Diversity Matters: an Open Letter to the Insurance Board Chair

Dear Insurance Board Chair,

You have a problem: your Board is overwhelmingly likely NOT to be diverse enough, in fact, more likely than not to be not diverse at all. This is a business-threatening state of affairs in the 2020s, and as Chair, you have both the opportunity and the responsibility to change it. Look around that Board table — on Zoom or not. How many BAME Board members are looking back at you? My bet is at most just one. This piece makes the case for you as the Chair to be a powerful advocate for change, and effective helper for the firm by helping the business and its leaders turn a serious page, set targets, measure delivery —and make those results matter.

In 2017, the UK Government-commissioned Parker Review on the ethnic diversity of UK boards, set a target for FTSE boards to have at least one ethnic minority director: for FTSE 100 firms, the deadline is 2021; for FTSE 250 firms, 2024. 2021 is coming into view — so where are we? As Summer 2020 arrived, 37% of FTSE 100 boards remained all white, rising to 69% for FTSE 250 firms. Overall, ethnic minority managers make up just 10.7% of FTSE 100 companies’ top 100 staff, almost unchanged from 10.6% last year. Drilling down further, the percentage of black representation is dismal.

It is no stretch to see an even worse picture for the non-FTSE and independent firms who make up the bulk of firms (by volume) of the Insurance sector. Many insurers, brokers and consultancies wax lyrical about the importance of inclusion, many signing pledges and showing strong participation in DiveIn Festival, International Women’s Day, Pride and the like. The talent pipeline for diverse ethnic minority talent is arguably improving at the junior, mid-levels in the larger insurance organisations — small green shoots growing, albeit at a slow pace. On the other hand, the succession pipeline for board membership seems to be lagging seriously behind. There is a telling lack of ethnic minorities on board succession plans. Change at the board level is not just slow but hard to observe with the naked eye. Where is the diversity? That promised seismic shift of true balance and equity observable across all levels for ethnic minorities is just not there.

Feeling a bit of diversity fatigue? Be forewarned, more pressure for change and equity is gathering pace, and racial diversity and inclusion remain headline news. There will be more ‘Dear CEO …’ letters from the Prudential Regulatory Authority (PRA) and how long will promotion of diversity and inclusion (as in the UK Corporate Governance Code and UK Stewardship Code) remain voluntary for companies and investors? The momentum created by the Black Lives Matter movement remains an important factor in a recent trend of increased legal action by shareholders, which is impacting directors & officers (D&O) policies. A flurry of lawsuits have recently been filed in the US against major technology firms like Facebook, Oracle, Qualcomm alleging that the companies failed their fiduciary duty by not hiring black board members; and making misrepresentations about their commitment to diversity and inclusion.

Did you just make a mental note about the Business Case? The October issue of The Actuary magazine provides yet one more item for the ever-lengthening list: firms in the top 25% for ethnic diversity are 33% more likely to make profits above the industry average, and those with ethnically diverse boards are 43% more likely.

And what about the Risk Case? Let’s leave aside the war for talent that we are sleepwalking on, as other industries fight to employ the best people with an increasingly self-conscious effort to hire diverse talent. A diverse workforce is the best future-proofing for sustainable and profitable success: ensuring the firm both reflects and meets the needs of their diverse customer, and partner (e.g. broker) base means you can serve niche markets better, as well as attract, develop and retain the best people. Right now, 25% of primary school children in the UK are BAME: if those children are going to find their voice and flourish, and if we’re not to lose out on a quarter of future talent — and customers — we need to be creating more inclusive workplace cultures.

Excuses for lack of progress are roadblocks to change, and threaten the future of the firm from a variety of angles. As the Chair, it is not acceptable for you to be too busy to notice, to act or have better things to do. The risks of the firm not acting, virtue signalling or even not backing up sincere aspirations with focus and action are too big and important.

Acknowledge the facts, generate action. OK, but how?

It’s actually much more simple than you might think. The future is about transparency. We must set targets, we must track and measure and we should hold ourselves accountable, with full accountability at board level. Let’s turn a serious page, set targets, track and measure against delivery and make the results matter.

Dear Board Chair, I’m asking you to take action in two key ways:

• Help your firm join the ‘Change the Race Ratio’ Campaign
• Make it personal

Set targets

Unsure where to start? The new campaign from the CBI — Change the Race Ratio — kicks off by setting targets for greater racial and ethnic diversity at the Board, ExCo and ExCo minus one, with a commitment to publish both targets, and progress. This is a fantastic effort and Board Chairs should encourage Insurance firms to participate. The four commitments are:

• Increase racial and ethnic diversity among Board members, ensure there is at least 1 racially diverse board member
• Increase racial and ethnic diversity in senior leadership, and set targets
• Be transparent on targets and actions and publish them in annual reports
• Create an inclusive culture in which talent from all diversities can thrive such as recruitment and talent development and the ability to safely talk about race in the workplace.

For more information, go here https://www.cbi.org.uk/articles/it-s-time-to-change-the-race-ratio/

Dig deeper — get personal

Doing a few training courses on unconscious bias and inclusive language are helpful but not enough. Your Board needs a proper strategy, with enforceable targets and as Chair, you have the opportunity to make this happen. Here are some practical steps to push progress forwards in a meaningful way:

• Help the firm challenge its traditional ways of working and recruitment and really investigate the diversity of talent in the business.
• Advocate the creation of a pool of high-potential ethnic minority leaders as part of a cross-sector sponsorship programme across our industry.
• Ensure your Board Diversity Policy mentions ethnicity and sets measurable targets. Reward if they have been met and penalise if they have not been met.
• Is there ethnic diversity in your director succession planning. If not, why not?
• Be instrumental in ensuring that a pipeline of board-ready candidates is built.

Dear Board Chair, to accelerate progress — to make Diversity matter from the Boardroom and beyond — help the firm follow the well-known Rule of 5: Engage, Measure, Report, Recruit and Develop.

• Engage: insist that the Board engages constructively on this issue and report on the ethnic diversity
• Measure: ensure that the firm sets target, measures them and publishes the results
• Report: do as the Parker Review urges and ensure that the firm reports fully on their ethnic diversity policies and activities, as part of reporting requirements and in compliance with the Corporate Governance Code. Adopt the Review’s recommendations including for board appointment processes and the work of the nomination committee.
• Recruit: be active in asking for evidence that executive recruiters are really proactive in ‘marketing’ highly talented ethnic minority candidates, and in living voluntary codes of conduct, not just talking about them.
• Develop: encourage the firm to design, support and/or participate in a cross-sector sponsorship/mentoring programmes that focused on ethnic minority leaders and senior managers so that individuals are sponsored by CEOs through a well-structured and facilitated scheme.

So, I call on each of you as Board Chairs to get moving. This is not about prioritization. It IS already a priority. Take personal ownership, engage your entire board, set targets and get results. Make no mistake, the strength and success of your organizational identity, its culture, future, and not lastly, your balance sheet, depends on it.

Sincerely,

Maxine