Ethnic/racial diversity in focus: Parker Review gives companies five years to meet new ethnicity targets

3 minute read  15.03.2023 Kate Hilder, Siobhan Doherty

Building on what it considers to be the success of existing (voluntary) board ethnicity targets, the Parker Review has expanded its focus to include new five-year ethnicity targets for senior management.  The new targets apply to both FTSE 350 companies and the largest 50 private companies in the UK.  


Key takeouts


  • The Parker Review has set new ethnic diversity targets for FTSE 350 companies.  FTSE 350 companies have been asked to:  
    • set their own target for the percentage of senior managers who self-identify as being in an ethnic minority by the end of the 2023
    • meet this target by 2027
  • For the first time, the Review has also asked 50 of the largest UK private companies to set similar targets.  These companies have been asked to:
    • include at least one ethnic minority director by 2027
    • set their own target for the percentage of senior managers who self-identify as an ethnic minority by December 2024
    • meet their senior manager target by 2027

Overview

The Parker Review was set up in 2015 to encourage progress toward increased gender and ethnic diversity in UK companies, with a focus on increasing diversity at board and senior management level.

Its purpose is to both: a) improve business performance and competitiveness by encouraging UK companies to tap into all available talent; and b) help ensure 'ethnic minorities have equal opportunities as others to have a 
successful and fulfilling career in business'.  

The latest report provides an update on progress towards existing ethnic diversity targets and, as flagged above, also includes new five-year targets to accelerate the rate of progress at senior management level. 

Our key takeaways are below.

Voluntary board targets have been successful in increasing representation at board level

The Parker Review set voluntary targets for FTSE 100 boards to include at least one director from an ethnic minority by 2021 and for FTSE 250 boards to do the same by 2024.

According to the report as at 31 December 2022:

  • 96 of 100 FTSE 100 companies have met the 'one by 2021' target (up from 74 in 2020).  
  • 149 FTSE 250 companies have already met the target ahead of the 2024 deadline (up 12% on last year).

According to the report, this means that currently 18% of FTSE 100 directors and 11% of FTSE 250 directors self-identify as being from minority ethnic backgrounds.

Representation in senior leadership roles

According to the report:

  • in the FTSE 100, 31 Chair and Executive Director positions were held by a minority ethnic director.  For context, this means that individuals from ethnic minorities now hold about 10% of these influential leadership roles.  
  • in the FTSE 250, 34 Chair and executive director positions were held by an individual from an ethnic minority.  

A full list of FTSE 100 and FTSE 250 companies that have achieved the existing target is included at p39 of the report.  

Increased representation for one demographic should not be perceived 'diluting' progress for other demographics

The report emphasises that progress towards increased representation for ethnic/racial minority directors 'should not be seen as "diluting" [progress for] another [demographic eg women]'.  

In support, the report points to the fact that of all Board positions held by ethnic minority directors across the FTSE 100, 83 (47%) are held by women.  Across the FTSE 250, 86 board positions are held by women (48%).  

New five-year targets for senior management 

The report highlights that increased board representation though welcome, does not necessarily achieve the looked-for benefits of increased diversity across organisations as a whole.  

As flagged, the report includes new ethnic/racial diversity targets for senior management, including for the largest 50 private companies.  

The rationale given for this in the report, is that:

'concentrating on the board alone has significant limitations.  The board represents a very small portion of a business, and in some cases the board and its culture can be one step removed from the culture of the wider company.  In addition, the diversification of the board can be achieved through the appointment of non-executive directors rather than the development of a pipeline of internal talent for executive roles.  We believe that setting ethnicity targets for senior management will increase the likelihood of equal access to opportunities for minority ethnic executives across the wider business'.

On this basis, the report sets new targets for:

  • all FTSE 350 listed companies to publicly report a target (of their own choosing) for ethnic diversity of their senior management team by the end of 2023, to be achieved by the end of 2027. 

[Note: For clarity, the report defines 'senior management' as 'members of the Executive Committee (or equivalent) and those senior managers who report directly to them'.]

  • the largest 50 private companies (as defined by the FTSE Women Leaders Review and listed at p28 of the report) to:
    • include at least one ethnic minority director by 2027; and 
    • set targets (of their own choosing) for ethnic diversity in their senior management team by December 2024, to be met by 2027.

Rationale for extending the targets to include the largest private companies

The report makes clear that the decision to expand the scope of the review to encompass the largest private companies was made in order to ensure that the benefits of a more diverse workforce are realised by a larger proportion of UK businesses and that the opportunities available for ethnically/racially diverse executives are more accessible.  

In addition, the report states that the decision to include targets for private companies was made in light of:

  • the success of voluntary targets increasing listed board ethnic diversity 
  • shifting regulatory expectations 
  • a desire to 'share best practice'

Why not specify what the senior management ethnic diversity targets should be?

The rationale given for not specifying targets for racial/ethnic diversity at senior management level is essentially that the Review considers it would be inappropriate to adopt a 'one size fits all' approach in this context. 

This is because: 

'In contrast with gender representation, ethnic diversity and ethnic minority representation is regionally inconsistent across the UK.  Overall, the latest census data show that ethnic minorities comprised about 17% of the UK population in 2021.  Regionally, London is the most ethnically diverse with 54% of the population identifying as white, whereas this group comprised 77% of the population in the West Midlands and 93% in the North-East'.

25 'best practice' recommendations 

The report includes 25 'best practice' recommendations to help companies to meet the new targets, with collection and analysis of data a running theme.  You can find the full list of recommendations at p48 of the report. 

Australia

According to the 2022 Gender Diversity Index (from the Governance Institute and Watermark) (summarised) 90% of ASX 300 directors continue to be from an Anglo-Celtic background, with directors from non-Anglo-Celtic or European background holding just 7% of seats.  Moreover, the report finds that there has been little change in this metric over time.  The report opines that:

'Without vigorous, muscular advocacy on behalf of ethnic minorities, this situation is unlikely to change in the immediate future'.

[Source: EY media release 13/03/2023; Full text report: EY-Parker Review 2023]

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https://www.minterellison.com/articles/uk-parker-review-announces-new-ethnic-diversity-targets