Two years since the FCA set out proposals for improving diversity and inclusion on company boards and executive committees, Fieldfisher hosted a retrospective workshop on the challenges of making boards of directors more diverse.
In July 2021, the UK's Financial Conduct Authority (FCA) published its Consultation Paper (CP) 21/24 on ‘Diversity and inclusion on company boards and executive committees’.
To review the impact of these proposals in the two years since the they were floated, Fieldfisher hosted a workshop on the challenges of making boards of directors more diverse.
The following issues were discussed:
1. Issue: Data collection
- Most organisations require a risk assessment of the diversity data required to be obtained by a Data Protection Officer or other specialist. This can be particularly difficult for small businesses, who may lack the resources to collect this necessary information.
- Communicating the reason behind data collection may improve response rates, particularly as some of the data required is sensitive (i.e., medical, or relating to sexual orientation), however not all organisations are good at doing this.
- An option not to provide data, or not provide all data requested, should also be given to ensure employees feel comfortable. This is a prudent approach, but can limit the volume and quality of data collected.
- Not all data types can be requested by companies in all jurisdictions. For example, data on ethnicity cannot be requested in France. This issue may be circumvented; for instance, organisations can request nationality instead of ethnicity, and including acknowledging assumptions as part of the data analytics process.
- Commonly used ethnic categories are often too restrictive to provide accurate data on personal backgrounds.
- The current 'box ticking' formula for diversity is not applicable in all contexts and may need to be adjusted for jurisdiction. This is a challenge for global companies.
Solution: The FCA's CP 21/24 report is a good reference source for data collection and monitoring. It also includes recommendations on how to focus on mid-level employees and upward.
2. Issue: Ownership of D&I objectives
- D&I is often delegated to HR functions with insufficient guidance.
- Who is responsible for D&I will also depend on the size and maturity of the company.
- Cross-team groups are often likely to be best placed to oversee D&I initiatives within an organisation.
Solution: Making a business case for D&I will help cement ownership of the issue. Data linking D&I to profitable business is available, as is data on shareholder trends. Demonstrating diversity of thought in a board is generally agreed to be beneficial to business.
3. Issue: Translating D&I ambitions into measurable targets
- Organisations are often cautious about making D&I targets public, in case they fail to achieve them and expose themselves to criticism; this risks D&I being overlooked.
- However, in reality, not meeting targets initially is not a major issue if the organisation demonstrates genuine commitment to improving D&I and can make monitoring improvement more successful.
- Labour shortages and market pressure have made the search for diverse talent more challenging, and many organisations worry that prioritising diversity clashes with meritocracy – a fear that should be unfounded if recruitment processes work as they should.
- However, there is uncertainty about how to adapt recruitment processes to effectively incorporate D&I objectives.
Solution: Silent targets, where organisations publicise their commitments to improve D&I without specifying detailed targets may be an effective compromise; as long as D&I objectives are understood and upheld internally, this should lead to measurable improvement.
4. Gender versus other D&I objectives
- Gender diversity is often the principal D&I objective for organisations, which laudable provided it is not pursued at the expense of other underrepresented groups.
- Because non-gender D&I data is more sensitive to disclosure and harder to define, for example ethnicity or socio-economic group, this can be overlooked.
Solution: Defining socio-economic background by looking at factors such as access to free school meals, parental occupation and university attendance could be a way of addressing a less concrete D&I category.
5. D&I is not a governance issue
- D&I should not be framed as a governance issue; instead, it should be bespoke to each business and a unique approach/policy should be developed based on existing business data and specific goals.
- Unlike true failures of governance, there is currently no penalty for failing to comply with D&I objectives.
Solution: D&I should be considered at all levels in an organisation and the feelings of internal and external stakeholders should be taken into account.
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