On 12 October 2017, the Final Report of the Parker Review (Final Report), containing recommendations as to how the ethnic diversity of company boards could be improved, was published. This follows the publication of the consultation version of the report, the Parker Review into the Ethnic Diversity of UK Boards ‘Beyond One by 21’ (Consultation Version), in November 2016.
The Final Report makes recommendations in three key areas to help improve ethnic diversity on company boards. These recommendations remain unchanged from those made within the Consultation Version, and are set out below.
As stated in the Consultation Version, the Steering Committee involved in the review are encouraging members of the FTSE 100 and FTSE 250 to adopt the recommendations on a voluntary basis. However, should there be insufficient progress towards the goals on that basis, this approach may be revised and some recommendations (or relevant parts thereof) may become mandatory.
Increasing the ethnic diversity of UK boards
- Each FTSE 100 board should have at least one director of colour by 2021, and each FTSE 250 board should have at least one director of colour by 2024.
- Nomination committees of all FTSE 100 and FTSE 250 companies should require their HR teams or search firms to identify and present qualified people of colour to be considered for board appointment when vacancies occur.
- Given the impact of the Standard Voluntary Code of Conduct for executive search firms in the context of gender-based recruitment, the relevant principles of that code should be extended on a similar basis to the recruitment of minority ethnic candidates as board directors of FTSE 100 and FTSE 250 companies.
Note that changes have been made to the Standard Voluntary Code of Conduct in response to the recommendations in the Consultation Version. These are yet to be implemented.
Developing Candidates for the Pipeline and Plan for Succession
- FTSE 100 and FTSE 250 companies should develop mechanisms to identify, develop and promote people of colour within their organisations to ensure that there is a pipeline of capable candidates, and that their managerial and executive ranks appropriately reflect the importance of diversity to their organisation.
- Led by board chairpersons, existing FTSE 100 and FTSE 250 board directors should mentor and/or sponsor people of colour within their own companies to ensure that they are ready to assume senior managerial or executive positions internally, or non-executive board positions externally.
- Companies should encourage and support candidates drawn from diverse backgrounds, including people of colour, to take on board roles internally, where appropriate, as well as board and trustee roles with external organisations to gain experience and to develop oversight, leadership and stewardship skills.
Enhancing Transparency and Disclosure
- A description of a board’s policy on diversity should be set out in every company’s annual report, which should include a description of the company’s efforts to increase, amongst other things, ethnic diversity within its organisation, including at board level.
- Companies that do not meet board composition recommendations by the relevant date should disclose in their annual report why they have not been able to achieve compliance.
In order to help UK companies enhance the ethnic diversity of their Boards, the Final Report includes ‘Questions for Directors’ (Appendix A) and the ‘The Directors’ Resource Toolkit’ (Appendix B) to help existing boards deliver on these recommendations.
Further, the Steering Committee urges shareholders and other investors to engage with chairpeople, non-executive directors and other senior executives on the importance of inclusion and diversity to the company and its success.
The Steering Committee will remain intact at least through to 2021, given the timescales set out in the recommendations. During that period, the Steering Committee will meet at least annually to assess the efforts being made and the progress being attained regarding the recommendations.