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Feb 11, 2020

UK public companies lack ethnic diversity at board level

More than half of UK firms do not have any directors of color on their board, study finds

UK regulator the Financial Reporting Council (FRC) has urged companies listed on the London Stock Exchange to increase the number of non-white directors, chairs and CEOs as a majority of firms have not met the Parker Review target of having at least one director of color on their boards, according to the latest FRC report on ethnic diversity at board level.

According to the study, 59 percent of companies in the FTSE 350 did not meet the target of having at least one director with minority background in their boardroom last year. Only 57 UK directors of color held 61 director positions out of the 2,371 FTSE 350 directors polled, representing 2.6 percent.

FTSE 100 exceeds FTSE 250’s diversity results

The report shows that FTSE 100 companies have outperformed FTSE 250 firms when it comes to ethnic diversity at board level. In the UK, 37 percent of FTSE 100 companies failed to meet the target in 2019, against 69 percent of FTSE 250 issuers.

The survey shows gradual progress in increasing ethnic diversity in FTSE 100 boards. In 2018, 46 percent of the FTSE 100 companies polled failed to meet the target, down from 49 percent in 2017.

Progress has been slow since the last Parker Review report was published in 2017. Non-white British directors held 32 FTSE 100 positions out of the 868 recorded as directors of color or white European heritage. This represents 3.7 percent of the FTSE 100 director population, going up by 1.7 percent since 2017. There is no available data on the FTSE 250 from 2017.

Aiming for the top

If efforts to increase ethnic diversity have been slow to take effect among directors, changes to the position of CEO or chair has proved even harder. Across the FTSE 350, there were only 15 directors of color from the survey respondents who occupied positions of chair or CEO in 2019: 6 in the FTSE 100 and 9 in the FTSE 250.

While the diversity of FTSE 100 boardrooms has improved since 2017, the number of CEOs and chairs appointed in 2019 represents a step backward. Nine CEOs and chairs identified themselves as a person of color two years ago. By contrast, there has been an upward trend within FTSE 250 firms since 2017, with six CEOs or chairs of color being promoted.

Male domination

Over the past two years, FTSE 350 companies have slowly but steadily increased the number of non-white female directors. However, there is plenty of room for improvement. In the UK, female directors of color held 43 percent of board positions in 2017 compared to the proportion of their male colleagues of color. Since the launch of the Parker Review in 2017, only 1 percent of growth has taken place: in 2019, 44 percent of board positions were held by non-white female directors.

Of the FTSE 250 directors of color holding positions last year, 45 percent were female.

The proportion of female directors of color in the FTSE 100 has decreased by 2 percent since 2017, down to 42 percent in 2019, compared to the number of non-white, male directors.

Set to miss target

To buck such trends and promote diversity including gender, social and ethnic backgrounds in UK boardrooms, the Parker Review Steering Committee set out recommendations for FTSE 350 companies at the end of 2017.

The committee suggests each FTSE 100 board should have at least one director of color by 2021 and by 2024 for the FTSE 250. It means one year remains for FTSE 100 companies to respond to the target.

Moreover, CEOs should also develop mechanisms to identify, develop and promote people of color within their organizations to ensure over time that there is a pipeline of board-capable candidates that appropriately reflect the importance of diversity to their organization, says the study.

On a positive note, eleven companies in the FTSE 100 – including BAE Systems, BT and Tesco – have succeeded in complying with the Parker Review ethnic diversity target at board level. However, two companies surveyed, Ashtead Group and Royal Bank of Scotland Group, have moved from ‘met’ to ‘not met’ since 2017.

‘A more diverse boardroom leads to better business outcomes, which is why the UK Corporate Governance Code, and now the UK Stewardship Code, requires companies and investors to promote diversity and inclusion. We will monitor closely how companies report on their policies or explain their lack of progress, in this area,’ says Sir Jon Thompson, CEO of the FRC, in a statement.