Sunday, 15 October 2017

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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