This article first appeared in ICAS’ CA magazine.
It may feel like the diversity and inclusion agenda has gathered momentum in recent years. But while there has been a lot of talk, the data suggests that the pace of change at the top of British business has actually been slow. A July 2021 report by the Financial Conduct Authority (FCA) found that fewer than one in 10 management roles in the financial services sector were held by black, Asian or other ethnic minority staff, while Green Park’s annual Business Leaders Index showed no black leaders in FTSE 100 C-suite roles at all. Meanwhile, progress for women at the pinnacle of UK companies has accurately been described as “glacial” (see Tara Cemlyn-Jones’ interview).
With change at executive level seemingly stagnating, it’s no surprise that regulators are trying to make reporting on diversity more rigorous and transparent. Gender pay gap reporting, a legal requirement for all organisations with more than 250 employees since 2017, seems to have been a success, with LSE research showing that the salary gap between men and women in reporting companies has closed by almost a fifth since it was introduced. Perhaps firms just need a push when it comes to compiling, reporting and analysing their diversity data.
“We know that gender pay gap reporting has driven greater transparency and accelerated progress, and we believe the same is needed for ethnicity pay reporting,” says Chartered Institute of Personnel and Development CEO Peter Cheese. “Mandatory reporting of data, and the associated narrative that shows understanding of the data and the actions being taken to improve it, for both ethnicity and gender pay, will help create fairer workplaces and societies.”
What, how and why
Why should an employee trust you with their data? If an organisation has been around for years and never done any work on diversity, it might seem strange to employees to suddenly be asked about their sexual orientation.
A critical area of frustration for firms is a lack of clarity around what they should measure and how they should analyse it. With no overarching framework for measuring diversity and many different tools and metrics available for use, it can be hard to quantify the success of diversity initiatives – or even to identify new areas of focus.
“A lot of companies struggle for years to find and interpret diversity data,” agrees Mac Alonge, founder and CEO at the Equal Group, a consultancy that helps businesses take a data-driven approach to equality, diversity and inclusion interventions.
For Alonge, there are three key obstacles that prevent organisations from developing diversity strategies. First, a lack of expertise means many businesses turn to HR professionals to collect, analyse and present their diversity data, resulting in a lack of standardisation across businesses. Second, companies are often unrealistic about the timescale and resources involved in creating and implementing new strategies. And third, employees can be sceptical regarding the use of their personal data.
“Why should an employee trust you with their data?” asks Alonge. “If an organisation has been around for years and never done any work on diversity, it might seem strange to employees to suddenly be asked about their sexual orientation. Conversely, how anonymous is my data? If I’m part of the LGBT+ community and I’m not fully out at work, is there a risk my line manager might see my disclosure and I’m inadvertently outed?
“You also need to think about your terminology and how you categorise people on surveys. Do you have sufficient indicators of gender identity? Do you give people the chance to self-identify and self-declare? Will someone who identifies as non-binary fit into your form and how you ask questions? This is why we encourage clients to take our recommendations on standardising data and providing sufficient options for self-declaration.”
Eye of the regulator
Pay equity reporting is a step forward, but diversity isn’t just about same work, same pay – it’s about getting more diverse candidates into those roles
Ready or not, further regulation on diversity reporting and outcomes is coming. Last July, the FCA, Prudential Regulation Authority and Bank of England released a discussion paper examining how to improve diversity and inclusion in financial services. Among its suggested outcomes were further targets on representation, linking them to senior management remuneration and potentially introducing penalties for firms that do not begin to change.
FCA CEO Nikhil Rathi outlined its approach in March, saying: “As a regulator, we want [to improve diversity] from the firms we oversee and in the markets we regulate. Not because it is a social good – although, frankly, that should be enough. We care because diversity reduces conduct risk and those firms that fail to reflect society run the risk of poorly serving diverse communities. And, at that point, diversity and inclusion become regulatory issues.”
Alonge, who worked as a regulatory economist in the energy sector, cautions that while regulation can be a good thing, it often doesn’t go far enough in making real change. “Regulators need to create an environment where organisations are incentivised to act accordingly. They also need to role model the diversity and inclusion outcomes they want to see,” he says.
Laura McGee, founder and CEO of AI diversity platform Diversio, agrees that regulators too often focus on headline numbers rather than deep and lasting change. “Often, regulators aren’t able to go to the level where the biggest opportunity is,” she says. “For example, pay equity reporting is a step forward, but diversity isn’t just about same work, same pay – it’s about getting more diverse candidates into those roles.”
McGee believes that both regulators and business leaders are too focused on simply driving up diverse representation in workplaces, rather than creating more inclusive businesses that organically allow diverse views and people to progress. “If 15% of your organisation identify as black, what does that look like at different levels in your company? How are those different groups moving through your organisation? It’s no good hiring diverse talent if you lose them along the way,” she says.
Key to this is listening to people’s problems. Diversio collates employee feedback and suggests actions to employers. Then it’s up to business leaders to listen and build inclusion into their organisational culture – for the good of the business. “An investor once said to me: ‘Diversity is a lagging indicator, inclusion is a leading indicator.’ Focus on your pipeline rather than just putting more women in the boardroom,” McGee says.
Beyond the basics
If a business isn’t already on this journey, it is falling behind.
As businesses look for competitive advantage, are more forms of non-financial reporting likely to end up on the desks of CAs? PwC was one of the first large accounting firms to publish gender pay gap reporting, back in 2014, and has been doing the same for its ethnic pay gap since 2017. Since then, it has also begun reporting on socio-economic and disability pay gaps and plans to publish LGBTQ+ pay gaps in the future.
“Publishing our data provides more rigour to our processes. When communicating data to our leaders, we’ve linked it directly to the actions we need to take to see numbers move in the right direction. This has helped create a culture where the responsibility for improvement is on all of us, not just HR,” says the firm’s Chief Inclusion, Communities and Wellbeing Officer, Sarah Churchman.
Like Alonge and McGee, Churchman believes that measuring the impact of activities in this area relies on both data and employee engagement. “We tend to measure diversity with data – actual data versus targets. When it comes to inclusion, we refer more to qualitative insights gained through employee-engagement surveys. If you can create an environment where people are comfortable talking honestly about their experiences and expectations of you as an employer, it creates a brilliant platform for ideas and feedback,” she says.
It’s clear that diversity data reporting is here to stay – and it’s only likely to get more complex. And, as its use becomes more widespread, talent, investors and customers will increasingly be making decisions based on the findings. Standing still and staying silent is no longer an option – even without the added pressure of regulatory intervention.
“If a business isn’t already on this journey, it is falling behind,” says Churchman. “[This is] increasingly a point of differentiation in the talent market – and for other stakeholders too.”
“The question for all FTSE 100 companies is: what kind of organisation do they want to be?” adds Alonge. “Are they happy maintaining the ideological fallacy that only white, middle-aged, middle-class, heterosexual men are good leaders? Or will they begin to better represent the people that they serve?”
Visit the Finance + EDI hub for the latest thought leadership on diversity reporting