Incorporating talent strategy, diversity and inclusion into your company culture

Our Reporting Matters 8 research reveals the findings of our research into key investor themes that the largest 40 companies by market capitalisation in the FTSE 250 are reporting on in terms of people and culture.

This year, the Luminous Strategy and Insight team analysed the stewardship reports of the largest 20 institutional investors to understand the cut-across themes in relation to people. The findings provide a comprehensive picture of investor priorities and expectations, and offer unique insights into how investee companies are meeting those expectations.

As one would expect, most companies in our sample explain their approach to human capital, including how the Board engages with the workforce and monitors satisfaction. Unsurprisingly given the Great Resignation which, according to research from independent consultancy Barnett Waddingham, has affected 85% of UK employers, the narrative is typically framed around the commitment to an inclusive and rewarding culture, as evidenced by the number of companies that report initiatives to promote diversity and talent development.

We also found diversity generally skewed towards gender, reflecting the fact that ethnic and other diversity data is only starting to be collected. Disappointingly, almost half of companies don’t even mention ethnic diversity in the workforce and only three companies in our sample disclose their ethnicity pay gap. Lastly, while investors are looking for companies to increase productivity, the priorities for companies appear to be talent retention and maintaining existing levels of productivity as they transition to hybrid working, suggesting that there might be scope for tension.

Our findings

• Over half of companies (55%) have appointed a designated NED to represent their workforce, but only about one-third (38%) provide a detailed explanation for their choice, despite a sizeable minority (18%) having chosen an alternative arrangement to the three core options in the UK Corporate Governance Code, which requires them to explain their rationale
• The vast majority of companies (95%) explain how their Board engages with the workforce, but only two-thirds (65%) disclose the outcome of these engagements and only 8% monitor employee satisfaction using external metrics such as Glassdoor
• Almost half (48%) of companies provide a detailed explanation of their talent strategy, but less than one-quarter (23%) have set KPIs for targets, and almost one-third (30%) don’t mention the impact of the COVID-19 pandemic on flexible working policies
• Most companies (93%) claim to have invested in training and development, but only 15% provide a detailed explanation including hours of training and rate of promotion
• While laudably, two-thirds of companies (66%) have set employee-related KPIs, with almost half (48%) linked to executive remuneration, these typically don’t include diversity and one-third (32%) don’t consider employees in their KPIs at all
• A majority of companies (78%) have a stated aim to increase gender diversity in the workforce, but only one-quarter (25%) have set timebound targets
• Only 13% provide a detailed policy, including timebound targets, for increasing ethnic diversity in the workforce, and almost half (45%) don’t even mention ethnic diversity

Best-practice considerations

• Explain your talent strategy, including diversity and inclusion and career development, and how the Board monitors employee satisfaction
• Be transparent about your policy choices and explain your rationale
• Set timebound targets to increase credibility and enable investors to track progress
• Consider your definition of diversity

At our launch event on 20 July, Luminous’ Stephen Butler, Investor Engagement & ESG Disclosure Director, Rachel Madan, Sustainability & Impact Director, and Nina Kefer, Senior Consultant, along with Claudia Chapman, Head of Stewardship at the FRC, and Lindsey Stewart, Director, Investment Stewardship Research, shared the outcomes of our Reporting Matters research. They also offered practical advice on defining, reporting and engaging around ESG strategy, as well as how to integrate ESG in your Annual Report.

If you would like to access the recording and slides from our event, please get in touch.