In recent years, businesses have increasingly focused on environmental, social and governance considerations (“ESG”) with attention on the requirements for governance including discussions around how firms approach equality, diversity and inclusion.
On International Women’s Day 2021 (“IWD2021”), it’s clear that creating gender equality and a diverse and inclusive working environment is not only the right thing to do, but also often leads to improved internal decision-making, risk assessments, and problem solving.
Yet, as recent headlines have shown during the pandemic, stakeholders and regulators are repeatedly calling upon corporates to do more to ensure that gender equality, diversity and inclusion are principles that are fully embraced and integral to working practices, rather than perceived as a box ticking exercise.
The pandemic effect
The global pandemic has magnified some of the disparities in gender equality, diversity and inclusion in the workplace. Diverse groups, including women, ethnic minorities and working parents, are repeatedly reported as being significantly affected during the pandemic.
In particular, numerous reports have found that women are disproportionately bearing the additional burdens of home schooling and additional caring responsibilities, multitasking these responsibilities alongside their own obligations at work. As additional responsibilities at home have placed further stress on women, some have lost out on work or hours, whereas others have taken the difficult decision to leave the workplace altogether during the pandemic.[1]
In addition, since statistics show more women to be engaged in flexible working arrangements than men, they have also been more susceptible to employment cuts when businesses reduced overheads to ensure ongoing business survival.[2] Ultimately, the global pandemic has arguably reversed steps towards gender equality and greater diversity in the workplace.
It starts with the Board
This impact has happened at a time when businesses are urgently being called upon to make greater improvements in equality, diversity and inclusion, to encourage a more inclusive business culture, and to reflect greater diversity in decision-making and problem-solving roles.
In February 2020, Sir Jon Thompson, CEO of the Financial Reporting Council (“FRC”), commented that the UK’s record on board diversity was poor:[3]
“It is unacceptable that talented people are being excluded from succession and leadership simply because companies are failing to put in place appropriate policies on boardroom ethnicity, are not setting targets or are not monitoring their progress against policies.
“A more diverse boardroom leads to better business outcomes”
Earlier this year, the Financial Conduct Authority (“FCA”) also announced its desire to mainstream diversity and inclusion practices into regulatory processes recognising the important role that senior management had in taking this forward:[4]
“Leaders have a very important part to play – one small mis-step from a senior person can undermine a brilliant strategy and years of action. Being a strong leader means creating an environment where employees feel listened to. And a culture that encourages both speaking and listening up.”
Georgina Philippou, Senior Adviser to the FCA on the Public Sector Equality Duty
Companies are also coming under pressure from investors to improve the diversity and inclusiveness of their boards, with investors recognising that a more diverse and inclusive environment offers significant benefits for corporate problem solving, and that gender, ethnic and cultural diversity, inclusion and performance are interrelated.[5]
Considering the evidence
McKinsey’s report, Diversity wins: How inclusion matters, found that a more diverse organisation is likely to bring greater performance. It reported that companies with more than 30% women executives were more likely to outperform companies with 10%-30% women executives, and they, in turn, were more likely to outperform those with less than 10% women executives. The research noted that women often applied more leadership behaviours, including inspiration and participative decision-making, helping to address some of the challenges faced by businesses.[6]
A report from S&P Global also found that women represent the most underutilised source of growth and that increased female labour force participation could potentially draw US$5.87trillion to global market capitalisation in 10 years.[7] It noted that firms with female CEOs and CFOs have produced superior stock price performance, including a 20% increase in stock price momentum, compared to the market average.[8]
Ensuring a robust compliance culture
Crucially, equality, diversity and inclusiveness are also recognised as being significant in developing a robust compliance culture within a business. Inclusive decision-making brings together different expertise, experiences and viewpoints. This helps to examine issues more comprehensively, assess risks appropriately and encourages others to speak up, which can ultimately all help to drive better business performance and an inclusive and compliant culture.
The compliance function has an integral role to play in advancing gender diversity in the workplace by helping ensure that these concepts are not simply treated as check-boxes, but as meaningful values that are fully and genuinely embraced across a business’ operations, helping to build a company culture of participation and engagement.
The compliance team can help with this process by:
- ensuring that diversity and inclusion initiatives are fully embraced across a company rather than solely at recruitment;
- encouraging active engagement and inclusion at all levels; and
- advocating for resources to help develop diversity initiatives.
All of which ultimately helps to establish a robust and inclusive business culture.
Moreover, for businesses that embrace greater diversity, there are significant benefits with reports frequently finding that greater diversity across a business leads to better decision-making, more comprehensive problem solving, improved risk management and improved corporate governance.
IWD2021 and beyond
In conclusion, a diverse and inclusive business culture helps employees feel safe, promotes a comfortable environment in which to work, and provides better opportunities for decision-making and problem solving.
Corporates that recognise the value of equality, diversity and inclusion will ultimately enhance their business culture, leaving the business better equipped to tackle problems, respond to risks, and help establish improved corporate governance across business operations.
[1] The Fawcett Society, Equal Pay Day: UK at a “Coronavirus Crossroads” On Gender Equality, 20 November 2020, https://www.fawcettsociety.org.uk/news/equal-pay-day-uk-at-a-coronavirus-crossroads-on-gender-equality
[2] BBC, “Why this recession disproportionately affects women”, 27 October 2020, https://www.bbc.com/worklife/article/20201021-why-this-recession-disproportionately-affects-women
[3] Financial Reporting Council, “Most UK companies’ approach to board ethnic diversity is unsatisfactory”, 5 February 2020 https://www.frc.org.uk/news/february-2020-(1)/most-uk-companies%E2%80%99-approach-to-board-ethnic-divers
[4] Financial Conduct Authority, “Why does the FCA care about diversity and inclusion?”, 28 January 2021, https://www.fca.org.uk/news/speeches/diversity-inclusion-why-does-fca-care
[5] S&P Global, How Gender Fits into ESG?, 24 February 2020 <https://www.spglobal.com/en/research-insights/articles/how-gender-fits-into-esg>
[6] McKinsey, “Diversity wins: How inclusion matters”, 19 May 2020 https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters
[7] Ibid.
[8] S&P Global, How Gender Fits into ESG?
