On 13 March 2023, the UK's Parker Review on Ethnic Diversity on UK Boards (the “Review”) published an update report (the "2023 Update") detailing recent progress that has been made in addressing the disparity between levels of ethnic diversity in the UK population at large and ethnic diversity on UK FTSE 350 boards. It also announced an extension of the Review’s approach to increasing ethnic diversity on and below the boardroom level, to senior management in FTSE 350 companies and also to the UK’s 50 largest private companies and businesses.

Background to the Parker Review and subsequent developments

The Review was set up in 2015 to take forward the economic and moral case for improving ethnic minority participation at the highest levels in UK business. It produced a consultative first report in 2016 with recommended voluntary targets for FTSE 100 and 250 boards to have at least one director "of colour" - by 2021 for FTSE 100 companies and by 2024 for FTSE 250 companies. Foreshadowing the Review's most recent extension to setting senior management targets, it also recommended that FTSE 350 companies should develop and mentor a pipeline of candidates "of colour" for senior management as well as board positions and enhance transparency and disclosure about diversity within the company (including at board level).

Since the first report, the Review has published periodic updates on the progress that is being made towards achieving its targets. In addition, board and workplace diversity has received attention from updates to the UK's Corporate Governance Code - that board appointments and succession planning should promote "diversity of gender, social and ethnic backgrounds" - and further reviews such as The McGregor-Smith Review on Race in the Workplace (2017) and its subsequent "scorecard" update report (2018).

Most recently, the FCA introduced into the Listing Rules as they apply to both premium and standard listings, detailed gender diversity and ethnic minority targets and reporting requirements in respect of accounting periods starting on or after 1 April 2022. As regards the latter target, companies will have to disclose whether at least one director is from a minority ethnic background and if they have not met this target, why that is so.

Minority ethnic background is defined, for the purposes of this Listing Rule disclosure in a similar way to that used in the Review, being based on ONS classifications and so comprises: Asian, Black, Mixed/multiple ethnic groups and Other ethnic groups.

Gender diversity and ethnic diversity

The 2023 Update has appeared little more than one week after publication of the FTSE Women Leaders 2023 report (which we looked at here) and its new recommendations share the same approach as its "sister" report, both as regards focusing diversity improvement within the senior management role and beyond listed companies to very large private UK businesses.

It is worth noting that 47% FTSE 100 and 48% of FTSE 250 ethnic minority directors are women; so a better showing than the around 40% gender diversity as a whole among the FTSE 350.

Progress up to the end of 2022

The 2023 Update looks at the ethnic minority representation on FTSE 100 and 250 boards as revealed by those companies that have reported back to the Review.

FTSE 100 boards

FTSE 250 boards

The presence of ITs within the FTSE 250 index, representing 34% of the index and with generally different characteristics from trading companies, is tending to skew the ethnic diversity results here. ITs are not "in scope" for the FTSE Women Leaders' gender diversity reporting. Nevertheless, there is clearly still some work to be done if all "qualifying" FTSE 250 companies are to meet their Parker Review target within the next two years.

Senior board positions

The 2023 Update reveals the following about ethnic minority presence within key senior board positions.

These numbers are, of course, lower than corresponding numbers for women on FTSE 350 boards though it is notable that, at least as regards FTSE 100 companies, the recent FTSE Women Leaders 2023 report gave a figure of just two more - nine - women holding the CEO position. In both cases, there is clearly some way to go in improving diversity among FTSE 350 CEOs. At the moment, as with women FTSE directors, the great majority of ethnic minority directors hold non-executive roles.

Ethnicity diversity - on UK boards and within the UK as a whole

The 2023 Update offers the following analysis of minority ethnicity between the two FTSE indices from those who reported this.

The 2023 Update notes that while Asian individuals comprise 51% and black individuals comprise 22%, of the ethnic minority population in England and Wales, their percentage representation as ethnic minorities on FTSE 350 boards is higher for Asians and lower for blacks.

The 2023 Update also argues, particularly in connection with its new "non-specific" ethnic minority representation targets for senior management, that a "one size fits all" approach would not necessarily make sense or be fair. This is because of the significant differences that there can be across the geographic areas - both within the UK and internationally - in which companies operate and from which they draw their workforces. For example, the latest (2021) census data for the UK apparently shows the proportion of ethnic minorities in North East England to be 7% when compared to 46% in London, and 17% overall.

New senior management targets

As noted at the beginning, the Review will now ask both FTSE 350 companies as well as the newly-brought in scope 50 largest private companies, to report on progress being made towards improving ethnic minority representation in senior management positions. This will bring ethnic diversity reporting into line with the gender diversity reporting in the UK.

Unlike the specific 40% targets that the FTSE Women Leaders Review sets for gender diversity, the Parker Review is proposing leaving it up to companies themselves to set their own targets for ethnic minority representation within senior management, taking into account, among other things, ethnic diversity in the regions and countries in which their senior management is located. "Senior management" will be defined in a similar way to that used for gender diversity reporting and so will comprise members of the executive committee (or its equivalent) and senior direct reports to the committee. FTSE 350 companies will have to set targets by December 2023, to be met by December 2027.

Companies are asked to encourage their employees to self-declare their ethnicity so that they can collate the data required to help guide decision-making in relation to the development of their pipelines of executive talent.

50 largest UK private companies

As with the FTSE Womens Leaders Review, and adopting the same "largest private company" criteria as now applies under that Review - turnover of £1 billion, a workforce of at least 4,000 and headquartered in the UK without a listed parent - the 50 largest UK businesses will be asked to start reporting under the Review.

This means that these businesses should:

• have at least one ethnic minority director (or equivalent) on their main board by December 2027
• set a minority ethnicity target for their senior management teams by December 2024, to be met by December 2027
• report on progress towards meeting these targets in their annual reports and to the Review itself.

The Review lists the 50 private companies that will be in scope for these purposes. They include commercial companies, utilities, and professional services firms.

Final thoughts

As with the recent FTSE Women Leaders report on UK board gender diversity, it is good to see progress being made towards meeting the UK's ethnic minority diversity targets for boards. Thus, in 2016 there were just 47 FTSE 100 companies with a director from an ethnic minority background (or "of colour" to use the language of the review's first report) - now that figure has more than doubled - with seven of those companies accounting for over 40% of the directors of colour on FTSE 100 boards. However, there is certainly no room for any complacency since it must be recognised that this progress has not been nearly as quick, even allowing for the later start of the Review's work, as we have seen with gender diversity on UK boards. Four FTSE 100 companies have actually missed their modest 2021 ethnic diversity target, rather than meeting it three years early as we saw last week with the UK's gender diversity on boards target.

It is to be hoped that the Review's increased focus on the development of an ethnically diverse executive pipeline of talent will help speed up progress towards increasing an ethnic minority presence on UK listed companies (and now private companies) boards, so that we can start to see less of a disparity between ethnicity in the UK population and ethnicity in the UK plc boardroom

"Ethnic minority representation in executive roles is important to ensure equal opportunities for all roles ... We believe that the best way to achieve equal opportunity in executive roles is through pipeline building ... the setting of a target by itself will not [,however,] deliver results. Companies will need to invest in solutions to meet their targets ... Targeted programmes for underrepresented groups and minority groups are important to address unequal access to important career insights and opportunities", p.20, Parker Review Update 2023

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