Comment: Top of the agenda - gender and ethnicity targets in the boardroom

Ever increasing expectations from regulators and government and heightened focus from investors mean that businesses must look beyond legal compliance.

While much progress has been made in the last decade, particularly regarding gender diversity in boardrooms, reforms are still coming thick and fast. Rules which cover over 1,000 publicly listed companies, now require reporting of progress towards key diversity benchmarks in their annual reports, previously a report largely reserved to reporting on pure financial outcomes. Firms must comply or explain their progress against targets, and will have to publish data about the sex/gender and ethnic diversity of their boards and executive management.

For FTSE 250 employers, 2024 has particular significance. The Parker Review set a voluntary target of at least one ethnic minority director on FTSE250 boards by December 2024.  Similarly, the FTSE Women Leaders Review recommended a voluntary target of  a minimum of 40 per cent representation by women on FTSE 250 boards and the 50 largest private companies with at least one woman occupying one of the “big four” board appointments and all by the end of 2025.

Changes are however not limited just to the largest firms. Financial services regulators have proposed  significant reforms which will oblige many firms across the sector to disclose diversity data and generate proposals to remedy bottlenecks. The Labour Party’s manifesto is expected by many commentators to contain proposals to introduce ethnicity and disability pay gap reporting for large employers, listed or unlisted, in all sectors.

So what can companies do to improve their diversity profile?

Top of the list is board engagement. It is crucial that everyone on the board understands the obligation to drive diversity, not least because there is now a significant body of evidence showing a correlation between diversity and business performance and it is now commonplace for investors – both institutional and individual – to demand that diversity targets are made and met.

Companies should also consider their data collection processes to address the risk that decisions are being made on the basis of  imperfect data about the existing make-up of the organisation; it is not possible to fill diversity gaps if there is no visibility of where those gaps lie.

When the profile is clear and the gaps can be identified, companies should consider a specific step-plan. It is not enough to take dusty diversity strategies with “statements of intent” out of the filing cabinet and say, “job done”.  Strategies should ensure that they contain not just lip service but concrete steps to increase diverse talent pipelines, with particular focus on recruitment, retention and  promotion across all parts of organisations. 

Pay, benefits, working structures and flexible working policies all have a part to play and increasingly imaginative steps are being taken to move away from the status quo. In fact, the companies who are the leading lights in this area are not simply focussing on ethnicity and gender targets; they are the companies who have taken the time to understand the profile of their organisation as a whole, including other factors such as disability, sexual orientation and social mobility, have closely examined the barriers certain groups face and formulate specific strategies to knock those barriers down.

By way of example, senior management bonuses are being linked in many companies to the setting and securing of ambitious diversity targets. Many firms in sectors previously not known for generous parental leave have reconsidered, with a flurry of announcements about firms offering significantly enhanced maternity and paternity leave and pay and in many cases equalising the entitlements, and with more imagination being given to flexible working arrangements to allow for those with childcaring responsibilities to continue to perform well in their roles.

The pressure on employers to ensure that diversity and inclusion targets are achieved throughout the organisation both in culture and in results will only continue to increase. With such sweeping changes, it may be that 2024 is remembered as the year when focus on discrete diversity targets and the “one and done” approach flourishes into a broader diversity culture driven by the boardrooms of many of the UK’s largest employers.

Suzanne Caveney, legal director, Eversheds Sutherland

John Morgan, principal associate, Eversheds Sutherland