Diversity is great – but quotas for corporates are not the right answer
THERE are only ten individuals from ethnic minority groups among the 289 top executives at FTSE 100 listed companies, a study by Green Park Diversity Analytics has found. Chuka Umunna, the shadow business secretary, is accordingly threatening that Labour would introduce quotas to get more minority directors on boards.
Given the campaign for more women on boards – endorsed at the European level and by the Davies report in the UK – it is surprising that it has taken so long for the same argument to be applied to other under-represented groups.
A common view is that, as the Guardian headlined the story, the “Diversity deficit robs top firms of business opportunities”. It is true that companies operating in world markets, and in multicultural Britain itself, need to be aware of what is going on outside their front door to keep abreast of a world changing faster than ever. And in a society which values fairness and equal opportunity, we must ensure that prejudice and discrimination are not holding people back.
Nevertheless, Umunna’s quota proposal is bad policy. Why assume that businesses operating in cut-throat markets are so blind to their own interests that they need interference from government to recognise talent? UK companies, for example, have already shown their openness to foreign-born executives on a much more marked scale than other countries.
Further, top FTSE firms occupy a particular position in the economy, which places huge intellectual, physical and personal demands on their executives and board members. Few can, or want, to undertake such a role. Many ambitious people prefer to work in unlisted businesses (including family companies), where women and minority owners and executives are much more common, to be self-employed or to take professional or public sector roles.
The danger is that, with the best of intentions, governments set unrealistic objectives and timetables, and intrude more and more into corporate recruitment. While the imposition of quotas for women is more or less manageable – although Norway’s experience suggests that the short-run talent pool disproportionately consists of academics and ex-civil servants – applying further quotas would be a nightmare given the diversity of our population. How can a board of moderate size ever truly be representative? In any case, having a Chinese board member need not give any greater insight into the Latin American market.
Practically, who should count? The discussion around the issue has largely equated ethnicity with skin colour, but we have large Polish and other white minorities to whom the arguments also apply. And in a country where growing numbers of people are from mixed backgrounds, must people self-identify, or (heaven help us) will there be a rule on ethnic identification?
It is reasonable to seek greater diversity in publicly-representative bodies, but private enterprise has different issues. Given that most ethnic minorities and women now outperform white British men at university, we can expect a significant change in board composition in the future. But if artificial requirements are placed on firms, their efforts will be diverted towards goals other than the interests of their shareholders and customers.
Len Shackleton is professor of economics at the University of Buckingham and economics fellow at the Institute of Economic Affairs.