This week, Legal and General, one of Britain’s biggest investment companies, despatched a letter to all constituent members of the FTSE 100, demanding that each major quoted company should have hired a non-white board member by 1 January 2022. According to figures published in February this year by the Parker Review, 37 FTSE 100 firms do not currently have ethnic minority representation at board level, in spite of the fact that the UK population includes a 9% BAME component. L&G said that they were serving an early warning that it would vote against the re-election of each company’s nomination committee chairman, responsible for all main board appointments, if they still have an all-white board by the deadline, in fifteen months’ time.
L&G is believed to be the first institutional investor to issue such a stark warning on the subject, and this undoubtedly marks a gigantic step forward in the campaign for greater BAME diversity in the workplace, as pressure from strategic investors is always going to be a lever for driving real change in large corporates. Since L&G owns around 2-3% of every British blue-chip firm as part of its management of £1.2tn worth of pension funds, its presence is always going to be felt in the boardrooms of the businesses in which it invests, and this will doubtless stimulate some timely, and in some cases awkward, conversations.
L&G’s targets will undoubtedly put further emphasis on the need for companies to meet the voluntary goals set by the government-backed Parker Review, which recommended, back in 2017, that each FTSE 100 company should have at least one main board director of colour by 2021. The report said that ‘ethnic diversity needs to be given the same level of boardroom focus that finally led to increasing female representation on boards, which has seen real progress in recent years’. But the facts would suggest that businesses may still need something of a push on this issue, with ethnic minority representation on boards actually falling back to 7.4% in 2019 from 8.8% in 2018, according to an annual Leadership 10,000 report by Green Park recruitment consultancy.
L&G’s intervention also comes on the back of calls from the CBI last week for FTSE 100 firms to have at least one BAME member on their boards by 2021, and for members of the FTSE 250 to have the same representation by 2024. The organisation said progress had been ‘painfully slow’ in this area. It also urged businesses to look deeper than just their own boards, and to work with a more diverse set of suppliers, including minority-owned businesses, which could potentially create a domino effect of improving diversity across British businesses.
It is an interesting announcement from L&G, not least for the fact that they are the first large investor to take a pro-active stance in their response to the Black Lives Matter movement – their letter stated that "the horrifying killing of George Floyd and so many others has led many institutional investors to think much more seriously about structural racism and inequality”. But they have also drawn attention to the recent evidence showing that organisations with diverse boards and senior leadership teams are more successful, with research from McKinsey cited, showing that companies with more diversity were likely to be more profitable than their peers.
History teaches us that cultural change of the kind advocated by L&G takes time to happen and to truly embed. Cynics may well ask why it’s taken the BLM movement in the US to force corporates in the US and the UK suddenly, belatedly, to wake up, recognise there’s a real organisational performance and reputational issue here, and decide to do something about it.
Only time, however, will tell just how quickly we start to see corporates embracing the logic of BAME diversity and adopting it in their own boardrooms.
L&G has fired the starting pistol. The clock is now ticking.