Recession is no excuse for going backwards on diversity

At a recent conference on creating opportunities for diverse talent, chaired by the Financial Times, Conservative peer Lord Shinkwin warned that “whatever the rhetoric, to dismiss equality, diversity and inclusion as somehow part of the woke agenda is to reverse the face towards equality of opportunity”.

His words were echoed by Jonathan Geldart, director-general of the Institute of Directors, who added that “in the face of economic uncertainty there is a risk that the progress made in recent years will be eroded”.

This threat feels very real as the UK approaches recession. The slow but clear progress that has been made in recent years in areas such as gender pay and diverse representation on boards, as well as corporate governance and the environment, is now seen as at risk.

The CBI, Britain’s biggest business group, last week raised concerns from its members that policy progress on green issues was going backwards, linked to a government seen by some as cooler on climate change than previous administrations.

Indeed, the government’s actions are under scrutiny. In September, Jacob Rees-Mogg shocked many in the business community when – during his brief tenure as UK business secretary – he floated the prospect of slashing gender pay reporting under the guise of removing burdensome employment rights.

There were similar sentiments behind a recent letter from 40 MPs to the chancellor, Jeremy Hunt, calling for cuts for allegedly “woke” causes – as The Daily Telegraph reported – such as equality, diversity and inclusion, given cost constraints facing the public sector.

“Woke” in such a context is a politically charged insult, but it means something in the wider context of a weak British government and a spending crisis.

Positive words and actions from leaders, in parliament and business, create the background and driving force that leads to change, such as gender pay reporting. Backsliding on these makes it more difficult to resume momentum in the future.

Many companies see the need to maintain a focus on inclusion and ESG in the workplace, but the voices complaining about the resulting costs and time burden are getting louder.

A recent report by Tulchan Communications which compiled the thoughts of FTSE chairs was heavy on complaints that “box-ticking” exercises by investors were putting corporate growth at risk.

One chair even said that “the public company model is broken” because “70 percent of [board] agenda is usually governance and regulation. . . Directors have to worry about whether their pay gap has gone up or down and what that might mean and what will be written about it in the Daily Express.”

Given the anonymized answers in the report, we can assume the respondents are telling the truth. This particular chair may be on the fringes of what most boards believe, but arguing about the gender pay gap as part of a wider tirade about governance feels like going back about a decade.

What bothers those in the boardroom is unlikely to bother many of their employees, who are likely to face inflationary wage increases. Women, as well as disabled people and people from ethnic minorities or less affluent backgrounds, are often among those paid less on average, according to the Office for National Statistics and academics.

Companies that adopt the highest levels of diversity and inclusion also tend to have higher productivity and performance, which will be crucial throughout the difficult months ahead.

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According to McKinsey research, companies in the top quartile for gender diversity were 25 percent more likely to experience above-average profitability. In terms of ethnic and cultural diversity, it found that the most diverse companies fared by at least a third in profitability.

Analysis from the Boston Consulting Group showed a strong correlation between the diversity of management teams and overall innovation. Anthony Painter, of the Charted Management Institute, says that all the “evidence shows that different organizations are best placed to reap the benefits of higher productivity and better decision-making”.

The UK should consider expanding its reporting requirements to include mandatory reporting on ethnicity and disability. Data is essential for industry benchmarking as well as showing problems that need to be solved.

Many companies focus on these areas because they see the benefits. They don’t need public railings when employees, customers and shareholders demand progress. But others may see a recession as an excuse to avoid action.

If the government cannot give a head start when it comes to progress on diversity and inclusion measures that work, then business must.

Wise leaders think about what their successors want them to do for the future, not what they can do for short-term cash flow. The “anti-woke” group of MPs are right that money will become more limited as the UK goes into recession. But it makes focusing on areas where progress can easily be lost more important if the business is to emerge at its most productive and fair.

dan.thomas@ft.com

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