'Companies with diverse leadership are better positioned for growth'

COMPANIES with diverse leadership are better positioned for sustainable growth, improved decision-making, and will connect better with multicultural markets, equalities minister Seema Malhotra has said.

She added that the government will soon launch a public consultation on their approach to mandatory ethnicity and disability pay gap reporting.

Speaking at the Change the Race Ratio and the Parker Review reception, hosted by Lord Karan Bilimoria at the House of Commons last Wednesday (12), the minister stressed that greater diversity of thought on boards was beneficial to organisations and helps deliver their plans to grow the economy.

The Parker Review focuses on ethnic diversity on company boards and the Change the Race Ratio campaign urges businesses to take action to improve racial and ethnic minority representation in their leadership teams.

“The government has placed equality and opportunity at the heart of its ambitions. In the King's speech last July, the government announced plans to introduce mandatory ethnicity pay gap reporting for large employers as part of the upcoming Equality (Race and Disability) Bill,” Malhotra said.

“While pay gaps don't necessarily indicate discrimination, they provide transparency and highlight areas where opportunities may be limited.”

The minister called on stakeholders to respond to the upcoming consultation so their views can be incorporated into the legislation.

Malhotra said, "Removing barriers to progress is central to the government's mission of creating opportunities for everyone, regardless of their background. The Parker review, in partnership with business leaders across the country, has achieved extraordinary success in increasing ethnic minority representation at board level across FTSE 100 and 250 companies, and the government is keen to support its work. While the progress companies have made has been excellent, there is still a long way to go.

“Success is not spread evenly across ethnic minority groups, and black directors are still significantly underrepresented in FTSE 100 directorships.”

Lord Bilimoria recalled that when he arrived in the UK in the 1980s, there was a "glass ceiling in every aspect" for ethnic minorities who were told they "would never get to the top."

Lord Karan Bilimoria speaks during the event

His personal experience motivated him to promote ethnic minority participation in British businesses, he said.

The peer also stressed the business case for diversity, citing McKinsey research showing that diverse companies are more profitable, and Deloitte studies demonstrating they are more innovative.

Parker Review chair David Tyler noted an improvement in the number of ethnic minority directors and senior managers across the FTSE 350 companies in the past 10 years.

"A decade ago, more than half of these companies had no ethnic directors at all. There were 53 companies with all white boards when they first measured. Today, there are only five white boards. All this has been achieved without any resort to mandatory requirements," he said.

Recently, the business-led and government-backed review urged these companies to set their own targets for 2027 for a percentage of UK-based senior management members from an ethnic minority background.

Now 82 per cent of FTSE 250 companies have at least one ethnic minority director, representing a 17 per cent jump in just one year. Across the FTSE 250, 15 per cent of all directors are from ethnic minorities – up from 13 per cent last year and 11 per cent the year before.

However, Tyler noted that ethnic minority executives comprise 11 per cent of FTSE 100 UK-based senior management teams, with companies expecting this to grow to 15 per cent by 2027. Yet this still falls short of the 17 per cent these groups represent in the population according to the 2021 census.

He said only 1.2 per cent of UK-based FTSE 100 senior managers are black, while they represent 3.9 per cent of the population in the relevant age group.

Auto Trader CEO Nathan Coe acknowledged that around the world, including in the UK, it has been a challenge to commit to diversity, equity, and inclusion (DEI).

This wasn't entirely unexpected, he said, adding that such conversations either united or divided people.

In his view, many businesses were quick to adopt targets and commitments, but didn't necessarily follow through with the plans and changes required to deliver progress.

Despite these challenges, Coe spoke out against businesses rolling back their diversity efforts. In Auto Trader, an emphasis on diversity allowed the company to attract talent from all backgrounds.

He said, "If there are people not turning up to your organisation when a role is advertised, in our case for a software engineer, then there is no guarantee you're choosing the best people at all."

When companies take this approach, especially in early careers, the organisation starts to look like the society in which it operates, he said.

Sir Trevor Phillips, chair of Change the Race Ratio campaign, said, "If you have a board which has no ethnic diversity, there is something wrong with your outfit. Particularly when it comes to cultural and ethnic diversity in the workplace, this is a train that has come into the western world that cannot be derailed.

"If we want to survive as a country, as a prosperous nation, as one that does work, that competes, there will be a diverse workforce. Let's focus on what makes our organisations better, more productive, more able to contribute to the prosperity of our nation."