DE&I View - December 2022

As the end of 2022 fast approaches, our third D&I View looks at the main diversity and inclusion developments from the last quarter.

It is important that all organisations, when looking at D&I initiatives and/or their approach to data collection, consider their approach within the context of the applicable legal frameworks (including the Equality Act and data protection legislation).

1. FCA review on understanding approaches to D&I in financial services

In an important recent development published this week, the FCA has presented its findings on how regulated financial services firms are designing and embedding D&I strategies. The review's goals were to:

• Give firms and others a picture of the current position, allowing leaders to consider where initiatives might be relevant in their own firms.
• Encourage further industry action.
• Help the FCA develop a supervisory approach as the basis for future engagement with firms.

The FCA's key findings from the firms that were consulted are the following:

• Firms have focussed on addressing gender representation. Ethnicity has started to receive more attention, but other demographic characteristics receive less attention.
• There has been a tendency to focus on improving diversity representation at senior leadership level. Doing so in isolation risks creating a culture where firms attempt to 'poach' diverse senior talent rather than develop their own pipelines, which is unlikely to bring meaningful, long-lasting change.
• D&I strategies are not consistently based on a clear diagnosis of specific circumstances and challenges. Firms are also not systematically tracking the effectiveness of these measures and initiatives, which limits their understanding of what works.
• There is wide variation in data quality. Firms with better diversity data had a better understanding of their position and were better placed to decide which actions to take.
• Poor data quality also affected firms' abilities to carry out intersectional analysis to understand the experiences of different groups.
• Specific initiatives adopted by firms included a number that the FCA felt were likely to have a positive effect, but in some firms there was an overreliance on measures that, although important, would not on their own bring about the systemic change needed (eg training, network groups and allyship).
• It was unclear in many cases how, in practice, senior managers were accountable and D&I goals affected pay and bonuses.
• Firms that are part of international groups had generally adopted a group-wide international strategy. These firms typically had less ambitious and well-defined strategies and were often reliant on global, rather than UK-specific, data.

The FCA has encouraged all regulated firms to consider these findings and use them to assess their current D&I strategies and practices. You can find out more here.

In scope firms will no doubt want to engage with the D&I consultation paper when published.

2. Gender balance on boards

The European Parliament has finally adopted the Directive on gender balance on corporate boards, a proposal on gender balance on company boards that was first tabled ten years ago. Once published in the Official Journal, the Directive will enter into force 20 days after publication and Member States will have two years to transpose its provisions into national law. By July 2026, large publicly listed EU companies will need to have 40% of the under-represented sex among non-executive directors or 33% among all board directors. They will also need to ensure their recruitment processes and appointments to board positions are transparent and that candidates are assessed objectively based on their individual merits, irrespective of gender.

The news of the new directive, which aims to shatter the glass ceiling that prevents women from accessing top positions, came in the same month as Cranfield School of Management published its Female FTSE Board Report 2022. The report finds that, while progress is being made on gender balance at board level, the most significant rise has been in the number of female non-executive directorships. Across the FTSE 250, only 47 women hold executive directorships (12.1%), a figure that has failed to increase for the past three years.

3. D&I in financial services -- speech by the FCA's Sheldon Mills

In a recent speech, the FCA's Sheldon Mills (Executive Director, Consumers and Competition) highlighted how a more diverse and inclusive financial services industry will further the FCA's objectives. Mr Mills described D&I as a two-sided problem: (1) internal representation within firms, and (2) the external side - having sufficient knowledge and understanding to serve a diverse society well. The FCA reminded firms that D&I goes beyond race and gender, and includes social mobility, class, levelling-up and the intersectionality of all of these.

Following the joint regulators' discussion paper on D&I in the financial sector, it was suggested that the much anticipated D&I consultation paper will be published next year. In the meantime, firms can continue to work in this space given the progress needed. The FCA highlighted the benefits of collecting and using good D&I data (on more than just visible diversity). Firms are also expected to actively monitor data and address areas requiring intervention. Mr Mills also observed that D&I strategies are foundational in focussing minds and driving action across firms.

4. Protection from Redundancy (Pregnancy and Family Leave) Bill

On 21 October 2022, the Government announced it would back the Protection from Redundancy (Pregnancy and Family Leave) Bill. The purpose of the bill is to give pregnant women and new parents greater protections from redundancy. Under current rules, employers must offer suitable alternative vacancies where they exist to employees on maternity leave, shared parental leave or adoption leave before redundancy. The new bill will extend this redundancy protection to pregnant women and new parents returning to work from a relevant form of leave. You can follow the progress of this bill here.

5. Collecting socio-economic data -- FSSC publishes guidance

The Financial Services Skills Commission (FSSC) has published best practice guidance on collecting socioeconomic background data. The FSSC highlights that 9 in 10 senior roles in financial services firms are held by people from higher socioeconomic backgrounds, and there is a £17,500 class pay gap across the industry. New research published by the Social Mobility Foundation found the class pay gap means working class employees work an average of one in seven days for free.

6. Intersectionality

Following a collaboration with the London Business School on creating more inclusive cultures in financial services, the Financial Services Culture Board (FSCB) has published advice on how the concept of intersectionality can be applied within the workplace. Intersectionality is an analytical framework based on the idea that different elements of a person's identity (eg race, gender, sexual orientation) intersect, leading to different individual experiences. The FSCB reports that an understanding of intersectionality is key to designing effective D&I initiatives as discrimination is experienced in nuanced ways. The recommendations include:

• Disaggregating data and incorporating intersectionality into analytics.
• Factoring intersectionality into recruitment initiatives.
• Considering the benefits intersectionality can bring to informal workplace social networks.

7. FSCB Employee Survey

Last month the FSCB published its seventh annual Employee Survey Results. The report's key findings shows that sustained improvement has been made across all firms in scores relating to leadership, taking responsibility, and speaking up and being open to challenge. The proportion of employees that said they felt comfortable challenging a decision made by their manager rose from 74 to 81% from 2016 to 2022. The scores on personal resilience and wellbeing have increased since 2020, and a similar change can be seen in the way employees describe their firms ('supportive' and 'inclusive' ranking most highly). The FSCB notes that the questions on personal resilience and wellbeing were answered slightly more positively from those who reportedly worked mainly from home than those who worked primarily on-site at a work location. In contrast, the questions on personal resilience and wellbeing evidenced the largest gap in responses between those who say they have a disability and those who do not, with the former group answering more negatively.     

8. Support throughout pregnancy and loss - a report from the CIPD

The CIPD has published Workplace Support for Employees Experiencing Pregnancy or Baby Loss, a survey report urging employers to create more compassionate and inclusive cultures. The report finds that only 25% of employees who have experienced pregnancy or baby loss received paid compassionate or other special leave from their employer. Aside from paid leave and formal policies, the CIPD also recommends that employers provide specialist training to management in handling sensitive issues and paid time off for affected employees to attend necessary appointments.

9. Enforcing anti-discrimination laws in the workplace

The TUC has warned that too many workers are still experiencing discrimination in the workplace and urges employers to ensure they have robust zero-tolerance policies in place. This statement follows a recent briefing note by Resolution Foundation on policing prejudice and enforcing anti-discrimination laws in the workplace. One in five 18-65 year olds are reported to have experienced discrimination at work or when applying for jobs over the last year, with discrimination on the grounds of age and sex being the most prevalent. Higher-paid workers, those earning £40,000 or over, are almost twice as likely to take their employer to court than those earning under £20,000, despite lower paid earners being twice as likely to report feeling anxious about discrimination.

10. Menopause in the workplace

The All-Party Parliamentary Group on Menopause (APPG) has published a report on the impacts of menopause and the case for policy reform. As menopause is not on its own a specific protected characteristic under the Equality Act 2010, the report notes that it can be easy for employers to overlook their obligations towards those experiencing menopause. The APPG calls on the government to:

• Organise and support an employer-led awareness campaign, recognising menopause as a core employee health issue and promoting the business case for investing in support.
• Update and promote best practice guidance on menopause policies and supporting interventions, including economic justifications and productivity benefits of such interventions.

We hope you enjoy the holiday period and we look forward providing you with further updates in the new year. In the meantime, for more information on any of the points covered please contact Fiona Bolton or Lauren Dickinson.