Legal & General warns FTSE 100 firms over lack of ethnic diversity

The UK’s biggest fund manager haswarned FTSE 100 companies with all-white boards that it will vote against those that fail to diversify their leadership teams by 2022.

Legal & General Investment Management (LGIM), which has £1.2tn in assets, has also written to the bosses of S&P 500 companies in the US, saying it expects their boardrooms to include at least one black, Asian or other minority ethnic (BAME) member by January 2022 as well.

If companies fail to meet that target, LGIM said it would openly vote against the re-election of their chairman or the head of their nomination committee. About 37% of companies on the FTSE 100 and 8% of the S&P 500 have all-white boards.

“Our expectation is that companies set ambitions related to the ethnic composition of their organisation, throughout the workforce, with a particular emphasis at the board level, which generally sets the tone from the top,” LGIM said in its diversity plan document. “For companies that fail to meet our transparent and rules-based minimum expectations, there will be voting and investment consequences.”

It is the first time that LGIM – which holds a 2%-3% stake in nearly every FTSE 100 listed company – has flexed its investment muscle over a lack of ethnic diversity in boardrooms. The move is part of its response to the Black Lives Matter movement.

“We acknowledge that we have not advocated strongly enough on racial diversity to date,” the fund manager said. “The horrifying killing of George Floyd and so many others has led many institutional investors to think much more seriously about structural racism and inequality. At LGIM, we believe asset managers must go further – now is the time for action.”

LGIM said it would be engaging more “forcefully” with the companies in which it invests by demanding more transparency on race and ethnicity data, including companies’ ethnicity pay gaps, and pushing for inclusive hiring policies.

Its diversity targets will put further pressure on companies to meet voluntary goals set by the government-backed Parker review – which gave FTSE 100 companies until the end of 2021 to appoint at least one BAME board-level director, with FTSE 250 companies given until 2024 to do the same.

LGIM’s warning to firms, which was first reported by the Times, comes just days after the Confederation of British Industry announced the launch of a campaign to increase diversity at the top of UK business.

Aviva, Deloitte and Microsoft’s UK business are among the first signatories to the CBI’s Change the Race Ratio campaign, which will ask companies to publish their ethnicity pay gaps and set actual targets for the ethnic diversity of their executive and senior management teams within 12 months of signing up.

“The public reaction to recent tragedies of institutional and structural racism makes clear that society is increasingly unwilling to tolerate discrimination or corporate platitudes on race,” LGIM said. “This is why we are determined to accelerate and amplify our engagement on ethnic diversity.”