22nd June 2022

Meeting new regulations for diversity and inclusion : a five-point guide

New rules requiring disclosures from listed companies on gender and ethnic diversity at board and executive management level require a new approach.

Many City firms are still digesting new FCA rules requiring more granular disclosures on gender and ethnic diversity in senior positions. Complying will in many cases require more rigour in both external recruiting and internal progression methods.

It’s highly unlikely that this is the end when it comes to new regulations, either. Companies that take the right steps now will find the next set of rules much easier to comply with, while benefitting from the well documented business benefits that improved representation brings.

But first, the new rules: For financial years starting on or after April 1st, 2022, premium and standard listed companies must ensure that:

  • Their board comprises at least 40% women
  • At least one of their Chair, CEO, CFE or Senior Independent Director is a woman
  • At least one member of the board is from a minority ethnic background

Crucially, companies that don’t meet the targets will be required to explain why they haven’t done so.

The “comply or explain” method is a nudge away from box ticking towards implementing the processes that will underpin enduring change. The right processes will not only boost the chances of meeting the rules, but they will also make it easier to explain why you haven’t complied should you fall short. Implementing the systems that underpin enduring change can sound complex, but there are a few relatively simple starting points that can make an immediate impact. Here are five.

  • 1. Evidence-based thinking will reveal the path forward

Companies that invest the time and money to gather the right information form better plans and deliver better results.

Qualitative data is only part of the story, but it’s a good starting point. Companies should understand not just the protected characteristics of their staff, but also their socio-economic backgrounds. Do they have a university degree? Are they the first in their family to go to university? The more granular the data collection, the easier it will be in later years to adjust your targets should you choose to.

Inclusion-based metrics are also vital in forming a full picture. Who is progressing in your organisation? Who feels like they can progress?

It may be the case, for example, that the number of disabled employees in your organisation is about par with disabled representation in the census, which some will take as a positive. But are they concentrated in certain department? Or are they progressing in unrelated departments at the same rate as other groups?

Getting this right will form the basis of any plan.

  • 2. Forming a plan and incentivising performance

Are you seeking to outperform your peers, or is there an established industry benchmark? Over what time-period are you trying to achieve your goals?

Utilise the evidence you’ve gathered to set the path and then implement methods by which managers can be incentivised and made accountable for progress. Quizzing managers when they outperform or underperform can form a core part of evidence gathering to improve any plan set at the next round of data collection.

To be clear, targets don’t need to be so prescriptive as to require a department has equal representation of men and women by a given year, for example. Managers can instead be incentivised to clearly show actions they’ve taken to improve representation.

Linking performance to compensation on these metrics may seem radical for some corporates, but it’s an effective method to ensure all parties go beyond just paying lip service to the issues.

  • 3. Engagement from top to bottom

The importance of communicating a plan clearly to employees on all levels is often underestimated. When I’m working with companies from various industries, it still surprises me when I find that thinking among junior and senior positions isn’t aligned, often due to differing ideas, definitions or goals.

Engagement is crucial. Companies that do this well usually have a project or resource group dedicated to diversity and inclusion. That’s on top of any resource groups dedicated to the LGBTQ+ community or black and Asian ethnic minority networks, for example. Rather a dedicated EDI group whereby you have members from the various groups in the same room, having the same conversation, sponsored by a senior executive. 

  • 4. Proper recruiting and addressing the challenges at board level

Poor recruiting practices are a significant barrier to improvement, whether that’s utilising external recruiters with poor networks or advertising roles in the same places with readerships that aren’t diverse. Social media is particularly underutilised when it comes to finding diverse candidates.

Among the most significant challenges at board level is turnover, or specifically lack of it. It’s not unusual for board members to serve as long as nine years, which makes getting the process right all the more important when a vacant seat does come up.

Again, recruiting and advertising can help. Use people with the best networks and, though many senior positions aren’t advertised, it can add transparency to the process and flush out candidates you may not have reached otherwise.

Criteria presents another challenge. Most industries want board members with a range of skills, from technological understanding to data, media, digital and even HR, all with as many as twenty years’ experience. Overly prescriptive specifications are a big barrier to progress until the pool of diverse candidates grows.

In most cases, boards must be willing to look at younger candidates. Many companies are mentoring candidates to take board positions, but there’s no reason they can’t enjoy that mentoring while they are serving.

  • 5. Consistency and renewal

Go back to point one. Set a new date to gather data, perhaps in two years. Set new goals, keep engaging, improving recruiting processes and innovating to bring new faces in at senior board level.

New information will inspire new targets and fuel improvement. It’s a cyclical process that, once embedded, becomes an integral part of company culture. There is no reason to believe that the FCA’s latest policy directive will be its last, and it will be the companies that strive to do better on equality, diversity, and inclusion every day that do better.

When it comes to “explain or comply”, the irony is that those able to explain are the ones that will always comply. But then that’s the point isn’t it.

More by this author