Court Review of Ethnic Diversity and Inclusion

Foreword from the Chair of the Review

Sustained success for the Bank of England depends crucially on its people. That success requires diversity – a Bank that attracts and retains brilliant individuals, with a full range of relevant skills and experiences. And it requires inclusion – a Bank where every person, regardless of any personal characteristic, is welcomed and supported to build a fulfilling career and rise as far as their talents and ambition allow. This vision of diversity and inclusion in the context of the Bank is shared by the Bank’s Court as a unitary board and by the Review team alike. It will lead to better outcomes for the Bank, and better outcomes for the people of the United Kingdom.

Ethnic diversity and inclusion is a crucial component of this vision. The history of efforts to foster a more ethnically diverse and inclusive Bank predates the events of May 2020 and the murder of George Floyd. But while there have been efforts to improve, results have not matched expectations and progress has not been fast enough. The Review team has no criticism of past leaders or the initiatives they encouraged. We have learned over the past year that this issue has many dimensions and is intractable. And it requires more investment of resources to embed change than many in the Bank or outside realised. There is still a long way to go.

The formal aims of the Review are set out in our terms of reference.^{footnote [1]} But, more succinctly, they were simply to ask ourselves where exactly the Bank was falling short against the vision for ethnic diversity and inclusion, why the challenges exist and what the Bank needs to do to address them and accelerate progress. In particular, we felt our approach should differ from the past.

Court Reviews happen rarely at the Bank and this significance was enhanced with resource matched to the task, together with enough time to delve deeply. That included a dedicated Review team, supplemented by two experienced external advisors. The team were challenged to present, in an open minded way, an analysis of the issues that would satisfy the rigorous analytical standards of the Bank. We felt this was necessary to create sufficient impetus for change.

This is of course a highly charged moment for society more widely, with polarised debate on these issues. We make no attempt ourselves to position the Bank in that debate or to spend time on what labels to apply to the issues we have identified. Instead we want our energies to be targeted at working tirelessly, over what inevitably will be many years, to make genuine, sustainable progress towards our vision. We recognise that the Bank, as an important national institution, has to rise to the challenge.

The Review document that we publish today reflects these principles. And it represents a commitment to change.

While the recommendations are primarily targeted at achieving our ambitions in respect of minority ethnic colleagues, many of them are also intended to benefit a far wider population of employees at all levels. We also want to demonstrate that the Bank can change, where necessary, in ways that can benefit other groups too.

I have consulted widely in my role as Review Chair over the past nine months. I am left with an optimism that the great people across the Bank share Court’s vision of a fully diverse and inclusive Bank that they are proud to work for. And that they will want to play their own part in ensuring the recommendations from the Review are implemented, so that in time this becomes just the way the Bank thinks and acts.

Finally I want to pay tribute to the Bank’s minority ethnic colleagues, including the Bank of England Ethnic Minorities Network, who have provided the Review team with invaluable support, input and insights throughout. Thank you for your hard work, your commitment and most of all for your trust.

Diana Noble, Chair of the Review

July 2021

Executive summary

Context

Diversity and inclusion (D&I) is critical to the Bank’s mission. If the Bank is to succeed in meeting its objectives, it needs to attract and retain the best people and to reflect the society we serve. That requires a diverse workforce whose expertise and potential are nurtured by an inclusive working environment.

With this in mind, the Bank has launched many initiatives to enhance D&I in all its forms. These initiatives are set out in detail in the Bank’s Annual Reports and summarised in Box G. In the area of race and ethnicity, although the Bank’s past initiatives have been well-intentioned, they have not yielded sufficient progress. For example, the Bank extended the timing for its target for minority ethnic representation at senior management from end-2020 to end-2022.^{footnote [2]} This, along with feedback from the Bank’s Ethnic Minorities Network (BEEM) and other conversations that were prompted following the murder of George Floyd in May 2020, led the Bank’s Court (its governing Board) to commission a Review into Ethnic Diversity and Inclusion in September 2020.

Court Reviews at the Bank are rare and only employed to address issues of central strategic importance. After listening to colleagues’ views and witnessing slower-than-expected progress, the Governor and Court wanted to identify where the Bank was falling short of its objectives and to design more effective actions in response.

Our findings

Our Review found that, despite the Bank’s efforts, there were still material disparities between the collective lived experiences, career opportunities and outcomes of minority ethnic and White colleagues.

Our methodology consisted of analysis of HR staff data and recruitment data, analysis of 2018 and 2019 staff surveys, and research into initiatives undertaken in external organisations. Feedback from colleagues across the organisation, including from BEEM, provided additional detail. We recognised that no single source of data is perfect; instead we looked for common themes and acknowledged where we had less confidence in our analytical conclusions.

We focused on three main areas:

1. Employee life-cycle outcomes – the entire career experience from the Bank’s early careers programmes, to experienced hiring, to opportunities for high-profile work and projects, to progression within the organisation and leaving the Bank.
2. Lived experiences – the degree to which minority ethnic colleagues felt included and trusted the Bank on a day-to-day basis.
3. Frameworks and efforts to achieve racial/ethnic inclusion – the effectiveness of the Bank’s leadership in this area, governance, resourcing and accountability.

Employee life-cycle outcomes

In recent years, the Bank has attracted and hired an ethnically diverse range of applicants for its early career schemes, such as its graduate programme. And while it has also attracted an ethnically diverse pool of experienced-hire applicants, we found a ‘leaky pipeline’ in recruitment (see Box C): the share of minority ethnic candidates fell substantially between application and appointment.

After joining the Bank, White colleagues have tended to receive higher performance ratings. They have also typically been afforded greater opportunities for career development and progression than minority ethnic colleagues. Promotion rates for White colleagues, particularly those in more junior roles, were also generally higher than for minority ethnic colleagues. The level of pay and pay rises were equivalent for White and minority ethnic colleagues at the same pay grade. However, bonuses (measured as a percentage of base pay) were on average lower for minority ethnic colleagues than White colleagues. Most, but not all, of this bonus gap could be accounted for by lower performance ratings.

Minority ethnic colleagues were more likely to leave the Bank. That is not surprising given the disparities in their career experiences. These higher attrition rates, coupled with fewer opportunities and slower promotion rates, led to lower representation of minority ethnic colleagues at senior levels (Box G summarises the Bank’s progress against its representation targets).

These disparities in employee life-cycle outcomes were found to be common across all different minority ethnic groups.

Lived experiences

Minority ethnic colleagues generally felt that they were treated with respect. However, relative to White colleagues, many reported feeling less included and were less likely to believe they were treated fairly. Minority ethnic colleagues also tended to report lower levels of psychological safety and greater exposure to discriminatory or inappropriate behaviours.^{footnote [3]} And the Bank’s mechanisms for reporting inappropriate behaviours were not always trusted to operate in a safe way that would lead to appropriate action (Box E). Disparities in trust and psychological safety were more acute among Black/Black heritage colleagues (Box D).

There were some common themes relating to management culture which reinforced and perpetuated the outlined disparities in employee life-cycle outcomes and lived experiences. For example, the culture at the Bank means that D&I has often been underprioritised in favour of other work. This may have resulted in managers not generally identifying and seizing opportunities to disrupt inequalities, and not typically recognising when they were unwittingly contributing to unequal outcomes (see Box F).

Frameworks and efforts to achieve racial/ethnic inclusion

The Bank’s most senior leaders (Governors, Court and Executive Directors) often indicated their desire to make progress in racial/ethnic inclusion. However, the Bank’s overarching strategy for racial/ethnic inclusion lacked focus and clarity. Senior leaders and managers faced multiple, competing priorities. We also found a lack of follow-through from commitments to implementation and monitoring. Both central and business area resources were insufficient, with too great a load carried by minority ethnic colleagues themselves as volunteers in their spare time. The Bank’s leaders and staff were inconsistently and insufficiently held to account for their actions in advancing D&I. That may reflect a lack of clarity around responsibility and accountability for racial/ethnic inclusion across the Bank.

Our recommendations

To help set the Bank on a path, with momentum, to achieving its aspirations on racial/ethnic inclusion, we offer a series of recommendations (Table A). These seek to strike a balance between building on what already exists in the Bank (Box G) and new proposals. Our recommendations aim to address the causes of the Bank’s challenges rather than symptoms. To reflect this, the recommendations are, by design, interconnected and mutually reinforcing.

The Bank has had targets for minority ethnic representation at senior leadership level and across the organisation since 2014. Alongside the recommendations set out below, we have partnered with colleagues across the Bank, including members of BEEM, to design a new set of ethnicity targets. Our recommendations and proposed targets go hand in hand. Successful implementation of these recommendations are intended to help the Bank to eliminate the attrition gap by 2025, reduce the ‘leaky pipeline’ in recruitment and improve the relative promotion rate of minority ethnic colleagues.

Our report focuses on racial/ethnic inclusion. Nevertheless, many of the recommendations will also support improved D&I more widely at the Bank, together with management awareness and skills. The approaches and learnings from this Review could also be applied to other protected characteristics in the future.

This Review was conducted by a dedicated team reporting directly to Diana Noble, Non-Executive Director of Court. We benefited from feedback and challenge from a senior-level steering group (including senior Bank staff and external members of the Bank’s Court). Two external advisors (Tom Shropshire and Dr Doyin Atewologun, see below) also provided the benefit of their years of experience in racial/ethnic inclusion.

Tom Shropshire

External Advisor to the Review’s Steering Group

Tom has been widely recognised for his contributions to diversity and inclusion, both within his organisations and beyond. Tom is currently the designate-General Counsel and Company Secretary at Diageo plc, a leading FTSE company. Prior to his joining Diageo, Tom was a Corporate Partner at the leading international law firm, Linklaters. While at Linklaters, Tom was global head of their US practice (sitting on their Executive Committee) and co-head of the firm’s Risk and Resiliency practice. Tom was at the forefront of developing Linklater’s ‘Race Action Plan’, which established race and ethnicity targets for Linklaters and includes D&I coaching and reverse mentoring for Linklaters’ Partners.  More widely, Tom is a member of the steering group for, and was co-author of, the Sir John Parker Review into the Ethnic Diversity of UK Boards, is a Trustee of Comic Relief and has been recognised in the EMpower 100 Ethnic Minority Executives List, as well as one of the 100 most influential Black people in the UK by the Black Power List. For an insight into his views, please see his reflections on the Parker Review from earlier this year.^{footnote [4]}

Dr Doyin Atewologun

External Advisor to the Review’s Working Group

Dr Doyin is an internationally recognised expert on leadership, diversity, intersectionality and organisational culture. She has worked with many of the FTSE 100, United Nations agencies, legal and other professional services firms, and the UK Civil Service for over 15 years, adopting an evidence-based approach when working with business leaders to advance inclusion. She also acts as Inclusion Adviser on Regional Talent Boards for the NHS, and Academic Adviser on the Parker Steering Committee led by Sir John Parker into ethnic diversity on FTSE 350 boards. In June 2020 she was appointed Dean of the Rhodes Scholarships at Oxford University and the same year was made an Honorary Fellow of Trinity College. Prior to this, she was Director of the Gender, Leadership and Inclusion Centre at Cranfield School of Management. Doyin is a multi-award winner for her innovative methodologies in promoting inclusion and excellence. She has also won numerous awards for excellence in academic publications and was recognised in People Management magazine’s Top 20 Diversity and Inclusion ‘Power List’ for 2020. Doyin is the Director of Delta Alpha Psi, a niche leadership and inclusion consultancy.

This report and associated recommendations were approved for publication by the Chair of Court at the July 2021 meeting of Court, with full support of the Bank’s Governors.

Employee life-cycle outcomes

Our findings

In recent years, the Bank attracted an ethnically diverse range of applicants for both its early career schemes and more experienced roles. For example in 2019–20, 50% of the applicants to the Bank’s Graduate Scheme identified as being from a minority ethnic background. And the Bank had a strong positive brand image among students, with a recent survey of graduates showing that minority ethnic graduates rated the image of the Bank more highly than White graduates.^{footnote [7]}

Similarly, over 2019–20, 44% of experienced applicants to the Bank identified as being from a minority ethnic background. However, between application and appointment, the minority ethnic share of experienced hires fell to 29%. In contrast, on the Graduate Scheme the retention rate was much higher where 44% of the hires came from a minority ethnic background (having fallen from an original application share of 50%). Box C explores this ‘leaky pipeline’ in experienced hiring in more detail.

Between 2014 and 2019, staff at the Bank were assessed using a numerical ratings system based on their overall performance and demonstration of the Bank’s values. During this period, minority ethnic colleagues tended to receive lower performance ratings than White colleagues. They were also generally less likely to receive high performance ratings than White colleagues. This may be in part because minority ethnic colleagues have historically been provided with fewer career-advancing opportunities.

This inequitable allocation of opportunities tended to negatively impact other employee life-cycle outcomes, such as promotion rates and the likelihood of leaving the Bank. We found evidence for a dynamic similar to the one in Figure 1 (updated from one used at a major law firm) having played out at the Bank. Our deeper dive on managers’ experiences at the Bank corroborated our finding that opportunities tended to be inequitably allocated (explored more in Box F).

White colleagues at the Bank were, on average, more likely to be promoted than their minority ethnic counterparts, even after accounting for differences in performance ratings. This was particularly true for those at more junior levels. The difference narrowed at mid to senior management levels, with no statistical difference at those levels.^{footnote [8]}

We found no significant differences in the level of pay and pay rises between White and minority ethnic colleagues after we accounted for an individual’s pay grade.^{footnote [9]} Bonuses however, measured as a percentage of base pay, were significantly lower for minority ethnic colleagues. This was primarily, but not entirely, accounted for by lower performance ratings. This gap in bonuses has narrowed substantially in recent years, but still remained in 2020.

Over 2015–19 minority ethnic colleagues were 25% more likely to leave the Bank in a given year than White colleagues (a roughly 2 percentage point difference in attrition rate). Around two thirds of this gap can be explained by the fact that minority ethnic colleagues received lower performance ratings.^{footnote [10]}

During 2020, resignation rates across the organisation fell sharply, and the proportion of minority ethnic colleagues leaving the organisation dropped below that of White colleagues. However, this could in large part reflect the extraordinary circumstances of the global pandemic, and this shift may not be sustained without implementing the recommendations of this Review.

Figure 1: The opportunity cycle seen through the lens of race and ethnicity

These findings for performance ratings, pay, promotion rates and resignations were common across all minority ethnic groups. There were however some pockets of differences for Black colleagues. Across both the Graduate Scheme and experienced hires routes, the Bank attracts relatively fewer candidates coming from Black or Black heritage backgrounds relative to their representation in the population compared to, for example, minority Asian applicants. Black colleagues were also more underrepresented relative to other minority ethnic groups among those receiving a subset of the high-profile or career-advancing opportunities in the Bank.

Our recommendations

To be a true meritocracy, it is crucial that the Bank ensures a level playing field for all colleagues. We recommend that the Bank:

• Bolsters Bank sponsorship schemes supplemented with wider roll-out of local initiatives.
• Better integrates sponsorship, opportunities and talent management.

The role of managers is key in challenging a culture that can perpetuate inequalities in the allocation of opportunities and career advancement (see Box F). We therefore recommend that the Bank:

• Transparently holds managers responsible for allocating opportunities equitably and providing robust and fair performance management and ratings. This will be supported by data, checks and balances.

Our findings highlighted issues with recruitment processes at the Bank. We recommend that the Bank:

• Improves all recruitment practices to level the playing field – to address our findings that the share of minority ethnic candidates falls through the recruitment stages. This will, in turn, improve promotion rates of internal minority ethnic colleagues.
• Identifies and experiments with additional initiatives to specifically support minority ethnic applications.
• Increases efforts to attract a diverse pool of external candidates for all roles and reduces internal preference in screening – to ensure that among the proportion of jobs advertised externally there is improved diversity in hiring.
• Invests in strategic partnerships for senior management talent search – to address our findings that the share of external hires at senior levels is low and there is a lack of role models.

In application of the recommendations above, the Bank should pay particular attention to how these benefit different ethnic groups.

• Further increase efforts to attract and hire Black colleagues to early career schemes – to address specific shortcomings highlighted in our findings on attracting Black applicants.

We expect that improvements resulting from a combination of our recommendations should help to reduce the relatively high levels of resignation rates that we have observed among minority ethnic colleagues.

Lived experiences

Our findings

Staff survey results from 2019 showed that minority ethnic colleagues generally responded favourably when asked how they were treated at the Bank. But their responses were significantly less favourable than those of White colleagues. Many minority ethnic colleagues, in particular Black colleagues, felt less included at the Bank. And they were also less likely to believe that staff were treated fairly or received a fair allocation of advancement opportunities regardless of personal characteristics. White colleagues reported less exposure to discriminatory or inappropriate behaviours than minority ethnic colleagues.

Minority ethnic colleagues, on average, also reported lower levels of psychological safety. Only 65% of minority ethnic colleagues felt comfortable expressing controversial opinions or disagreement, compared to 76% of White colleagues, according to the Bank’s 2018 Cognitive Diversity and Inclusion Survey.

Lower levels of psychological safety and feelings of exclusion were found to be more acute among Black colleagues compared to other minority ethnic colleagues (see Box D). For employee life-cycle outcomes findings, however, Black colleagues’ experiences were similar to those of other minority ethnic colleagues.

Feedback from colleagues across the organisation, including from BEEM, pointed to instances of micro-aggressions. Micro-aggressions refer to small, everyday reminders that someone is not valued and/or they do not belong.^{footnote [12]} These include talking over someone in a meeting (Chart 1), taking credit for others’ work or making assumptions about someone’s capabilities or background on the basis of their race or ethnicity, for example.

Chart 1: Reported share of colleagues often being interrupted at meetings

Survey statement: I am interrupted when talking in meetings

Given their nature, these micro-aggressions often went unreported via the Bank’s formal reporting channels.^{footnote [13]} As a result, disproportionately more minority ethnic colleagues believed that managers never or rarely held colleagues to account for non-inclusive behaviours or micro-aggressions (see Box E).

There are some common themes relating to management culture which reinforce and perpetuate the outlined disparities in employee life-cycle outcomes and lived experiences. We delve deeper into these in Box E below.

Our recommendations

Our recommendations are intended to be mutually reinforcing. In particular, our recommendations designed to improve employee life-cycle outcomes should also result in improved feelings of inclusion and trust among minority ethnic colleagues. For example, greater minority ethnic representation and more minority ethnic role models at senior levels should reduce the sense of isolation that some minority ethnic colleagues reported feeling, thereby improving their lived experience.

Similarly we expect that our proposed ethnicity targets, specifically designed to address low representation of Black/Black heritage colleagues in mid to senior levels, will increase representation and role models for Black/Black heritage colleagues, thereby reducing the feeling of ‘being the only one’. That, coupled with better awareness of particular stereotypes affecting Black/Black heritage colleagues among staff across the organisation, should ensure a positive shift.

Our findings also highlighted instances of micro-aggressions and their persistence. To have a positive impact on the daily experience of minority ethnic colleagues, we recommend that the Bank:

• Improves understanding of the impacts of non-inclusive behaviour, including micro-aggressions – to address the need to improve the ability of both managers and staff to identify, surface and address micro-aggressions, alongside understanding the power of micro‑affirmations.^{footnote [14]}
• Ensures that all staff, including those observing or those directly impacted by non-inclusive behaviours or micro-aggressions, are encouraged and empowered to speak out.
• Embeds a culture of feedback and positive behaviour change.
• Improves reporting mechanisms and accountability – to hold up a mirror to micro‑aggressions and provide a safe space for colleagues.

Frameworks and efforts to achieve racial/ethnic inclusion

Our findings

The Bank’s most senior leaders (Governors, Court and Executive Directors) often indicated their desire to make progress in racial/ethnic inclusion, and launched numerous initiatives (Box G). For example, in 2019 they launched a BAME Taskforce, signed the Race at Work charter and committed to its five initiatives for change.^{footnote [19]}

Although it is clear that the Governor is ultimately accountable for progress on D&I, the Review found that responsibility and accountability for D&I more broadly had been unclear, including for race and ethnicity. This reflected a fragmented governance structure for D&I that grew organically over time as the Bank increased its D&I efforts. As a result, local business areas across the Bank reported different levels of accountability for their D&I action plans/strategies. And we found that local areas had inconsistently held colleagues to account for their demonstration of the Bank’s values and their behaviour.

More broadly, we also found scope for clarifying the Bank’s overarching strategy for racial/ethnic inclusion, and an inconsistent approach to prioritisation and success criteria. This means that the Bank, with good intentions, often implemented initiatives without outlining desired outcomes or a clear accountability and evaluation framework. This lack of follow-through in part reflected pressure on resources.

The Bank’s approach to D&I, including for race and ethnicity, seems to have been underresourced both centrally and locally. It has relied excessively on volunteers, often minority ethnic colleagues, from the Employee Networks and business areas, to deliver initiatives or review data. And there has been an inconsistent approach across different business areas. For example, some business areas had specific resource dedicated to D&I, others were dependent on volunteers to input in to the agenda, and others had no one focused on D&I.

Overall, the Bank’s progress on racial/ethnic inclusion can be examined through the lens of an organisational maturity framework. We assess that the Bank currently lies between Nascent and Learning stages (Figure 2), where this is recognised as a strategic priority with some good practices integrated into some business practices. This reflects an improvement compared to a decade ago when racial/ethnic inclusion had little recognition as a priority among leaders.

Figure 2: Bank’s current position in an organisational maturity framework for racial/ethnic inclusion

Our recommendations

An effective framework for governance, accountability and monitoring, evaluation and learning are key enablers for success of all recommendations set out so far. We recommend that the Bank:

• Develops a centre with greater and more senior resource with appropriate experience. This should focus on an evidence-based approach, partnering with the business areas through a full-time D&I lead in each of the five major business areas of the Bank.
• Holds Executive Directors accountable against targets with timely and granular management information, which is linked to their reward – addresses the need for clear accountability and builds on Executive Scorecards that the Bank is already rolling out.
• Ensures managers, in turn, are held accountable by leadership against expectations. This will be linked to their performance rating.
• Deploys a suite of mandatory inclusion training for managers, including Executive Directors and Governors, developed centrally and refreshed regularly – in order to support initiatives to both improve employee life-cycle outcomes (via inclusive recruitment) and lived experiences (via greater awareness of issues relating to race and ethnicity).
• Improves monitoring, evaluation and learning framework in place around all interventions, enabling piloting and experimentation – to ensure an ongoing learning loop for improvement.
• Creates a new framework of oversight regularly reporting into Court on progress – addresses the need to maintain momentum on this agenda until satisfactory progress is made.