Transcript: Board Matters Podcast | Board Diversification
29 mins approx | 30 September 2020
Speaker Key:
JG Justine Greene
AB Arun Batra
GL Gavin Lewis
MM Moni Mannings
JO Justin Onuekwusi
The Parker Review six months on (00:01 – 09:37 mins)
In the first part of this podcast, Justine Greene chats with Arun Batra OBE, EY Partner and Diversity Lead, and Gavin Lewis, Managing Director, Head of UK LGPS Institutional Client Business at Blackrock and one of the founders of #talkaboutblack about findings and recommendations from this year’s update report from the Parker Review, contributors to the current lack of board diversity and what EY are doing to bring about action and outcomes.
Reflections from board members and investor viewpoints (09:38 – 16:58 mins)
Justine is joined by Moni Mannings, Senior Non-Executive Director and Chair of Remuneration, Investec Bank, and Justin Onuekwusi, Fund Manager, Head of Retail Multi-Asset Funds, Legal & General Investment Manager and one of the founders of #talkaboutblack to continue the discussion around how corporates can advance the recommendations of the Parker Review and increase ethnic minority representation in the boardroom.
Priorities over the next 6-12 months to bring about effective change and increase representation on boards (6:59 – 29:10 mins)
In the final part of this podcast, our panel share their thoughts on what needs to happen over the next few months and year ahead to bring about change.
00:01
JG Hello and welcome to this podcast from EY’s UK Centre for Board Matters for Non-Executive Directors. I’m Justine Greene, and our focus this time is board diversification. According to research from the Financial Reporting Council, the majority of FTSE100 boards remain all white.
Since the death of George Floyd and the global Black Lives Matter Movement, racial inequality is more sharply in the spotlight.
To discuss the changes needed now, I’m pleased to welcome a distinguished panel, and we’re all joining the conversation remotely. First, Arun Batra OBE, EY Partner and Diversity Lead. Hello Arun.
AB Hello there Justine.
JG And Gavin Lewis, Managing Director, Head of UK LGPS Institutional Client Business at Blackrock and one of the founders of #talkaboutblack. Hello Gavin.
GL Hi Justine.
JG Arun, this year’s update report from the Parker Review, called Ethnic Diversity Enriching Business Leadership found 59% of FTSE 350 companies didn’t meet the target of having at least one BAME director on their boards. Where are we now?
01:09
AB Thank you, Justine and just for clarity, in the FTSE100, it’s now 37% of boards that still remain all white. And in the FTSE350, it’s 59%. So, we’ve made some progress since the 2017 report where there’s 51% in the FTSE 100 that were all white, but progress has been slow.
Where are we now? Well, I think in my 25 years of being in the world of diversity and inclusiveness, I’ve never seen anything like this. The momentum has been driven largely by the horrors that we all witnessed in the US.
So, what have we seen? A real, unprecedented outpouring from UK business, making statements and commitments right across the board. A commitment to change regulation, to ensure that some of the inequalities that we have all witnessed are integrated within to the legislative framework. We’ve seen development of a new race body and we’ve seen a push again for more ethnic pay reporting.
02:23
But on a more grandeur level, for businesses, we’ve seen an explosion, for example race equality networks, businesses wanting to examine their organisational infrastructure, and targets being set right across the board. So, a real push in a way that I haven’t seen before.
JG And, in terms of moving from reporting and talking to real action and outcomes, what are EY doing?
AB Justine, EY for many years has been proactive around race equality and equality more generally. But, like every other business, we have been particularly impacted by what we saw, and that has made us raise our game even more.
So, what are we doing? You would have seen perhaps a statement that was issued by our new managing partner, Hywel Ball, into the press, where he committed to level the playing field for our black colleagues. And I use black very carefully here, because there was an emphasis that we recognise as a business that we really needed to focus on our black colleagues. Rather than just what we would normally have done, looking at all of our black and Asian minority ethnic colleagues, on the basis that we have recognised there is a degree of disproportionality that exists for them.
We’ve invested hugely in race fluency, in trying to understand what it is that we need to do to make our communities far more race fluent. On the premise that we know that in EY, like many other places, there is still a nervousness around addressing certain issues.
03:58
We’ve set up an allies programme, so we are committed to ensuring that there’s a proper ally programme with some really good sponsorship that goes with it. And final couple of things, Justine.
There’s a future leaders programme, and we’ve committed to 30% of those leaders coming from black talent. And we set ourselves a really ambitious target. In 2019, we set ourselves the target for 20% of our partners coming from black and minority ethnic backgrounds. We’ve now said publicly that we want 15 of that 20% to be from the black communities specifically.
JG Gavin, tell us about the #iam and #talkaboutblack campaigns you’re involved with. What are their aims?
GL We conceived #talkaboutblack basically to shine a light on the issues facing black people in particular. So, not being a homogenous group that BAME would denote. And to really raise, make people aware of the issues surrounding minority groups in the asset management and associated industries.
The #iam campaign had two elements to it. The first was #iammorelikely. So, I am more likely to grow up without a father, I am more likely to suffer from mental health challenges, I am more likely to be paid less, to be told to lower my expectations. These are all things that, as black people in the US and in the UK, that we’ve faced. So, it really was us saying and asking the question, why do we occupy unfortunately the bottom rung of the societal ladder?
05:44
The second element however was to basically humanise that, those stereotypes which do exist, and then it asks for some inclusion and some allyship. So, it then asks the question, and what are you?
JG And, when it comes to a pipeline of talent for equal representation, what would you say are achievable targets?
GL One of the challenges that we face is that there’s a lack of data when it comes to capturing and understanding where we are. And therefore, it’s difficult to actually put quantitative targets in place. So, I think ironically one of the targets needs to be to simply start gathering adequate data.
I also think that one of the targets needs to be actually unwinding the challenges that black professionals face. It’s very easy to focus on the lack of, for example, board representation, but you’re going to draw your board talent from your C suite, but we have a lack of C suite representation as well. In fact, we have a lack of C suite minus one and two.
So, really one of the targets needs to be understanding the pipeline, understanding the challenges to why talent is not progressing or fulfilling its potential, getting the structures in place so we create sustainable and meaningful change. And then having a discussion around how do we actually achieve set targets?
07:07
JG What do you think are the biggest contributors to the current lack of board diversity, Arun?
AB I spend most of my time, Justine, in talking to FTSE chairmen or speaking to my clients. And for those who say they haven’t managed to reach these levels of proficiency, to have a really diverse board, they always say the same two or three things to me. One, they always say, there is a lack of pipeline. And, if I’m entirely honest, I struggle with that.
In the Parker Review, Sir John very clearly set out that you didn’t even need to base it on a UK population. So, essentially in the world population, there is nine odd billion people to choose from, and I find it inconceivable that you cannot find 350 suitably qualified individuals to sit on a board.
The other thing I often hear is this argument of merit, to say that we want to recruit on merit, and we don't want to recruit for any other reason. And the issue you have there, of course once again it is entirely improbable that there is not suitably qualified black and minority ethnic people who have the right merit.
08:22
The issue that we have is that the frame of reference that’s put around what good looks like is so narrowly defined, that only a certain group of people can meet the benchmark that is set. I see both of those reasons as being problematic, but they’re the reasons I hear most.
JG And Gavin, what do you think?
GL I appreciate the Parker Review did shine a light on this, but to be honest I’m not sure how many business leaders, firms are actually aware of A, the original Parker Review, and then obviously the follow up. So, I think one of the challenges is simply that, when people think about diversity and inclusion and representation, they’re still stopping at gender.
For example, the lack of talent that we have at the mid-career management level has implications for, I don't know, ten years’ time, when we’re thinking about board representation. If you don't deal with that issue, the challenge of board representation is never going to be happening. And then, why do we have mid-career professionals? Well actually, maybe we’re not taken enough into the industry. Why are we not taken enough in? Maybe the industry, the corporate world is not attracting talent?
JG For the moment, thank you both. We look forward to speaking with you again later. And we’ll meet the rest of our panel next.
[Music]
Joining us now are Moni Mannings, Senior Non-Executive Director and Chair of Remuneration, Investec Bank. Hello Moni.
MM Hello Justine.
JG And Justin Onuekwusi, Fund Manager, Head of Retail Multi-Asset Funds, Legal & General Investment Manager and also one of the founders of #talkaboutblack. Hello Justin.
JO Hi Justine, how are you?
JG Good thank you. Now, Moni, from your view of the boardroom, how is the discussion around diversity changed in the last few months?
10:09
MM That’s a really good question. There’ve been a range of discussions at board level, but I have to say I think the most significant thing in the last few months is that, certainly on my boards, every single board has had a discussion about diversity over the last few months. I think it’s fair to say that, after the killing of George Floyd, the prominent coverage of Black Lives Matters, and now the update of the Parker Review, what’s new and what’s different is that it has focused more openly on race and ethnicity.
I would agree that, in the past it’s been much more focused on gender. So, that’s been one of the significant changes. There is open discussion about race and ethnicity. I think that’s what I would highlight.
10:56
JG And what have you personally been doing to bring about effective change in this area?
MM The things that I've been involved with have really been in two dimensions, I would say, across two different concepts, if I can put it that way. The two dimensions have been both visible and invisible.
And, what I mean by that is that visibly, I’ve joined panels. I’ve been speaking internally and externally with both internal networks and external board networks, and with leaders within the organisation and outside, about race. And that’s particularly important, because it’s important to be seen to be talking about it. Because a lot of people, a lot of boards still find it very uncomfortable. Both people of colour and people who are not people of colour find it uncomfortable. So, that’s been something that I’ve actively involved myself in visibly.
And in terms of the invisible involvement, I’ve been making sure that behind the scenes, in remuneration committees, in nomination committees, we have succession plans that specifically identify the question of why do we not have more people with a BAME background or people of different ethnicities in our pipeline? How do we go about supporting that? I’ve been asking the questions, and there’s been a time for that.
And I think in terms of content, the two areas that I’ve been focusing on have been this concept of meritocracy and colour blindness is one whole area. People have been worried across boards and in my organisation. Well, is it merit versus ethnicity. It isn't.
12:37
And then, the other thing that I’ve been challenging my boards on, and it’s something that Sir John Parker puts really well in the updated Parker Review, is this sort of desire to let things happen in an evolutionary fashion. I think he says that too many of us fear and remain complacent about change happening naturally through the normal passage of time. What he says is, most of us know that this never works in any other aspect of our business, and it won’t work here. I think that’s the other thing I’ve been putting across.
JG Justin, within the investment community, give us a sense of how expectations have changed this year?
JO I think when it comes to expectations, we’ve seen really a recognition that maybe enough hasn’t been done, and clearly that needs to change. So, it’s worth noting though, over the last few years there has been a movement evolving where we have seen a movement towards this overall change.
We’ve seen things like the Diversity Project being set up, and this is a group of asset managers coming together, all trying to create a more inclusive culture. We’ve seen corporate responsibility teams, which used to be a team that used to be not necessarily on the investment floor, definitely not front and centre of the investment floor, now become more front and centre, as companies start engaging more.
14:07
I think we’ve seen the growth of ESG (Environmental, Social and Governance) from a client perspective on the institutional and retail side, and we do think that it is going to be a key area, where you will see a more enforced and more thinking around diversity overall.
But I suppose what hasn’t worked has been engagement. Engagement over the last few years has been low, and there’s a recognition that this has to improve. And the focus has to move from just a purely gender agenda to ethnicity.
JG And, how much can investors and shareholders contribute to reform?
JO Definitely quite a lot. When you look at shareholders and investors, firstly there’s enforced action, and this would be done by regulation. And we have seen regulation both in the institutional side at the Department of Work and Pensions introducing regulation for trustees to have in their statement investment principles, a focus on ESG. And in particular, as ESG evolves, the S of ESG, the social side is becoming more and more prevalent.
And on the retail side, you’re seeing MiFID and ESMA laws start to be put in place, at the moment still guidance. The FCA says for a financial advisor, when a high net worth individual comes in their office have to have a focus on not just their investment risk but other risks as well, including ESG. Again, as time evolves, the S of ESG will become more important.
But finally, we have seen this new stewardship code this year, and this is a code that outlines a set of principles that signatories are supposed to follow. And, this is a revised stewardship code in 2020 from the 2012 first origination. And, there’s a greater emphasis on ESG when fulfilling stewardship responsibilities for investors.
Now, if you sign it, you have to comply with all of the principles and articulate how you’re applying to them. But also, there’s a new definition of stewardship, reinforcing or reemphasising that you’re looking after client’s assets. Really this raises the bar for investors and shareholders. And, when people sign up to this, it will help to drive overall reform in the industry.
16:50
JG Thanks to both of you. Do stay with us as we round off this podcast by looking more at the action needed in the months ahead next.
[Music]
Arun Batra and Gavin Lewis are still with us, along with Moni and Justin. So, let’s get your thoughts now on what needs to happen over the next few months and year to bring about change. There’s been a lot of talk, but what are the priorities that will bring about action and outcomes? Arun, let’s start with you.
AB So, I get asked this question a lot, and if I could try and provide what I see as being those incremental steps I think would make the biggest difference. Our colleagues in the US have baked really clearly into their legislative framework the advantages for treating minorities who were proportionately misrepresented more fairly.
17:46
So, for example, in your supply chain, if you engage with minority suppliers, you get tax benefits. I think, because there’s a recognition in the US that this stuff doesn’t happen on its own, having some regulatory change that’s an incentive for business to want to engage more with under represented suppliers would be a very sensible thing to do.
Ditto with the FRC Financial Reporting Council corporate governance code. So, as part of the Parker Review, we have pushed for a change to the content of the corporate governance code. And we’re nearly there in ensuring that, as part of the reporting cycle for businesses, that they report on performance against the review’s ambitions, i.e., how many ethnic minority people are you having on your board? And hoping to be able to extend that actually to executive teams not just boardrooms.
I think one of the biggest drivers, Justine, will be ethnic pay reporting, and it may not be the reporting itself that’s important. It’s the incremental impact of having it.
If you look at gender pay reporting, what happened is every single business in the UK over 250 people suddenly had to wake up and smell the coffee, and they actually A, our women are not being paid the same as our men. And B, what do we need to do structurally to change our infrastructure in order to give women a fairer chance, in order to be paid fairly?
19:10
And that’s what I think ethnic pay reporting will do. So, to be honest, I’m less bothered about the gap. Well, actually let me rephrase. I am bothered about the gap, but I’m more bothered about the impact that it’ll have on business to do the right thing for their people structurally.
JG Gavin, what are your thoughts?
GL I think one of the challenges is just simply this idea of culture. So, firms will talk about having a very, very strong and unique culture, and then clearly out of that comes this idea of is this person a cultural fit? The challenge that you have with that is that culture’s probably been defined by a very narrow demographic.
So, the question that you have to ask yourself is, is that culture actually inclusive? And are firms aware of this? Is there anyone there at the top challenging this? And, as a result, are we actually getting the best out and bringing that talent through?
So, I think in addition to the hard, the things that the firms need to do in terms of issuing targets and making policy statements, there’s this whole other cultural piece which I think we really need to wrestle with and ask. And as businesses, as ourselves what culture are we residing in? Are we making it acceptable for people to really flourish and contribute to businesses?
JG Moni, coming to you.
MM Oftentimes, particularly at the graduate level, we are hiring for difference. It’s acknowledged, but then we fire because people aren’t the same and don't fit in.
20:37
And it’s exactly that issue, so I think some of the things that we can do beyond the talk and the empathy and the sympathy, and the fine words, are we must collect the data. The data is not going to tell us whether there’s a problem. We already know there’s a problem, but it will help us evaluate whether we are making a difference from one year to the next. So, we must collect the data.
We have to give responsibility to executives within the organisation. Just like we would if we were going to set up a new business line, if we were going to increase margins, if we’re going to do whatever. We have to give specific responsibility. We have to set goals and we have to measure, because otherwise how do we know whether we’re getting towards what we want to get to? And we have to hold people accountable.
Those are all exactly the same tools that we use for every other aspect of our businesses. And we should simply apply those known, proven techniques to make a change on this.
And, in terms of being held accountable, the wider stakeholder community has a huge part to play. So, we have to disclose. We have to show our workings out. We have to show what we’re doing. And I would say that’s the translation of the strong sentiment which is held by a very wide range of people.
21:57
What’s great about the times that we’re in at the moment is that we have allies or we have willing allies. We have intentional allies. Let’s use that to actually make tangible difference by implementing it through our organisation. I think we can do tangible things.
JG And Justin?
JO Yes, so I would just add that pipeline is vitally important. Similar to what the other speakers have said, there are lots of senior ethnic minorities at our organisations that aren’t at C suite, that aren’t at board levels. They might be managing directors of banks. They might be partners at law firms, fund managers within investment management businesses.
I do think there’s almost a crying out for sponsorship of this top talent, otherwise what will happen is that this talented group of people who are towards the top of their organisations but not quite at board level, not quite at C suite level, will be a lost generation.
JG Finally, what are your views about the longer term implications of board diversification on companies, and its impact on society? Justin, starting with you?
JO Firstly, all the studies, all the academic studies show that business results can be improved with a more diverse board. You get greater cognitive diversity. But I do think it’s really important from a company perspective to recognise the ethnic minority leaders at the top. If you have those people, they’re more likely to understand the structural barriers to progression, because they simply have a lived experience of it. They’ve been through organisations.
23:35
And I do think that that, in terms of focusing and building up policy, that can help to remove some of these structural barriers. That is vitally important, so that’s from a company perspective.
But then, from a societal perspective, I think it’s fundamental that we don't underestimate the famous quote by Marian Wright Edelman, ‘you can’t be what you can’t see’. I do think that people in communities, if they can see people reaching the top of our businesses, at board level, it does give hope. It does give ambition to children and communities. And it will encourage those to be more interested in our large industries.
JG Moni, would you agree?
MM Completely agree with those points. And I think the other dimension I’d put in is that this particular point in British business life, when we have decided not to be part of Europe but in theory to be part of the rest of the world, and we already have significant portions of our own society who we are not including in our structures and institutions. And the better we can do that, the better we will be at being able to play on the world forum.
We already have a great position, but it could be so much stronger, better, more informed, more nuanced and subtle with the huge talent that there is within our own society to take our businesses and organisations forward. So, it is an opportunity waiting to be taken, and one that could be squandered if we don't address it properly.
JG Arun?
AB I completely agree with Moni’s points actually, in this contradiction of opening ourselves to the world but not including our own people. I just want to add a couple of other things. That’s for a broader perspective, yes, absolutely, this is not a compromise. Of course it will encourage greater levels of investment and it’s going to be better for brand. And you’ll have greater access to markets.
25:41
But I think there is something much broader going on here. There is a certain type of person that succeeds in British business today, and they fit a certain archetype. And we’ve done lots of research around this. It tends to be somebody who is slightly arrogant, who is more extrovert than introvert. And who would give up family life in order to succeed and so on, so forth.
And I think actually every bit of evidence that I have seen about creating a much more broader inclusive workplace would lead to not only a more healthy business but a more profitable one. And actually, it’s only when we truly embrace that is when I think it will get to a much better place as a business community. So, headline for me is this is not a compromise. This is a very sensible thing to do.
JG And Gavin?
GL Yes, absolutely. So, I feel this is the connection between business and society, and the lack of representation not just of black professionals but of the broader society. I think this is the existential crisis that I’m not sure our industries realise is upon them.
26:51
And you’ll often hear people scoff at the idea that businesses should be representative of societies, and they’ll often say, for what purpose? Well, the purpose is because businesses don't operate in a vacuum, businesses are part of our social fabric.
And society has spoken very, very loudly about a range of issues. The British people have spoken about their feelings about being in Europe, and the British people have spoken about where on the political spectrum they now stand. The people have spoken, have made very clear how they feel about racial inequality, and it’s very easy to be in a business and think that these things don't affect you apart from the bottom line.
Well, actually it’s the opposite. The survivability of business is dependent upon their relevance and the role that they play in society. And the evolution of ESG investing and the rise of S, which has always been lagging behind the E is a testament to that.
I think, if businesses don't start to be more connected to societies and have a mission and a degree of social purpose at least, and execute social contracts, I think they will cease to be relevant. And, if it’s not through consumer choice, it will be through not realising that actually the world has moved on, and whatever product or service that we offer is no longer relevant. The Kodak moment can happen more than once.
JG Well, thanks very much to all of you for taking part in our discussion. And sharing with us your thoughts on such an important topic.
And if you found our discussion helpful, and you’d like to find out more, please email neds@uk.ey.com. That’s neds@uk.ey.com. I’m Justine Green, and from me and all of our guests, thanks for listening and goodbye.
29:08
