News October 2018 Blog: Why diversity makes a positive difference to organisational culture

Blog: Why diversity makes a positive difference to organisational culture

22 October 2018

By Tracy Vegro, Executive Director, Strategy & Resources, FRC

The business case for diversity is made, it’s now up to investors to hold Boards to account. That was the view of one senior investor at the Financial Reporting Council’s recent event, ‘Benchmarking diversity and inclusion reporting in the UK’s top companies.

The numbers certainly are compelling. According to McKinsey, companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians and they estimate that bridging the gender gap in work would add £150 billion to the UK economy by 2025.

UK society is a powerful force, which stimulates innovation in its best form. Business should therefore better reflect the society it serves, the customers that buy its products and services, the workforce it employs and so on.

Boards and senior management make better decisions if they take account of a diverse range of views and avoid “group-think”. Enabling the senior levels in companies to be filled with diverse individuals means ensuring that the pipeline of talent to fill leadership roles in the future focusses on a wider range of qualities, as well as pure skills and experience.

The good news is that most companies report that they have a policy on diversity. The bad news though is that reporting on those policies to give stakeholders confidence that it’s more than just a tick-box exercise is weak.

The Exeter University research shows only 15% of the FTSE 100 companies report fully against key diversity criteria set out in the UK’s Corporate Governance Code. It’s difficult therefore for investors, customers and others to judge whether diversity is being taken seriously as a strategic imperative or simply an exercise in compliance.

For diversity to have serious impact it requires inclusion across the company and at the most senior levels. It’s not enough to simply fill posts with what looks like a mix of genders, ethnicities, backgrounds and so on, these people must be involved in key decision-making if their presence is to make a real difference.

While gender diversity has improved, particularly thanks to initiatives including Lord Davies’ Women on Boards report, The Hampton Alexander Review and the 30% Club, to name but three, there is still more work to do, in particular on ethnic diversity at the top of companies. Sir John Parker’s work on this is important but more can and should be done to appoint people with a range of ethnicities to senior roles.

Diversity is a vital issue for many people. Conversations are happening, and talent pipelines are being built. But the pace can be accelerated if companies put in place diversity sponsors to encourage and help people rise through the ranks or appoint diversity champions in specific senior roles to manage, implement and report on their diversity policies. Only 9% of FTSE100 companies reported to the FRC that they had a specified person or role with accountability for the success of diversity initiatives.

As we all know, when it comes to big changes, progress is often hard won. In the year when we remember 100 years of women’s suffrage there is plenty to celebrate about diversity, particularly gender diversity. Progress is happening, slower than some would like but the momentum is there. We now must all rise to the challenge of embedding diversity.

You can now watch the recording of the FRC event on 'Benchmarking diversity and inclusion reporting in the UK's top companies'; and interviews with the panellists and audience members from the event.