Regulation, shareholder action and policy: Driving action for corporate DE&I

Senior managers at financial firms could see pay linked to their progress in making their workforces more diverse and inclusive. That is according to the UK’s Financial Conduct Authority (FCA), which set out its positioning in a discussion paper alongside the Bank of England and Prudential Regulation Authority (PRA). The paper outlines several policy options, including senior leadership accountability, remuneration linked to diversity, equity and inclusion (DE&I) metrics, and setting targets for representation.

While this paper is targeted at the financial sector, growing pressure on and increased scrutiny of companies’ DE&I actions are prevalent across industries. This is evident from increased shareholder pressure on companies including Amazon, Union Pacific and JPMorgan Chase to address race and other diversity issues. The majority of diversity-related resolutions were filed at US companies, with the average of investor support increasing from 23.9% in 2020 to 42.4% for the first half of 2021. Specifically, investors were most successful this year in demanding that companies published basic information about their workforces, including statistics on gender, race and ethnicity.

Beyond the boardroom, there is also mounting pressure on governments to take action to tackle racial inequalities in the workplace. The Confederation of British Industry (CBI), Trades Union Congress (TUC) and Equality and Human Rights Commission have called for mandatory ethnicity pay gap reporting in the UK, in a similar fashion to gender pay gap reporting – a legal requirement since 2017. While several companies including Barclays, NatWest and Lloyds have already voluntarily reported on ethnicity pay gaps, the mandate would increase transparency across industries, providing an important opportunity to investigate the current state of DE&I in UK workplaces.

DE&I has been a long-standing item at the top of corporate agendas, yet progress has lagged. Impacts felt through the pandemic and the Black Lives Matter movement have conjured more intense scrutiny of corporate DE&I. These events have acted as a major turning point in industry group directives for companies to set commitments, and evidence concrete action with transparent reporting on progress made.

Pressure and expectations are mounting from all sides – regulatory bodies, shareholders and governments, as well as consumers and workers. It is hoped that emerging disclosure requirements and increasing expectations of stakeholders will truly advance corporate DE&I across sectors and geographies. Organisations will no longer be able to ignore or hide from DE&I disclosures and initiatives. Information concerning accountability in governance structures, transparency on diversity metrics, and commitments backed up by action will become basic expectations. Investing in DE&I is not only the right thing to do; it will soon become a prerequisite of public disclosure.

Author: Sarah Kehoe