by Dina Medland
Diversity and Inclusion
Diversity and inclusion are essential for economic growth in a multi-cultural society. Many of Britain’s businesses are still struggling with this basic truth, trying to play catch-up with the urgency of the issue by shrouding it in definitions, and re-definitions. Should we call it diversity or should we call it inclusion? Actually, we need to put the two together with equality of opportunity via structural change, in the pursuit of better corporate governance and productive, responsible businesses.
There have been multiple reports in the past few weeks around the lack of progress when it comes to progression and equality by gender, particularly in the financial services industry. An analysis of gender pay gap data at nearly 400 firms across the industry by the think tank New Financial found a structural problem. “The financial services sector performs worse than the rest of the economy on every aspect of gender pay gap reporting” it said. “The average pay gap is more than double the national average of 14%, the average bonus gap is nearly three times the national average of 20%, and the representation of women in the top quartile by pay is significantly lower than in the wider economy.”
It was good then, to see Yasmine Chinwala, a Partner at New Financial, at an event held by the Diversity Project in London earlier this week. You will find some of the coverage on social media under the #ActionNotWords. Building momentum is key to speed the pace of change in sectors such as asset management, which appear to all intents and purposes to live in a comfortable bubble many are unwilling to have punctured. As Ms Chinwala said of the research when talking to a packed room: “we were shocked at the portfolio management industry’s reluctance to collaborate and share ideas.”
The financial services sector is good at holding lavish events around diversity, and has been doing so since 2011, when Lord Davies led a review on the lack of representation of women in FTSE boardrooms. But these events have always been carefully managed to define the scope of challenge to a comfortable space, it seems – and that is why, until now, they have tended not to mention inclusion around race and ethnicity in the same breath as gender. Even at the event, it was grouped with disability and neurodiversity, when in fact all four issues are of critical importance to open the net for the best talent.
Gavin Lewis, head of UK Institutional Distribution at Vanguard, changed that on Tuesday, when he spoke at the Diversity Project’s event. Likening the challenges facing BAME individuals for career progression in the industry to the kinks in a hosepipe, he identified them to be: socio-economic, entry, progression and ‘agenda’ (which is around race and ethnicity) and said “for some reason this is never discussed.” The question he asked of the room was: why not? You can read his own story here.
Gender diversity is just one part of a business and society jigsaw puzzle that we need to put back together to face new challenges – covered in the last Governance Watch and explored on my blog Board Talk - that have been created since it was blown apart by the financial crisis, now almost exactly a decade ago.
Collaboration across business and industry sectors is key, as is sponsorship and mentoring, mentioned by Mr Lewis as true inclusion, as it is a two-way learning process. I came across this recent tweet from Sacha Romanovich, the CEO of Grant Thornton UK, the accountancy firm, which says it well on changing times.
Despite media efforts to highlight important issues of governance around working conditions and changing business models including the gig economy, there is a real danger we quickly become immune to poor practices. Sports Direct may have dropped out of the news on that front, but Ryanair has not. The International Transport Workers’ Federation (ITF) and European Transport Workers’ Federation (ETF) are calling for shareholders to oppose the re-election of Ryanair chairman David Bonderman and overhaul the company’s corporate governance practices.
Responsibility and accountability
While there are signs of ‘diversity fatigue’ across all industries, there is little indication that people have stopped talking about the critical issues of trust in business. There is also every indication that excessive remuneration remains a major issue. Shareholder rebellions over high executive pay at the UK’s largest companies have doubled this year, with companies from AstraZeneca to BT and Shell suffering big protest votes at their annual meetings, said a recent report in the Financial Times.
But the financial services industry has a long history of dividing itself into silos in the way in which it operates. The crux of a bank’s business and raison d’être is to handle money for customers, and yet the bungling of such handling appears to have nothing to do with top executive pay. That is how it looks at TSB, where CEO Paul Pester has just announced his departure.
The bank’s CEO is to leave with pay of nearly £1.7 million after standing down in the wake of an IT fiasco costing the bank at least £176.4 million pushing it into a half-year loss, extended by ongoing technology failures. Mr Pester has been placed on gardening leave and will get £1.2m in severance pay and a "historical" bonus of around £480,000 that is due from before TSB's takeover by Sabadell in 2015, say media reports. All other performance-related pay is reported to have been frozen amid investigations into the recent IT failures.
Need for reform
Even this brief look at the stories and events in the spotlight on business and boardrooms makes it apparent that something is not working as it should when it comes to business and society. There’s a bigger picture to be considered, and the Institute for Public Policy Research (IPPR) has done just that.
The final report of the IPPR Commission on economic justice has some thoughts that should be of interest to businesses and boardrooms. They suggest making it a requirement that workers on zero-hours contracts be paid 20% above the higher real Living Wage rate.
The IPPR also advocates major changes to how UK companies are governed. These include enshrining a broader purpose in the duties of company directors and the inclusion of workers on company boards. The report also suggests a rise in the headline rate of corporation tax and a minimum rate of corporation tax to tackle tax avoidance by multinationals.
Money laundering is an important issue on many governance and economic growth fronts, and also an essential fight when it comes to tackling inequality.
“Expect anti-money laundering — or AML — to become the hot new acronym of policymakers worried about weak links in the banking system” writes the Financial Times.
The paper looks at moves under consideration in Europe, saying that “among the most ambitious is a recommendation to eventually consider centralising enforcement of anti-money laundering rules in the hands of a powerful new EU authority, an idea it is backing.