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Research shows that more companies should treat diversity as part of business strategy
The majority of the UK’s largest companies have adopted policies on boardroom diversity but their reporting to stakeholders needs to improve.
Research conducted for the Financial Reporting Council (FRC) by the University of Exeter Business School shows that only 15% of FTSE100 companies fully complied with the UK Corporate Governance Code’s provision on diversity reporting by describing their policy on diversity, the process for board appointments, their objectives for implementing the policy, and progress on achieving them.
The FRC’s analysis shows that FTSE 350 companies’ approaches to diversity are wide ranging. While some do demonstrate a deeper understanding of diversity as an issue of strategic importance, the great majority appear to treat reporting as a compliance exercise, suggesting a lack of commitment.
The revised UK Corporate Governance Code, which takes effect from 1 January 2019, require improved reporting on diversity. It calls on boards to include in their annual reports a description from their nomination committee of how they have applied the company’s diversity policy including how this links to progress on achieving company objectives.
The revised Code has a renewed emphasis on succession planning and diversity reporting, encourages boards to think beyond gender diversity and to act to ensure appointment and succession planning practices promote diversity more broadly. The changes encourage companies to build diversity across their workforces to feed the development of a diverse pipeline for succession to senior management.
Board Diversity Reporting in 2018 provides a snap shot of diversity reporting across the FTSE 350 and identifies examples that lead the way in terms of quality and approach.
The key findings of the research include:
- 98% of FTSE 100 and 88% of FTSE 250 companies have a policy on board diversity, a considerable improvement since 2012 when this was first included in the UK Corporate Governance Code.
- However just 15% of FTSE 100 companies report against all four measures stated within provision B.2.4 of the current UK Corporate Governance Code.
- Some companies are embracing the spirit of diversity in their narrative reporting but many need to develop a clearer strategy to drive greater diversity at senior management level.
Tracy Vegro, FRC Executive Director of Strategy and Resources said,
“There is almost universal acceptance that diversity contributes to more effective decision-making and mitigates the danger of group think. Some of the findings of this report are disappointing and FTSE 350 companies should provide fuller disclosures on all diversity.
“We expected to see more of our largest companies providing greater information about their approach to boardroom diversity and insights on the actions they are taking to increase diversity at all levels, particularly those in the current UK Corporate Governance Code. To maintain a competitive edge and success over the long-term, UK companies need to consider how diversity and inclusion is relevant to the markets in which they operate, all their stakeholders and the communities they serve.
We are writing to companies to challenge them to take a more strategic approach to diversity and inclusion, and to consider their approach to reporting on it.”
Professor Ruth Sealy, Associate Professor of Management, Director Exeter Centre for Leadership, University of Exeter, said,
“Our research revealed some companies’ sophisticated understanding of the contribution diversity can make to their business - as the optimal utilisation of talent and a significant strategic issue. However, many organisations appear to still have a minimalist ‘tick box’ approach and need clearer strategies to drive greater diversity at senior management levels.”
Date: 17 September 2018