Why diversity matters for long-term success

Elly Irving

Elly Irving

Diversity is important for a company’s long-term strategy and success.

It allows for more constructive debate and means better representation of stakeholders. 

We expect companies and boards to be able to demonstrate they employ a diverse selection of individuals to reflect the wider stakeholders within the business and ensure diversity of thought, while avoiding discrimination against any minority groups.

Article continues after advert

We engage and take voting action and when performance does not meet our expectations. 

Last year we engaged with more than 339 companies on the topic of employees and 166 on diversity-related issues.

These ranged from promoting more board diversity at market level, to engaging on allegations of gender discrimination at company level.

Although there is still substantial ground to be made up in some areas, there are signs a shift is underway.

Board-level ethnic diversity 

When it comes to workforce and board-level ethnic diversity, transparency across different markets remains a challenge.  

In the UK we can draw on the Parker Review, which assessed the level of ethnic diversity of FTSE 350 boards. We will undertake a series of engagements focusing on diversity, equity and inclusion in the workplace at all levels.

We’ll also be raising awareness of the role companies can play in tackling systemic racism, racial discrimination and racial inequality more widely. 

We have already approached 150 companies without a single BAME director on the board to understand the progress they have made over the year, and urge them to meet the Parker Review recommendations. 

These include appointing at least one person of colour to the board by 2021 for FTSE 100 companies, and by 2024 for FTSE 250 companies. Our survey has received a positive response so far and will continue to report on our progress.

Over time, we will focus more on issues impacting different geographical regions, sectors or stakeholders.

Board-level gender diversity

Slow progress in the US has been a focus for our corporate governance team since 2018. 

In 2018, as several quotas were being rolled out or planned at the state level in the US, we wrote to 40 of our US holdings with all-male boards to encourage them to accelerate progress.

We communicated our intentions to vote against the chairman of the nominating committee if there was insufficient improvement. 

We highlighted the benefits that diversity of thought could bring and made recommendations including: 

  • Requiring a diverse slate of candidates
  • Setting voluntary diversity targets
  • Expanding board size to include more women
  • Adopting term or age limits to address low turnover
  • Conducting board performance evaluations

More than 75 per cent of the companies have since added women to their boards. We have since updated our policy to expect a minimum of 25 per cent female representation. 

But our commitment to promote a more diverse and inclusive workplace representation goes beyond the board level. It should also be a priority at the employee and manager levels.

As we continue to scale up our efforts to promote diversity and inclusion in its various forms through our voting and engagement activity, we’d be interested in your thoughts.