McGregor-Smith Review "Race in the workplace": recommendations

Background

In February 2016, the government appointed Baroness McGregor-Smith to lead a review into race in the workplace. The review considered the issues and obstacles faced by businesses and individuals in developing black and minority ethnic (BME) talent, from entry into the workforce through to executive level.

Findings

1 in 8 of the working age population is from a BME background, yet BME individuals make up only 10% of the workforce and hold only 6% of top management positions (2015 figures). By 2051, the proportion of the working age population coming from a BME background is estimated to be 21%. The employment rate of BME people is over 12% lower than the employment rate of white people. All BME groups are more likely to be overqualified than white ethnic groups, but white employees are more likely to be promoted.

Baroness McGregor-Smith found that there was discrimination and bias "at every stage of an individual's career, and even before it begins". There remains a structural bias favouring certain groups, as organisations and individuals tend to hire in their own image, whether consciously or not. There remains a lack of BME role models, and individuals responding to the call for evidence felt that the main barrier to their progression was the lack of connections to the "right people".

Research has shown that companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians. The potential benefit to the economy from full representation of BME individuals across the labour market, through improved participation and career progression, is estimated to be 1.3% of GDP or £24 billion a year.

Recommendations

• Listed companies, and all businesses and public bodies with more than 50 employees, should publish five-year aspirational diversity targets and report against these annually. Baroness McGregor-Smith did not believe that quotas were the answer but considered that – following the debate on gender – business will only take action if targets are set and reflected in KPIs. Targets must be tailored to local circumstances, but it was suggested that an appropriate target for a national organisation would be 14%, rising to 20% by 2050. Targets should be set for every level of the organisation. All employers should take positive action to improve race reporting rates within their workforce, by explaining how data is used to assist in increasing diversity overall.
• The government should legislate to require listed companies, and all businesses with more than 50 employees, to publish a breakdown of employees by race and by pay band on their website and in their annual report. All public bodies employing more than 50 people should publish the same breakdown on www.gov.uk and in department reports.
• Free unconscious bias training should be available online. This should be mandatory for staff at all levels, with senior management teams and those involved in recruitment undertaking more detailed training workshops.
• All businesses employing more than 50 people should identify a board-level sponsor for diversity issues including race, who is held to account for the delivery of the aspirational targets. Chairs, CEOs and CFOs should reference what steps they are taking to improve diversity in their statements in the annual report. All leaders should have a clear diversity objective as a KPI and should be encouraged to undertake "reverse mentoring" with individuals in more junior roles from different ethnic backgrounds, to help them better understand the barriers to progression.
• When using a recruitment agency, short and long lists that are not reflective of the local working age population should be rejected. All employers should critically examine their entry requirements, such as which university the individual attended, and consider how their organisation is portrayed online and at recruitment fairs to attract a diverse pool of applicants. Interview panels should be diverse. All elements of reward and recognition within an organisation, from appraisals to bonuses, should reflect the racial diversity of the organisation.
• Both public and private organisations should use contracts and supply chains to promote diversity, ensuring that contracts are awarded to bidders who show a commitment to diversity and inclusion.
• Employers should seek out opportunities to provide work experience to a more diverse selection of individuals, including stopping all unpaid or unadvertised internships. New joiners should receive information about career pathways and how promotions work as part of their induction. Senior managers should publish their job history internally (in a brief, LinkedIn style profile) so that junior members of the workforce can see what a successful career path looks like. Employers should support the establishment of inclusive networks and encourage their workforce to participate, and establish internal mentoring and sponsorship schemes.
• The government should work with suitable organisations to develop a simple guide on how to discuss race in the workplace, and an online portal for employers with resources on effective positive action. The government should write to institutional funds with holdings in FTSE companies and ask for their policies on diversity and inclusion. A list of the top 100 BME employers should be published, similar to the Stonewall list of LGBT employers.
• After 12 months, the government should assess the extent to which the recommendations in the review have been implemented and take any necessary action.

Government response

BEIS published its response at the same time as the report was released. It encourages all employers to adopt the recommendations of the review and "will lead from the front in the public sector". The government announced a new Business Diversity and Inclusion Group, to be chaired by Business Minister Margot James. It will bring together the CBI, Institute of Directors, BITC, Financial Reporting Council, the Equality and Human Rights Commission and the Equalities Minister, as well as the leaders of the three industry-led diversity reviews (Sir Philip Hampton and Dame Helen Alexander, Sir John Parker and Baroness McGregor-Smith). However, there has been criticism that no representatives of BME organisations have been asked to participate.

The government will not bring in legislation requiring mandatory pay reporting by race. It prefers to follow a voluntary, business-led approach, similar to that taken with regard to increasing the number of women on boards. However, the government "will monitor progress and stand ready to act if sufficient progress is not delivered".

The government will continue to work with Business in the Community (BITC) and others to develop a guide on discussing race in the workplace, as well as establishing a single portal where useful case studies and unconscious bias training packages can be sourced. BITC has agreed to publish an annual list of Best 100 Employers in terms of diversity.

The government will write to all institutional funds to highlight the importance of effective diversity and inclusion policies and the significant financial benefits of greater diversity in the workplace.

Comment

The factual findings of the review are probably unsurprising, and many of the recommendations will be uncontroversial. In light of the promised financial rewards for organisations that successfully become more diverse, business leaders may find it helpful to incorporate some of the recommendations into their organisational practices. However, with the government already making clear that it will not be legislating in this area, and with uncertainty on the horizon due to Brexit, businesses could be forgiven for prioritising other issues (such as the requirement for larger businesses to publish data on their gender pay gap. As Business Minister Margot James has said this week, it has taken 40 years of learning on gender issues before the current gender pay gap reporting regime was introduced; we can't help but feel that similar legislation requiring the publication of pay data by race is not around the corner.