Business leaders call on the government to make ethnicity pay reporting mandatory – it should listen

A diverse, fairly compensated workforce offers firms different perspectives that should help them better serve customers and profit from them. This is an open goal for the government, writes James Moore

Companies with diverse workforces are more profitable according to studies. But gender and ethnicity pay gaps hold them back (REX)

Businesses asking the government to swoop in and hit them with a new regulatory requirement backed by the force of law? Surely this can’t be true?

In any other year this would be a laughable idea but in 2020, which has been as weird as it has been woeful, this is the state of play.

The business leaders’ call, in a letter to the prime minister adroitly sent first to his favourite newspaper (that’s The Daily Telegraph), might feel like it’s in the “weird” category but it is decidedly not woeful.

Under the auspices of Business in the Community, they asked for ethnicity pay gap reporting to be made mandatory, along the lines of the annual gender pay gap reporting exercise we already see. The latter has sometimes embarrassed some very big companies, particularly those with predominantly female workforces.

Among their number were some heavy hitters. The chair of Barclays, the CEOs of Lloyds, NatWest, Nationwide Building Society, Network Rail,  the Co-op, country heads or heavy hitters from Shell, KPMG, PWC, WPP, Deloitte, EY,  Eversheds Sutherland, Linklaters, as well as leaders of the CBI, the TUC and the British Chambers of Commerce.

The signatories are either already reporting their own figures or are taking steps to do so voluntarily. But only just over one in 10 businesses do that.

Simply asking employers to do the right thing doesn’t work for most of them. The same was true of gender pay reporting. It took Theresa May biting the bullet and taking a rare good decision in the midst of a fairly dismal premiership to change that.

The next logical step is one the government should really have taken before now. It’s been on the table for a while, but the issue has unfortunately been left to fester in the long grass of Whitehall.

It is to be hoped that the letter prompts someone – business secretary Alok Sharma, perhaps – to jump in and find the proposals with a view to reheating them.

If businesses, and their lobby groups, ask for regulation, something they are not normally inclined to do, the government should really take them at their word. The fact that they are doing so in the middle of an economically devastating pandemic, well you do the maths.

“We know that this government cares about business and that you do not want to give us an impossible task when we are all facing such monumental challenges. However, our message to you today is simple: we don’t see this as a burden. We know that this works and that we can teach other organisations to follow our lead,” they say.

And no it’s not a burden. At least some of them will be aware of the McKinsey study of a few years ago that found ethnic diversity is an even greater driver of profitability than gender diversity, which itself results in a significant uplift to corporate performance.

But you don’t really need to see the study. It’s simply common sense: a diverse, fairly compensated workforce offers businesses diverse perspectives that should help them to better serve and profit from a diverse country. Britain is that, however much some of the government’s more regressive MPs and ministers would like it to be otherwise.

This is also, obviously, about fairness. According to the most recent official figures, the overall ethnicity pay gap in England and Wales was running at 2.3 per cent, but that masks some significant variations. It was, for example, 23.8 per cent in London where rates of pay are appreciably higher.

There are also differences between ethnic groups. A TUC study of a few years ago is worth bearing in mind here. It revealed that the gap for black employees gets wider the higher their educational attainments are. The numbers were less jarring when other groups were factored into the figures. This is something any legislation would need to pay heed to.

Of course, publishing the numbers is one thing. Making an effort to improve them is quite another, as gender pay gap reporting has unfortunately proved.

But making it compulsory did start a conversation. Here’s another one that needs to be had. Credit is due to the business leaders who signed the letter for recognising that.