D&I is now a reporting issue and chartered accountants have a key role to play in ensuring that the expectations of stakeholders both inside and outside their organisations are met.
Increased profitability, more robust governance, better problem-solving abilities and, according to this study from Boston Consulting Group, greater innovation – the case for diversity and inclusion has been thoroughly made not only from an ethical and moral perspective, but also as the cornerstone of a successful, revenue-generating business.
But it wasn’t always that way. Arun Batra runs EY’s global diversity consulting business, is CEO of the National Equality Standard and adviser to the Parker Review on ethnic diversity on boards. A 25-year veteran of the diversity and inclusion (D&I) world, Batra was Lead on Diversity in the Criminal Justice Group at the Home Office before becoming the Mayor of London’s Director of Diversity under both Ken Livingstone and Boris Johnson.
He recalls the overt racism he experienced early on in his career delivering race training to local authority refuse collectors, who would quite literally turn their backs on him when he spoke to them. Today, he’s regularly running workshops with the executive teams of the world’s biggest organisations on how they can be more inclusive. The contrast is symptomatic of D&I’s coming of age, he says.
The growing expectations of stakeholders – including regulators, suppliers, customers and employees – have moved the dial on D&I, Batra says. This is no longer just about doing the right thing, but instead recognising that D&I is a potential financial risk to your business. “We can see the impact on margin and revenue when you have diverse teams, but we can also see the correlative effect of doing the wrong thing – whether it’s an uplift in attrition, a rise in discrimination cases, complaints, brand damage or the inability to attract the right talent.”
And yet a new report from behaviour change consultancy Mind Gym, which includes a significant chunk of the FTSE 100 and 59% of the S&P 100 among its clients, says most corporate diversity strategies are no longer fit for purpose. Despite spending billions on diversity, equity and inclusion (DEI) schemes, most corporate diversity strategies are failing to hit the mark – and in some cases their efforts could be doing more harm than good.
Trevor Phillips OBE, Founding Chair of the Equality and Human Rights Commission and Non-Executive Director of Mind Gym, says that all too often leaders think that if they simply apply greater effort or more resources, given time things will change. “When they don’t improve, the result is frustration and disillusionment all round. This means that we need to rigorously test our current beliefs about what works – and where we need to change our understanding, we have to have the courage to do so,” he says.
Increasingly, that requires a shift away from a ‘spray-and-pray’ approach to D&I initiatives based on assumptions about their effectiveness. “We would always advocate a data-led approach to DEI work, as with any other business issue,” says Brenda Trenowden CBE, Inclusion and Diversity Consulting Partner at PwC and former Global Chair of the 30% Club. “For any major decision regarding people, it is important to review the data to ensure that no particular groups of people are being inadvertently impacted and that there is not systemic bias at play.”
What is also increasingly apparent is the role that finance should be assuming in driving D&I progress, underpinned by a robust understanding of the factors at play within their organisation. “It’s absolutely not just an HR issue,” Batra warns. “This is now a reporting issue. In your annual report you’re expected to demonstrate your levels of proficiency around D&I.”
Similarly, the government’s long-awaited consultation on reforms to restore trust in audit and corporate governance, published in March, will require directors of companies to sign off their annual accounts to ensure their controls are effective, Batra adds. “If you look at the data around what puts companies at risk, it’s culture.
Mac Allonge is Founder and CEO of data-driven D&I consultancy The Equal Group. He agrees that framing D&I as an HR issue isn’t always helpful: “HR gets a bad rep – a lot of people see it as the PC Police, but the achievement of business strategy falls under everyone’s remit. For finance, this is about how we provide resource and budget to make sure DEI is done properly across the organisation.”
There’s no one-size-fits-all when it comes to collecting D&I data, Allonge agrees, but ‘more is more’ is a good mantra. “We advise clients to collect as much data as possible – about representation, experience, progression, talent management, all aspects of your recruitment progress, even the makeup of your supply chain. The broader the data, the more holistically you can look at things.”
The Equal Group’s approach marries a quantitative understanding of ‘who’s in the room’ with qualitative insights that help organisations tune into the various experiences that different people have at a number of touch points. “When we talk about microaggressions, the perception or reality that you have to work twice as hard as your peers, being excluded from certain conversations or not being taken seriously, the only way you can make progress is by looking at the data,” says Allonge.
He accepts that the qualitative aspects of D&I data may initially take accountants out of their comfort zone. “It can still be a number, but the trick is to use metrics, charts and visualisation to show what is going on.”
Focusing on certain protected metrics in isolation, for example gender pay gaps, is useful but doesn’t go far enough, says Jenny Baskerville, Director, Head of Inclusion, Diversity and Social Equality at KPMG UK. Similarly, general ‘grouping’ of people often under-represents some of the challenges faced by particular individuals, she warns. “A key example of this would be use of the term ‘BAME’ when referring to Black, Asian and Minority Ethnic individuals collectively, or considering gender identity to be strictly binary,” Baskerville adds.
“All individuals represent multiple identities and so we are increasingly looking to understand the intersectional experiences and challenges facing our colleagues,” she says. “It’s about understanding that people can be multiple things at the same time and that intersectionality will determine the experience that people have.”
Organisations are understandably nervous about the potential can of worms that their analysis could open. After all, many are still on the back foot after the PR backlash that followed gender pay gap reporting, which for many laid bare for the first time the true extent of pay disparity between the sexes. However, unless you’re simply paying lip service to D&I, being bold and transparent about your ambitions is essential to progress, Baskerville maintains.
Since 2014, KPMG has published diversity target zones and, more recently, the firm set new diversity targets, which it aims to achieve by 2022. It reports against these each year in its Annual Review. This year, KPMG bolstered its pay gap reporting by disclosing Black heritage, sexual orientation and disability pay gaps on a voluntary basis. “Being transparent details what’s working, while identifying where we need to take action,” Baskerville explains. “Beyond metrics, this helps shape the programmes and initiatives we have in place to drive inclusion, diversity and social equality.”
The murder of George Floyd last year acted as a painful reminder of how far the world still had go to end racism and discrimination. However, it also served as a turning point in the D&I conversation, prompting an unprecedented surge in activity. What’s clear is that the expectations on reporting and communicating DEI progress are here to stay.
“There is an increasing need to show DEI progress in terms of representation targets that have been set, adherence to DEI policies and, increasingly, regarding accessibility to a broader set of clients in terms of product and service design,” Trenowden says. “The ’S’ in ESG [environmental, social and governance] is driving a need for industry standards, common taxonomy and greater reporting on DEI progress, just as the ‘E’ did several years ago.”
Baskerville, meanwhile, believes society will expect significant progress in the coming years and data will be at the heart of tracking progress, holding everyone accountable. “Across the accountancy profession we can help lead the way, as organisations well-versed in tracking and understanding data, and building on cross-sector initiatives such as Access Accountancy. It’s critical all businesses are transparent about the problems they face and, importantly, businesses must have a plan to address it,” she says.
For Alonge, nirvana would be for organisations to talk about diversity and inclusion in the same way that they do finance. “There’s an expectation that everyone in a leadership position understands the financial implications of what they do. The difference with DEI is that you typically get one person talking about it and others don’t necessarily understand the role they play.”
That just 12% of the FTSE 350 bother to report on D&I, according to EY’s analysis into the requirements of the FRC corporate governance code, highlights all too well that D&I remains very much a work in progress, Batra says. “This isn’t something that will happen on its own. And it may feel like you’re being courageous, but it’s actually the sensible thing to do for your business. If you don’t understand what’s going wrong in your business, you can’t fix it.”
