Rethinking diversity: Boards must overcome DEI slowdown to fulfill the expectations of a younger workforce

Workplace diversity has become the victim of inertia. Many businesses – despite admirable intentions – are suffering from DEI fatigue, with leaders and employees becoming burned out or blasé thanks to a production line of diversity initiatives. Added to this, at many companies DEI investment has been among the victims of post-pandemic economic uncertainty. Programs have been shelved, while research by LinkedIn has shown a decline in Chief Diversity Officer hires since 2021 due to growing financial stress. 

The most apparent result of this is that many are struggling to broaden diversity in middle management. 

While the slowdown in diversity progress is understandable, it is no less vital than ever that businesses drag themselves out of the DEI quagmire and continue to drive forward. Diversity is a necessary component of success across all sectors, and for B2B and PE as much as consumer-facing businesses. There are proven financial performance benefits of leadership that reflect its customers. And perhaps most crucially, diversity is a differentiator in the competition for talent. Gen Z, a rapidly expanding workforce demographic, has high expectations for potential employers to demonstrate good DEI performance.

The Parker Review - more to do

The latest update from the Parker Review found that while 90 of the FTSE 100 and over 60% of FTSE 250 companies have met the target of having an ethnically diverse board member, the ‘one and done’ approach is insufficient to drive further change. The report said: “The arrival of a minority ethnic director can only have a limited impact on the culture of the company as a whole”. 

This is underlined by the fact that despite progress on board diversity, the C-suite is following suit more slowly. Based on data received from four-fifths of the FTSE 100, the Parker Review found that 13% of these companies' senior management was comprised of ethnic minority executives, with the figure for FTSE 250 companies at a similar 12%. The Review noted that an average 17% of the UK population comes from an ethnic minority background, though this figure is higher in younger age groups. 

The Review added: "The data indicates that the percentage of directorships held by Asian individuals is roughly proportionate to their representation in the UK population. It also indicates that the Black community is not proportionately represented at senior levels of business if we compare our numbers with Black representation in the UK population as a whole." 

Ethnic diversity should not be the only goal, of course. Certain other types of diversity, notably disability inclusion, are lagging behind other areas. One-fifth of people worldwide live with a disability or long-term condition, but there remains no visible representation in corporate leadership, with only one current FTSE 100 NED having a declared disability.

Reignite the DEI agenda or lose the talent war

Failure to achieve meaningful diversity will become increasingly damaging, as organizations without authentic DEI initiatives risk being left behind in the competition for talent. A lack of authenticity in this area is guaranteed to result in higher attrition rates among both younger and diverse employees. Across the next decade, Gen Z will become the largest workforce demographic, alongside the distinction of being the most diverse and best-educated generation to date. These are high-conviction individuals who value diversity in the workplace – and will hold employers accountable for nurturing it.

We see from Heidrick’s own data, verified by feedback from clients across all sectors and multiple geographies, that hiring and retaining younger talent is already a significant challenge for businesses. To meet it, they must deliver on the diversity expectations of the incoming generation of employees by creating intentional, inclusive career pathways for a broadly diverse workforce.

Time for action, not target practice

The current stall in meaningful progress on existing initiatives runs the risk that diversity will have little impact if those individuals are not also supported by a culture of inclusion – while a façade of improved diversity stats will further delay authentic progress in this area.

Momentum on DEI is being lost just when businesses need it most. Now is the time for a more exact definition of what diversity and inclusion mean, and how they are measured. More impactful goals will help to move the needle further – such as the FCA and PRA’s proposed framework for financial services companies that incorporates disclosures on eight different diversity measures; targets to address under-representation; and DEI strategies on how to meet these objectives.

Meeting diversity targets has a knock-on effect, reflected in the Parker Review’s assertion that greater board ethnic diversity leads over time to increasing focus on ethnic diversity throughout the pipeline. In order to achieve progress against effective DEI targets, companies need to make three-dimensional hiring decisions – as well as looking at candidates’ career backgrounds, skills, and cultural fit, they should consider diversity in all its forms and how it improves the organization’s understanding of different sectors of society. This involves abandoning the path of diversity for diversity’s sake, leading to DEI burnout and trading inertia for inclusion.