"The reward is huge": the McGregor-Smith review on race in the workplace

MITIE Group PLC’s former chief executive, Baroness Ruby McGregor-Smith has published her review on race in the workplace, accompanied by the Government’s response to her findings. The Review makes a number of recommendations to improve diversity within organisations.

Racial diversity in the UK workplace and the economic impact of impaired participation and progression

In the Review, Baroness McGregor-Smith examines the factors which lead to the continuing under-representation of Black and Minority Ethnic (BME) groups in the corporate workplace, and the economic impact this has. As the Review makes clear:

“BME individuals in the UK are both less likely to participate in and then less likely to progress through the workplace, when compared with White individuals. Barriers exist, from entry through to board level, that prevent these individuals from reaching their full potential. This is not only unjust for them, but the ‘lost’ productivity and potential represents a huge missed opportunity for businesses and impacts the economy as a whole.”

In terms of the economic impact, the Department for Business, Energy and Industrial Strategy has estimated that “The potential benefit to the UK economy from full representation of BME individuals across the labour market, through improved participation and progression, is estimated to be £24 billion a year, which represents 1.3% of GDP.“ 

The Review also summarises the findings of academic research in the field which found that “organisations with high performance work systems (generous HR practices and policies) and equality and diversity management systems benefited from higher labour productivity, lower voluntary turnover and increased rates of innovation. The benefits were greater when there were equality and diversity management systems in place in conjunction with high performance work systems.”

Amongst the key findings are:

• the employment rate for ethnic minorities is only 62.8% compared with an employment rate for white workers of 75.6%
• in 2015, 1 in 8 of the working age population were from a BME background, yet BME individuals make up only 10% of the workforce and hold only 6% of top management positions. 

Recommendations

Baroness McGregor-Smith has made 26 recommendations to improve the current situation. These include the following:

• Published, aspirational targets: Listed companies and all businesses and public bodies with more than 50 employees should publish five-year aspirational targets and report against these annually. The review suggests that in setting these targets, organisations should consider the make-up of the area in which they operate
• Publicly available data: Listed companies and all businesses and public bodies with more than 50 employees should publish a breakdown of employees by race and pay band. A further recommendation is that legislation should be introduced to make such disclosure mandatory
• Board level sponsor: All employers with more than 50 employees should identify a board-level sponsor for all diversity issues, including race and who is held to account for the delivery of the aspirational targets. Chairs, Chief Executive Officers and Chief Finance Officers should reference what steps they are taking to improve diversity in their statements in the annual report
• Encourage employees to disclose: All employers should take positive action to improve reporting rates amongst their workforce, explaining why supplying data will improve diversity and the business as a whole
• Supply chains: Contracts and supply chains should be used to promote diversity, ensuring that contracts are awarded to bidders who show a commitment to diversity and inclusion

The Government response

Drawing parallels with the Davies Report and its positive impact on the representation of women on boards, in its response the Government  states that it believes that “in the first instance, the best method is a business-led, voluntary approach and not legislation as a way of bringing about lasting change” but that it “will monitor progress and stand ready to act if sufficient progress is not delivered“.

Business Minister Margot James has written to the chief executives of all FTSE 350 companies urging them to improve diversity and inclusion in the workplace.

In her letter, she called on the UK’s largest companies to take up key recommendations set out in the Review including:

• publishing a breakdown of their workforce by race and pay
• setting aspirational targets
• nominating a board member to deliver on those targets

Osborne Clarke comment 

The McGregor-Smith Review presents a compelling case for UK businesses to take active steps now to improve opportunities for BME workers. The Review recognises that overt discrimination is fairly infrequent but identifies that there is discrimination and bias “at every stage of an individual’s career, and even before it begins“. A starting point will be for employers to review any diversity policies currently in place.

However, in order to really identify and address bias that exists, it will be critical for businesses to understand the impact these policies make in practice, looking at the whole of the employment life-cycle from recruitment and beyond, to address any barriers to participation and progress by BME workers in their workplace. Providing opportunities for mentoring (including reverse mentoring with junior BME employees engaging with board members) and sponsorship are seen as key.

The policy response from the Government is in line with a number of other recent “race to the top” initiatives, including transparency in supply chains disclosure under the Modern Slavery Act which operates on a quasi-voluntary disclosure basis (although compliance is mandated by law, there are no penal sanctions for non-compliance). However, it is worth remembering that the new legal requirements for mandatory gender pay gap reporting, which come into force this April, started life as a purely voluntary obligation and with the Prime Minister’s stated vision for a post-Brexit UK economy that works for everyone, a lack of prompt and visible action from businesses may well encourage the Government to reconsider its approach.

Source: Race in the workplace: the McGregor-Smith Review and Department for Business, Energy and Industrial Strategy: Response to Baroness McGregor-Smith