The research was carried out by the University of Exeter Business School based on a snap shot of diversity reporting across the FTSE 350, as at 1 March 2018, and is intended to show how this has changed over time.

The FRC says its analysis shows that overall, the quality of reporting on diversity of boards has improved since it was first included in the code in 2012. At that stage, just 56 FTSE 100 companies stated that they had a board diversity policy, all of which focused on gender.

Currently, 98% of FTSE 100 and 88% of FTSE 250 companies have one, and roughly a third of these refer to ethnicity as well as gender.

However, the FRC say that approaches to diversity are wide-ranging, and while some companies do demonstrate an understanding of the strategic importance of the issue, it notes ‘the great majority appear to treat reporting as a compliance exercise, suggesting a lack of commitment.’

Provision B.2.4 of the code calls for a description of the nomination committee’s process in relation to board appointments, the board’s policy on diversity, including gender, any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives.

Only 15% of the FTSE 100 discussed all four of these elements, while a further 20% discussed three of the four elements.

Among FTSE 250 companies, only 6% discussed all four elements, while an additional 8% discussed three of the four. Over 60% discussed only two of the four elements.

The FRC said: ‘While the trend is upwards, given the increased prominence of diversity as a strategic business issue, we would have expected to find even more of our largest companies providing meaningful information about their approach to boardroom diversity and offering real insights into the actions they are taking to increase diversity and progress against any objectives set.’

Analysis of the diversity information in annual reports estimated about 20-30% of the FTSE 100 and 10% of the FTSE 250 to be ‘best in class’.  The regulator said these companies demonstrate a maturity of approach to gender diversity and have begun to consider how best to increase ethnic diversity. They are more likely to view diversity as an issue of strategic importance and to link it to company strategy.

These companies set measurable objectives and are more knowledgeable about which initiatives are successful within their own organisations. A number are increasingly discussing diversity as a much broader concept that encompasses a range of sources of difference, including social and educational background, disability and other ‘protected characteristics’. Some go so far as to target specific aims, for example to support social mobility, carers or former members of the Armed Forces, as part of an agenda of inclusion.

The FRC says the research indicates the majority of FTSE companies continue to need support to develop their approach to diversity, although it also notes that being a signatory to the ‘Women in Finance Charter’ appears to have a positive effect, resulting in a commitment to progress which feeds through into better reporting.

The report stated: ‘There was evidence of clear, individual accountability for diversity strategy within some companies, alongside many ambitious diversity strategies for the general workforce. These can be found in different sections of the annual report, including the strategic report, directors’ report and the nomination committee’s report.

‘However, this is not yet being translated into reported actions aimed specifically at increasing diversity at senior and executive management level.’

Code revision

The FRC noted that where the code does not specifically ask companies to report on a particular issue, it tends not to be discussed. Figures for reporting on diversity in the context of succession planning, diversity in board evaluations, ethnic diversity and initiatives aimed at senior management were all substantially lower. Around a third of FTSE 100 companies refer to targeted initiatives for gender diversity in senior management, compared to around 10% of the FTSE 250.

The FRC says the situation is likely to change, as the revised UK corporate governance code, which takes effect from 1 January 2019, require improved reporting on diversity. It calls on boards to include in their annual reports a description from their nomination committee of how they have applied the company’s diversity policy including how this links to progress on achieving company objectives.

Tracy Vegro, FRC executive director of strategy and resources said: ‘There is almost universal acceptance that diversity contributes to more effective decision-making and mitigates the danger of group think. Some of the findings of this report are disappointing and FTSE 350 companies should provide fuller disclosures on all diversity.

‘We are writing to companies to challenge them to take a more strategic approach to diversity and inclusion, and to consider their approach to reporting on it.’

Professor Ruth Sealy, associate professor of management, director Exeter Centre for Leadership, University of Exeter, said: ‘Our research revealed some companies’ sophisticated understanding of the contribution diversity can make to their business - as the optimal utilisation of talent and a significant strategic issue.

‘However, many organisations appear to still have a minimalist “tick box” approach and need clearer strategies to drive greater diversity at senior management levels.’

FRC report: Board Diversity Reporting is here

Report by Pat Sweet