Greater Ethnic Diversity on Boards Remains a Challenge But There is Cause for Guarded Optimism

 

A report by Cranfield experts has examined the barriers to senior leadership for people from minority ethnic groups in FTSE 100 and FTSE 250 companies, and found the challenges they face include:

 

• Being overlooked for promotion;
• Overt and covert racism;
• Having to demonstrate higher standards (compared with colleagues from majority backgrounds) in order to achieve career progression or to have the same development opportunities.

 

Exploring the lived experiences of senior leaders from ethnically diverse backgrounds through interviews and focus groups, the report suggests that, while minority ethnic executives lead successful careers and run successful businesses, they also have to adopt strategies such as ‘blending in’ and minimising their difference to get on, or ‘standing out’ to define their brand and celebrate their difference. 

 

 

Aims of the report

 

The aim of the report is to provide evidence on the challenges and opportunities that black and minority ethnic individuals may experience in progressing to the boards of FTSE 100 and FTSE 250 companies, executive committee roles (the pipeline to board positions), and the direct reports of members of the executive committee (also part of the pipeline).

A second overarching aim is to identify good practice and assess its effectiveness in increasing the ethnic diversity of FTSE boards and ensuring a sustainable pipeline of talent from a range of ethnic backgrounds.

Four key areas of research were highlighted for the report:

• What are the barriers to progression to senior leadership levels by people from minority ethnic groups? Are there consistent themes to those barriers?

• Is there established good practice for increasing the ethnic diversity of FTSE boards? How effective is that good practice in terms of outcomes and the real experiences of people from minority ethnic groups in FTSE companies?

• Does good practice extend to ensuring a sustainable pipeline of talent from a range of ethnic backgrounds with the skills and knowledge, and presence in those ‘feeder roles’, acknowledged as being desirable to successfully attain executive and board positions?

• Can a set of good practices/procedures be defined, or refined, that supports the progress of people from minority ethnic groups to senior leadership levels, and which might be applicable to the wider business community?

 

Research data

The report presents findings from two sets of data:

1. Interviews and focus groups were conducted with people in a range of senior positions in FTSE 350 companies, including chairs and non-executive directors (NEDs). Many participants were from minority ethnic backgrounds. Executive search consultants were also interviewed.

2. Annual reports from a selection of FTSE 100 companies and FTSE 250 companies were reviewed to assess the reporting of the breadth and depth of initiatives in place to diversify senior leadership, highlighting differences between the two groups where relevant.

 

Key findings from interview and focus group data

A key finding from interviews with participants across all the different categories related to the impact of the increased awareness of the Black Lives Matter (BLM) movement from 2020.

Many people related this to a significant shift in the quality of conversations about the organisational approach to race and ethnic diversity, such that actions and initiatives are being reviewed with greater scrutiny. This provides a strong platform for building on the work done by many organisations so far, with the aim of accelerating change.

The board directors and senior managers (those who are in the pipeline to executive roles) shared their career experiences, highlighting both the many positive aspects of their career trajectory, and also discussing the barriers and challenges and their strategies for overcoming them.

Challenges included being overlooked for promotion, overt and covert racism, and having to demonstrate higher standards of performance when compared with colleagues from majority backgrounds, in order to progress or have the same development opportunities.

These participants referred to both their own agency and individual strategies, as well as organisational initiatives and the support of senior colleagues, when discussing how they have dealt with the challenges. The board directors also talked about the – often recent – realisation of a responsibility to contribute towards change, for the benefit of those lower down the organisational hierarchy.

In relation to organisational initiatives, interviewees at all levels described recruitment-related practices, including:

• More diverse interview panels,
• Advertising in innovative ways including use of social media, to target underrepresented groups,
• Using a wider range of recruitment agencies for roles throughout the organisation.

Facilitating professional relationships involved networking, mentoring schemes and sponsoring, often external to the organisation itself. The backing of senior leaders was seen as a major source of support by participants when describing positive factors in their careers, with leaders often seen as informal allies rather than contributing to a specific organisational practice.

Targets were regarded as an essential feature of initiatives to facilitate progression of the talent pipeline, accompanied by monitoring and accountability. This included having explicit organisational success criteria related to attendance of individuals on development programmes and managing expectations of possible outcomes.

Finally, the role of executive search consultants was discussed in identifying candidates from minority ethnic backgrounds, particularly in working with chairs and other board members. Widening their search to include those with less traditional careers involves attention to the language used in recruitment briefs, and ensuring similar expectations from all candidates, rather than minority candidates having to demonstrate more skills and expertise than those from the majority.

 

Key findings from review of selected annual reports

Overall, as may be expected, a larger proportion of the selected FTSE 100 firms reported on initiatives to diversify senior leadership compared to the FTSE 250. Across the FTSE 350, initiatives linked to governance (e.g. setting up a steering committee or task force) were some of the most frequently-reported actions. However, these were sometimes targeted at broader diversity strands, rather than having a unique focus on ethnicity.

Key findings were:

• Companies reported on the use of targeted programmes to support the development and leadership capability of high-potential individuals from under-represented groups. However, there was limited reporting on the design and content of targeted race and/or ethnicity programmes. Such programmes rarely had explicit outcomes in relation to company diversity objectives.

• Reporting on appointments to govern diversity demonstrates a level of commitment from the company to achieving its diversity objectives. Limited information beyond oversight of diversity and inclusion was reported in all cases.

• Few companies presented their race action plans in any depth. Better quality reporting stated both broad objectives and specific actions within the plan as well as parameters for implementing change.

• There were many examples of companies publicly reporting their targets, pay gaps or performance metrics as evidence of actions that the company has taken. However, we found limited examples of companies reporting initiatives that would help them to meet their objectives.

• Board level initiatives were primarily focused on recruitment, succession planning, talent mapping, working with external search consultants and board level targets for race and/or ethnicity. The only initiative reported by companies that had demonstrable impact was the intentional recruitment of individuals from minority ethnic backgrounds or other under-represented groups; reporting on this initiative was limited.

• Reporting on charters, external validation and benchmarking was limited to companies’ declaration of their membership of or support for a specific campaign. It is largely unclear how charters are expected to help drive change in racial representation within the companies.

• Data collection provides an important first step for understanding the diversity context, challenges and opportunities for change. Many companies across the FTSE 350 reported data collection activities being used to start, refresh or continue their diversity initiatives.

• The tendency of companies to group diversity initiatives in their annual report means that initiatives are often not clearly linked to specific diversity objectives.

 

Recommendations from interviews and focus groups

Research questions aimed to understand barriers to progression to senior leadership levels by people from minority ethnic groups, identify good practice, and assess its effectiveness in increasing the ethnic diversity of FTSE boards and ensuring a sustainable pipeline of talent from a range of ethnic backgrounds.

Recommendations on dismantling these barriers and implementing good practice are:

1. Be transparent

Findings indicate that many senior minority ethnic individuals observe being overlooked for promotion or reaching career plateaus and also carry a burden of overperformance under heavier scrutiny.

We recommend greater transparency in decision-making and promotion processes. Companies should review all processes and policies to ensure transparency in decision-making involving selection, promotion, and performance reviews especially at middle management to senior levels. This should include a critical analysis of all criteria, ensuring they are all necessary and relevant and can be consistently applied, followed by monitoring of decisions taken against these criteria. This will allow organisations to assure all stakeholders that an equitable process is being adhered to.

Where candidates are unsuccessful, comprehensive and actionable feedback should be offered and details of a process for appeal should be made available. In addition, organisations should establish and maintain a diverse employment pipeline by widening their search to recruit employees at all levels. For example, organisations can work with firms that specialise in contextual recruitment¹ to ensure that talent and performance are spotted across diverse backgrounds.

The responsibilities of senior leaders, when appointed as diversity champions, should be clarified.

2. Embed data and build in accountability

Findings indicate that while companies employ a wide range of initiatives and practices to diversify their executive pipeline across ethnicity, gender and other underrepresented groups, there is insufficient monitoring, measurement and accountability built in. Much greater emphasis should be placed on data analytics.

The organisation’s equity goals (not just headline company targets, but specific goals across the talent management cycle including recruitment, progression, and retention) should be embedded into the business strategy, alongside all other business goals, and cascade down into individual objectives.

The performance of all leaders and people managers should be assessed against these goals. Further, race and ethnicity data collection and monitoring should go beyond considering and grouping ‘ethnic minorities’, and instead explore the differences between the experiences and career outcomes of individuals from various ethnic groups.

Acknowledging that progress on increasing ethnic diversity at board level has been accompanied by gender diversity², companies should continue to monitor progress towards advancing an ethnically diverse female talent pipeline to executive roles.

Companies should use positive action³ (which is legal) when appropriate and openly communicate the rationale for doing so, showing ownership and commitment to achieving race and ethnic equality goals. 

3. Boost trust

Findings indicate that the BLM movement prompted many organisations to review their approach to inclusion, especially regarding race and ethnicity.

Subsequently, multiple initiatives were introduced, and momentum needs to be sustained; focus should be maintained on creating cultures of belonging and fostering authentic relationships across difference to reduce the sense of otherness and hypervisibility many senior professionals experienced on their career journeys.

Trust should be nurtured and boosted within organisations and between individuals. For example, at an organisational level, companies should introduce targeted training programmes that involve multiple stakeholders (not just minority ethnic individuals) to co-create a culture of fairness and psychological safety for all employees and develop understanding of concepts such as intersectionality.

More inclusive cultures will encourage all employees to self-identify against all diversity demographics, providing more accurate data to guide racial/ethnic equity goals (i.e., feed into Recommendation 2 above). An inclusive culture should promote a zero tolerance to overt/covert/ ‘casual’ racism and ‘banter’; toxic individuals should be called out and, ultimately removed (even if they are powerful people).

Corporate leaders should engage with the inclusive business strategy and be active allies. Greater trust will be fostered in the long term through visible inclusive leadership and vulnerability and courage - the fear of saying the wrong thing being a roadblock to action should no longer be permissible.

At interpersonal levels, opportunities should be created for developing relationships and stronger and more inclusive networks throughout the organisation. Nominations committees and search consultants should collaborate in longer term activities (e.g. through horizon scanning/ market mapping) to identify appointable, or soon-to-be appointable, candidates from minority ethnic backgrounds.

Fostering social interactions and developing professional relationships between potential candidates, search consultants and nomination committees/board chairs will mitigate any sense of unfamiliarity or ‘risk’ associated with appointing suitably qualified candidates who do not fit an imagined ‘type’.⁴

 

Recommendations from review of annual reports

• Reporting on targeted programmes should be linked to specific diversity objectives with expected outcomes and include data showing evidence of impact.

• Reporting on diversity and inclusion (D&I) governance should provide information on the structure, composition and specific function of D&I focused committees and taskforces and should explain how they will provide the data required to understand their effectiveness in diversifying senior leadership and the best design and approach to achieve this.

• Specific objectives and the rationale for the race action plan – and an evaluation of actions and initiatives already conducted as part of the plan – could be included in the annual report to assess effectiveness of such interventions.

• Companies are reporting a wide range of public objectives including their targets, pay gaps and performance metrics. Reporting could be further enhanced by clearly outlining the initiatives or measures being taken as part of a broader strategy to meet such objectives.

• We recommend all FTSE 350 companies should analyse the data on the diversity and demographic makeup of their boards; this analysis should be used to justify, where required, their intentional, positive action recruitment, succession planning, and talent mapping initiatives that bring the right technical skills coupled with the required level of diversity to increase ethnic minority representation at board level.

• When reporting on charters, external validation and benchmarking, companies should make a clearer link between their broader strategic diversity objectives and the initiatives that they are undertaking as part of the commitments outlined in the charter(s) they have signed up to.

• We recommend reporting on the design and approach of data collection campaigns to share good practice and support other organisations in capturing this fundamental information. Reporting could be improved by providing parameters for taking action on findings, such as underrepresentation in specific areas or levels of the business or reporting on the actions and initiatives that the company intends to take should they capture sufficient diversity data or measure suboptimal levels of diversity.

• The quality of reporting would be enhanced by describing the process by which other initiatives can support the company to meet specific diversity objectives. For example, when reporting on training, reporting could be enhanced by including information on the design, content, or impact of the training in helping to diversify senior leadership.

 

Conclusion

The research demonstrates that it’s essential for organisations to continue to build trust among their employees. Not only will this encourage self-identification against all diverse demographics, but it will also provide accurate and complete data for monitoring progress against race and ethnic equality goals. This will help organisations expand on existing good practice and continue to dismantle the existing structural barriers towards greater equity. 

 

 

Notes

This research was undertaken on behalf of the Financial Reporting Council (FRC). The Gender, Leadership and Inclusion Research Centre (GLIC) at Cranfield University, worked in conjunction with the specialist consultancy Delta Alpha Psi. The aim of the research is to develop greater understanding of the barriers preventing individuals from minority ethnic groups achieving senior representation in FTSE 100 and FTSE 250 companies. 

¹ Contextual recruitment interprets candidates’ performance in light of their personal circumstances thus helping organisations identify outperformance bearing in mind a person’s social context and background. See https://ise.org.uk/page/case-study-rare

² As reported in the Parker Review 2022 update, 49% of directors from minority ethnic groups in the FTSE 100 are women; this figure is 44% for the FTSE 250. https://assets.ey.com/content/dam/ey-sites/ey-com/ en_uk/topics/diversity/ey-what-the-parker-review-tells-us-about-boardroom-diversity.pdf

³ Equality Act 2010: A step-by-step practical guide to using positive action when making appointments https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/85015/ positive-action-practical-guide.pdf

⁴ See page 45 of the ‘2022 Update from the Parker Review: Improving the ethnic diversity of boards’, which can be located here: https://assets.ey.com/content/dam/ey-sites/ey-com/en_uk/topics/diversity/eywhat-the-parker-review-tells-us-about-boardroom-diversity.pdf for more information on talent mapping activities