Schroders has written to chairs of FTSE 100 companies warning the group will vote against the nominations of committee chairs if the company board is lacking ethnic diversity.
From this year, the firm, which has some £575bn in assets under management, will use its shareholder vote if a FTSE 100 company has not met the recommendation of the Parker Review – which stated that the board should have at least one director of colour by 2021.
Furthermore, it has also urged companies that have at least one ethnically diverse director on the board that having a “one-and-done” approach isn’t enough and that “progress should not stop there”.
A statement from Schroders issued by Kimberley Lewis, Head of Active Ownership, Andy Howard, Global Head of Sustainable Investment, and Katie Frame, Active Ownership Manager, said: “To ensure the sustainability of the pipeline of diverse director candidates it is imperative that companies are developing a robust board candidate pipeline and plan for succession, and that they encourage and support candidates to take on board roles.
“We expect companies to set targets for executive-level ethnic diversity, underpinned by a robust strategy to achieve them, track progress against these and regularly report this to the board and investors.”
In the Parker Review, released in February 2020, 96% of FTSE 100 companies responded where it was revealed 52 companies had met the target for having at least one ethnic minority director on their board by 2021, but 31 businesses had not yet met the target of having at least one ethnic minority director on their board by 2021.
Overall, 37% did not have any ethnic minority representation on their boards – but this was progress on the last review in 2016 where more than 50% (51 out of 100 companies analysed) had no ethnic minority representation on their boards.
At the time, Sir John Parker, chairman of the Parker Review Committee said: “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.”
Schroders’ stance reflects the attitude from across the investment industry that “more action is needed”.
The trio’s statement said: “In November 2021, Schroders wrote to FTSE 100 chairs on the topic of ethnic diversity. In our letter, we made clear our expectations that those large companies should ensure a level of ethnic diversity on their boards.
“From 2022, Schroders will begin to vote against the nominations committee chair of any FTSE 100 company that did not meet the recommendation of the Parker Review that the board have at least one director of colour by 2021. We will treat a company’s non-disclosure as not meeting the requirement.
“Since sending these letters, 25 companies acknowledged receipt, 15 provided a substantial response (for example a letter from a board chair), and one has since appointed a non-white director to its board.
“We will be interested to understand what companies failing to meet this target plan to do and will monitor progress.”
They continued highlighting “an inclusive culture on the board is essential to actually realising the benefits of having diversity” and said the group may look to increase its expectations on board diversity in the future to ensure diversity is reflected in the senior levels of the companies it invests.
By Natalie Kenway, Global Head of ESG insight at ESG Clarity.