UK investors ratchet up pressure on companies over ethnic diversity

The UK’s fund management lobby group will turn up the heat on companies in the coming months over ethnic diversity in the boardroom, with plans to issue warnings to those that fail to make progress.

The Investment Association, which represents Britain’s £8.5tn asset management sector, has said it will target FTSE 350 companies that fail to disclose the ethnic diversity of their boards or a credible plan to progress towards having at least one director from an ethnic minority background.

The targets are based on the Parker Review, published in 2017, which set out expectations of the number of directors that companies should have from ethnic minority backgrounds.

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For the first time, the IA will issue “amber top” warnings for companies that fall short on ethnic diversity. The labels are issued by the lobby group’s Institutional Voting Information Service, a tool that investors can consult ahead of annual general meetings.

The IA’s labels range from blue, which indicates no areas of major concern, through to red, which denotes the strongest concern. Amber tops are issued where there are significant issues that need to be considered.

Andrew Ninian, director for stewardship and corporate governance at the IA, said: “The UK’s boardrooms need to reflect the diversity of modern-day Britain.

“With three-quarters of FTSE 100 companies failing to report the ethnic make-up of their boards in last year’s AGM season, investors are now calling on companies to take decisive action to meet the Parker Review targets. Those who fail to do so this year will find themselves increasingly under investors’ spotlight.”

The warning from the IA comes after recent research revealed that there are no Black chairs, chief executives or chief financial officers across the UK’s largest 100 companies.

Executive recruitment and consultancy agency Green Park examined the backgrounds of more than 6,000 individuals in leadership positions at FTSE 100 companies as of December 2020, looking at those in the top three positions, at board and executive committee level, and senior leaders.

It found that only 10 out of 297 leaders in the top three executive roles have ethnic minority backgrounds.

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In addition to ramping up pressure on ethnic diversity, the IA said it will issue red top warnings to companies where female directors make up less than 30% of boards.

The IA said companies should also expect to be held to account over executive pay in the upcoming AGM season. Investors have warned remuneration committees not to compensate executives for any reduction in pay that has occurred as a result of the pandemic, such as adjusting this year’s remuneration, whether through ‘catch up’ awards or disproportionate salary increases.

The IA said investors also do not generally expect bonuses to be paid if a company has taken government or shareholder support. It said any company that chooses to do so is expected to provide a “clear rationale” for its decision.

To contact the author of this story with feedback or news, email David Ricketts