Board Diversity: A Top-Down Recommendation When a Bottom-Up Revolution is Required
Today’s post reacts to the recently published Parker Review, which is a final report
led by Sir John Parker in association with Ernst & Young and Linklaters.
The report, entitled A Report into the
Ethnic Diversity of UK Boards, aims to shine a light on the issue of
representativeness on FTSE Boards, with a specific focus on FTSE 100 Boards,
and then prescribe some recommendations which it hopes will have a positive
effect in this particular field. So, in this post, we will take a closer look
at the Report and assess whether it may achieve its aims and, more importantly,
whether its aims are even useful or correctly constructed in the first place.
We have looked at this issue of representativeness at Board
level before here in Financial Regulation
Matters, but mostly from a gender-related viewpoint (here
and here).
However, as the Parker Report states in its preamble: ‘U.K.
Boards have made great progress on gender diversity but we still have much to
do when it comes to ethnic and cultural diversity as a business imperative’.
Whilst this statement must be qualified – the
rate of women being hired onto FTSE 100 Boards has stalled this year and,
moreover, the rate of women being hired onto Boards more generally has actually
reduced this year – improvements have been made, to a certain extent, and
especially when we consider historical trends (though this should offer no
comfort whatsoever). Yet, according to the Report, the situation is dire when
it comes to ethnicity and cultural differentiating elements, with ‘UK
citizen directors of colour [representing] only about 2% of the total director
population’, and only ’85 individual directors of colour (four hold two
Board positions)’ across FTSE 100 companies. Furthermore, seven companies
account for over 40% of ‘directors of colour’ (this post will continue with
this terminology only because the Report does), but of those seven, five
companies have headquarters historically located outside of the U.K. Finally,
of these 85 directors, only six hold the position of Chair or CEO. The report
counteracts these figures by discussing the make-up of the population, stating
that today 14% of the British population is classified as a ‘person of colour’
or coming from a non-white ethnic group, with projected
figures putting that first figure closer to 20% by 2030 and 30% by 2051.
So, in light of these findings, the Report makes a number of recommendations
which are badged under its “Beyond One by ‘21” moniker.
The “Beyond One by ‘21” banner represents the overarching
recommendation that, by 2021, ‘each
FTSE 100 Board should have at least one director of colour… and each FTSE 250
Board should have at least one director of colour by 2024’. The Report is
keen to acknowledge, however, that these aims may need to be tailored to each
specific business and their HR capacity, which is demonstrated when the
recommendation is qualified by the statement that ‘we
recognise that qualified and credible candidates can come from a variety of
backgrounds, genders and nationalities. The Review does not seek to mandate
where candidates are drawn from…’. Furthermore, in terms of compliance with
the recommendations, the Review concludes by affirming that ‘Companies
that do not need Board composition recommendations by the relevant date should
disclose in their annual report why they have not been able to achieve
compliance’, thus demonstrating the nature of this Review and the approach
taken within the Country with regards to Board diversity. However, at this
point it is important to remain positive (for the time being anyway) and say
that the Report, irrespective of its success, has at least played its part in
bringing this extremely important issue into the public consciousness. However,
are there parts of the story that the Review simply does not account for and,
therefore, may see its chances of achieving its objectives fundamentally
constrained?
Whilst the Report is receiving its plaudits from the likes
of the Business
Secretary and the Confederation
of Business Industry, it is proposed here that there are two constraining
factors at play here. Firstly, as we have mentioned before here in Financial Regulation Matters, the Report
does not address the impediments for success, it just states that something
ought to be done. The first impediment is that those in power may not wish to
see the increased representativeness that is called for by Parker, with Tesco’s
Chairman John Allen’s supposedly humorous ‘White
Men are Endangered Species in the Boardroom’ comment providing an ample
example of the potential barrier in this particular regard. Secondly, and more
importantly, the Report has an underlying sentiment that intimates that there
is a pool of talent waiting to be tapped, but that big business is not doing
so. Whilst there is an argument to be had that there is talent available but
that leading figures and institutions do not hire based on discriminating factors
which, as we know, would be illegal but
still very much a possibility when considering engrained
or cultural biases that infect
the employment process, it is probably better to focus on the issue of the
pool of talent available. Firstly, starting from the earlier phases of
education, the amount of non-white children attending ‘Independent’ i.e.
fee-paying schools is slowly
rising, but only recently. Additionally, families categorised as ‘Chinese,
Black, or Indian’ are now disproportionately exposing their children to private
extra-tuition, now edging towards a rate whereby students within these ethnic
classifications are twice-as-likely
to be privately tutored than their white counterparts. In State-funded
Schools, non-white students make up 31.4%
of Primary School Students and 27.9% of Secondary School Students, although
it has been noted that where these
students go to School is having an effect, with a ‘quarter
of English State Primary Schools [being] ethnically segregated’ and, in
London specifically, 90% of ‘ethnic minority students’ go to Schools where they
make up the majority of the cohort.
Moving forward, in terms of assessment-related success, a Report by the Social
Mobility Commission concluded that ‘black children, despite starting
school with the same level of maths and literacy as other ethnic groups, are
most likely to fail Maths GCSE’, with the same group recording the lowest
likely outcomes in Science, Maths and Technology A-Levels, should they get
there. Additionally, poverty becomes a factor when considering that ‘only 1 in 10 of the poorest go to
University, compared to three in 10 for Black Caribbean children, 5 in 10 for
Bangladeshi children and nearly 7 in 10 for Chinese students on the lowest
incomes’. Clearly, as one should be able to discern from the above, finding
a reason why is notoriously difficult
in this particular field, mostly because of the sheer number of factors that
may affect one’s progression, which can range from systemic discrimination and
bias, to the culturally-related emphasis one’s family may place on the
importance of education during the formative and most important years. However,
before we conclude, it is worth looking at the one of the final stages where
the ‘pool’ of talent may be formed: University.
Before we assess the notion that there is a pool of talent
to be accessed by business stemming from the graduate market (although it is
acknowledged here that one needn’t be a graduate to be an attractive candidate
to a Board of Directors), data provided by UCAS suggests that ‘Black,
Asian, and other ethnic minority students face a persistent gap in winning
University undergraduate offers in England compared with White applicants, even
when exam performance is taken into account’. The Report, which did not
include Oxbridge Universities, medicine, dentistry and veterinary courses
(because of their different entry systems) alludes to the fact that the highly
selective Universities (UCL is quoted) where less likely to take students from
ethnic minority backgrounds with the same entry scores – although figures from
Oxford University (and older figures from Cambridge University) suggested a similar
bias was in place there as well. Then, for those that do get to University,
‘White
students at English Universities receives significantly higher degree grades
than their peers from minority ethnic backgrounds with the same entry
qualifications’, with it being suggested that Universities in England need
to do much more in supporting those ethnic minority students as they progress
through their degrees. Then, to conclude the cycle, those ethnic minority
students are ‘much
less likely to be employed than their White peers six months after graduation –
and many can expect to earn less for years afterwards’; this is before we
take into account the disproportionate
difficulty that women from ethnic minority backgrounds have in the graduate
employment market.
Ultimately, the aim of this post was not to excessively
criticise the Parker Report, nor was it the aim to provide an answer to the
problems detailed within the Report and in this post. However, one aim of the
post was to demonstrate that a top-down approach will simply not work, and
takes into account too few of the problems faced. If a student manages to scale
the increasingly impenetrable wall that is described in this post, from Primary
School to University, their approach and understanding of the world will be vastly
different to the theorised or atypical student who progresses without having
faced these difficulties and obstacles (note, this atypical student is not
based on race, with the associated statistics for poor White students revealing
just as difficult a pathway). What does need to be considered is that focusing
more attention on a. removing systemic biases and impediments and b. accommodating
for the effects of that bias need to be adopted as we move forward, because
symbolic “Beyond One by ‘21” taglines will have very little effect if these
underlying issues are not tackled. Yet, and unfortunately it is difficult to be
positive at this point, we need to ask whether the current climate will be
conducive to achieving these aims. In this country alone, we have a Government
that is lurching from crisis to crisis, seemingly by the week, and an
electorate that voted to move into, by definition, particularly uncertain
waters. Rather than seek long-term and socially-progressive policies to deal
with that move, our Government and the powerful have decided to increase levels
of anxiety across the Board, ranging from attacks on the welfare state (the forthcoming
roll-out of Universal Credit will decimate parts of this Country) to chaotic
and unprofessional negotiations with the E.U. regarding the Brexit process.
This short-termism can be viewed almost every day in the news headlines (which
is an issue in itself), but the overall message is that long-term and
socially-progressive policies are simply not on the cards because the Country
cannot afford to think like that – well, the cost of not thinking like that is,
by its very nature, fundamentally more significant than any of the associated
benefits that come with short-termism. It is for this reason that the Parker
Report should be acknowledged as a positive attempt, but in reality
representative of a limited and constrained understanding of the Country and
its make-up.
Keywords: Board
Diversity, Diversity, Race, Ethnicity, Culture, Short-termism, U.K.,
Government, Policy, Education, Bias, Social Mobility, Opportunity, @finregmatters
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