The proof is in the ethnically diverse pudding: Henri Eliot on the commercial advantages of inclusion

The proof is in the ethnically diverse pudding: Henri Eliot on the commercial advantages of inclusion

As improvements continue in gender representation on major corporate boards, attention is increasingly turning to cultural diversity, says Board Dynamics founder and CEO Henri Eliot.

In the UK, a review led by Sir John Parker is calling for FTSE 100 boards to add at least one director of colour, outlined in the Beyond One by 2021 report.

The review calls out the lack of ethnic diversity on UK corporate boards, noting that only 8 percent of directors on FTSE 100 boards are people of colour, of which only 1.5 percent are UK citizens. The industry-led review argues that increasing ethnic diversity is important, in fostering connections with shareholders, customers and stakeholders and supporting diversity of thought in governance practice.

Sir John Parker, who led the review, describes this call to action in summarising the report’s findings:

“Many business leaders would agree that Boards that embrace gender and ethnic diversity benefit in their decision making, by drawing on an array of skills, experience and diverse views. We hope the recommendations made for consultation, will heighten awareness of the growing pool of talent in the ethnic community, and help to strengthen boardrooms across the UK and keep corporate Britain at the forefront of global business.”

The Parker Review is recommending action, with a call for all FTSE 100 boards to have at least one non-white director by 2021 and each FTSE board by 2024. The review recommends that boards be required to report on this recommendation on a comply or explain basis, as well as improving diversity policies and pipelines to target people of colour.

The report highlights perceived business benefits from improving ethnic diversity on corporate boards in the UK.

The Parker Review considered, but rejected, the concept of a statutory quota to drive greater cultural diversity on boards.

Instead, the review proposes voluntary measures reported on a ‘comply or explain’ basis, including having at least one non-white director by 2021 for FTSE 100 and by 2024 for FTSE250 companies. 

They also recommend that Nominations committees of all FTSE100 and 250 companies should require search firms to proactively identify people of diverse ethnic backgrounds for consideration

The Executive search firms should also include ethnic diversity in their voluntary code of conduct and Boards should proactively develop candidates for the pipeline and plan for succession planning. Companies should also report on cultural diversity in narrative form.

Following industry feedback, the reports final recommendations and findings are to be published sometime in 2017.

Are we doing enough in New Zealand to promote ethnic diversity in the boardroom?  A few suggested questions for boards and directors to consider and engage with on ethnic diversity.

Leadership

  • Does our board succession plan include criteria that would bring forward qualified candidates from ethnically diverse backgrounds?
  • Have we recently considered, and discussed with the executive, how the ability to deliver our strategy would be strengthened by having greater diversity of background, experience and insight at the board?

Effectiveness

  • Can we evidence that our board has enough constructive and diverse thought being expressed to avoid “group think” and to provide insight into the trends that will impact our markets, customers, employees, and other key stakeholders?
  • Can we evidence the fact that we have asked our HR team or recruitment consultants to identify and present to us candidates that represent ethnically diverse backgrounds to join our board?

Accountability

  • Would the outside world (specifically customers, suppliers, partners, regulators, and legislators? Currently see our board as appropriately reflective of our stated values, our communities in which we operate and the people in our organisation?
  • Do we have an internal process to identify, develop and promote high potential minority ethnic employees in order to develop “board-ready” candidates for internal subsidiary and external appointments, and can we evidence that?

Remuneration

  • What evidence do we have that our remuneration policies promote diversity and do not favour any particular sub-group?

Next Steps

As directors have we recently asked our shareholders about the role they see diversity (including ethnicity) playing in our board composition, the overall company and the delivery of our strategic objectives?

In the end, corporate culture from a board that reflects a company’s commitment to diversity is critical. A board that reflects the breadth of a company’s ambitions, including those of its employees, customers and communities will be more effective. The board will be able to draw on a range of thought, experience & expertise from a variety of directors from different ethnic backgrounds. New Zealand is a multicultural nation.

Henri Eliot is founder and CEO of Board Dynamics.