Schroders has warned FTSE 100 chairs that from next year it will be using its shareholder votes to pressure firms that have failed to meet board diversity targets.
In the UK, a 2016 review of ethnic diversity on boards called the Parker Review challenged firms to hit a “one by 2021” target.
The latest update – published by Sir John Parker, EY and the Department of Business, Energy & Industrial Strategy in February 2020 – showed 37% of companies surveyed (31 out of 83 companies) did not have any ethnic minority representation on their boards.
That picture marks steps in the right direction. In 2016, more than 50% (51 out of 100 companies analysed) had no ethnic minority representation on their boards.
However, more action is needed.
Sir John Parker, chairman of the Parker Review Committee, has said: “Ethnic diversity needs to be given the same level of boardroom focus that finally led to increasing female representation on boards, which has seen real progress in recent years.”
2020 Parker Review survey:
96 (96%) of the FTSE 100 responded
- 52 companies had met the target for having at least one ethnic minority director on their board by 2021.
- 31 companies had not yet met the target of having at least one ethnic minority director on their board by 2021.
- 13 companies were unknown as they did not provide enough information.
Four companies did not respond.
203 (81%) of the FTSE 250 responded:
- 54 companies have at least one ethnic minority director on their board.
- 119 companies do not have at least one ethnic minority director on their board.
- 30 companies are unknown as they did not provide enough information.
- 47 companies did not respond.
2016 Parker Review report based on publicly available information on all companies in the FTSE 100:
- 51 companies in the FTSE 100 did not have any ethnic minority directors on their board.
What are we doing?
In November, Schroders wrote to FTSE100 chairs on the topic of ethnic diversity. In our letter we made clear our expectations that those large companies should ensure a level of ethnic diversity on their boards.
We sent a separate letter to those companies identified as meeting the expectation of having at least one ethnic minority director on the board.
This reiterated that we do not expect a “one and done” situation for board diversity. Progress should not stop there.
To ensure the sustainability of the pipeline of diverse director candidates it is imperative that companies are developing a robust board candidate pipeline and plan for succession, and that they encourage and support candidates to take on board roles.
We expect companies to set targets for executive level ethnic diversity, underpinned by a robust strategy to achieve them, track progress against these and regularly report this to the board and investors.
When operating in countries where they cannot collect ethnicity data, companies should consider other metrics which can be used to track progress on creating an inclusive culture.
What next?
From 2022, Schroders will begin to vote against the nominations committee chair of any FTSE100 company that did not meet the recommendation of the Parker Review that the board have at least one director of colour by 2021. We will treat a company’s non-disclosure as not meeting the requirement.
Since sending these letters, 25 companies acknowledged receipt, 15 provided a substantial response (for example a letter from a board chair), and one has since appointed a non-white director to its board.
We will be interested to understand what companies failing to meet this target plan to do and will monitor progress.
We encourage companies not to think about diversity in isolation. An inclusive culture on the board is essential to actually realising the benefits of having diversity.
We may look to increase our expectations on board diversity in future, particularly as we seek to ensure diversity in all its dimensions is reflected in the senior levels of companies in which we invest.
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