2019 update