Europe

Company Boards Failing to Report on Ethnic Diversity – Investment Association

But data suggests an uptick in gender diversity and inclusion in FTSE-listed companies.

Greater transparency is being demanded by investment managers on the ethnic diversity of UK boards, after almost three-quarters of FTSE 100 companies failed to report the ethnic make-up of their boards in this year’s AGM season, according to data from the Investment Association (IA).

FTSE 100 boards are expected to have at least one director from an ethnic minority background by 2021 under the Government-sponsored Parker Review. The Review made a number of recommendations in order to increase ethnic diversity of UK boards, develop candidates for succession and enhance transparency and disclosure.

But a lack of such information from boards in their annual reports is preventing investors from holding companies to account on their progress.

“FTSE 100 firms are falling far short of investors’ expectations when it comes to reporting the ethnic diversity of their boards,” said Chris Cummings, chief executive of the Investment Association. “The Parker Review showed there is still significant progress to be made on improving the ethnic diversity of UK PLC boards and investors need more information to assess a company’s journey to meeting the Parker Review target. Transparency is key.”

The IA data is based on the 93 FTSE 100 companies with year-ends on or after 31 December 2019, which have held their AGM as of 30 September 2020.

With regards to gender diversity, the IA said there are signs of progress with FTSE boards now meeting in aggregate the target set by the Hampton-Alexander Review of 33% board representation by women by the end of 2020.

During the course of this year, all-male boards fell to zero for the first time ever, however, this has since increased to one all-male board, highlighting the need for companies to focus on succession planning to maintain momentum on board diversity. The number of boards with only a single female director in the FTSE 350 has fallen from 74 at the end of 2018 to 16 now.

The IA’s Institutional Voting Information Service now issues a ‘red-top’, its highest warning level, to companies with just one woman (or less) on their board, as well as to those with 20% or less women on their board or in their senior leadership teams this year. In this year’s AGM season, 22 companies were issued with a red-top for a lack of gender diversity in their senior leadership teams.

“We’ve seen good progress on gender diversity when companies have held up the mirror to themselves and listened to investors’ concerns. Companies now need to take urgent action and report on ethnic diversity on their boards. Those who fail to do so will find themselves under investors’ spotlight,” Cummings said.

According the ‘FTSE 100 Board Diversity Report 2020’, published by DiversityQ.com in June, white males make up 62% of FTSE 100 boards and occupy almost 84% of executive directorships, with white females making up 28% of boards. Men from black, Asian or minority ethnic backgrounds account for 6% of boards, while women from black, Asian or minority ethnic backgrounds take up less than 4% of board places.

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