Investors declare “a change is gonna come”
Asset owners and fund management groups are pressuring their portfolio companies to look at the makeup of their leadership teams in the wake of the Black Lives Matter protests.
The under-representation of non-white ethnicities in the boardroom has been a concern for investors for some time, but the worldwide protests after the killing of George Floyd by a Minnesota police officer has left investors impatient for change.
In the US, the Interfaith Center on Corporate Responsibility whose members total more than 300 institutional investors is now working on a “formal position” on racial equality, according to media reports.
“We are working on a platform and being led by people of colour,” Nadira Narine, senior program director at the ICCR told IR Magazine.
“There’s a recognition that supporters have to be clear they’re implicit in the systems of oppression that exist – we helped create this. We’ll be looking for people who recognise that upfront and commit to action as a result.”
Many companies harnessed social media during the recent protests to signal that they supported the Black Lives Matter movement, but their public support for race equality through brand activism has not yet been mirrored by changes in their own boardrooms.
Within the UK, the Parker Review, published in February, found that 37% of companies listed on the FTSE 100 still had a complete absence of non-white people on their boards.
Entertainment One, Greggs, Ocado and Whitbread were among the companies to have all-white boards at the time of the Parker Review survey. JD Sports Fashion, JD Wetherspoon and Next all refused the request for ethnicity data.
One of the most shocking conclusions from the Parker report was that companies said it was “unlikely” they would meet the target of securing at least one non-white individual in their boardrooms by 2021. This statistic was particularly startling given the target was originally laid down in 2017.
Earlier this week, the Financial Times interviewed John Rogers, co-chief executive of Ariel Investments. Rogers is among those asset allocators seeking to raise awareness of the benefits of ethnic diversity in the boardroom.
“If you search everywhere for talent you will build a stronger team,” he told the FT. “It’s like Reverend Jesse Jackson always said, baseball became a better sport after Jackie Robinson started to play.”
Meanwhile, the Daily Telegraph reported that Sir John Parker has now started meeting with boards to urge them to act sooner.
With so little traction, investors are now getting impatient.
According to figures from Green Park, cited by the Daily Telegraph, the UK working population is approximately 12.5% Black, Asian, and so-called ‘minority ethnic’. However, the overall representation at board and executive committee level in 2019 stood at just 7.4%. Incredibly, this is lower than the previous year, when it stood at 8.8%.
Not only is this lack of representation suggestive of underlying or unconscious biases in corporate recruitment approaches, it could also be weakening companies’ diversity of thought, making them less likely to succeed financially and more susceptible to groupthink decision making.
Separate research published by the Harvard Business Review this week found that “improving cognitive diversity” and “demographic diversity” on a board is likely to enhance performance and offered specific pointers on recruitment to ensure companies hire the right leaders.
HBR recommends that companies recruit directors who are able to introduce new views, perspectives and approaches to problem solving, but who also add professional experience or skills in areas that meet the company’s needs.
The researchers observed that companies would do well to embrace new recruitment practices that would give them access to new talent pools and avoid using the usual contacts networks or hiring practices that were responsible for attracting the previous members of the leadership team.
However, even when companies have successfully managed to attract management figures from non-white backgrounds, there is no guarantee that diverse discussions will prevail unless the company works to encourage new recruits to challenge previous approaches and volunteer untested methods.
Last year, consultancy group PwC surveyed 700 directors in its annual Corporate Directors’ Survey. One worrying conclusion was that 43% of interviewees felt it difficult to express a dissenting view in the boardroom.
The report warned that this “collegiality risk” could have negative consequences, leading to weaker board performance. The study suggests that senior executives who feel permanently unchallenged may even be less likely to vote against their peers, even when they know it may be in the best interests of the company.
Last Updated: 18 June 2020