London's got talent

London Essays – Issue 7: Work

London's got talent

Unfortunately, businesses often don’t hire it. To ensure fairer recruitment, we should focus on SMEs.

By Peter Cheese and David D’Souza

When we think of cities we tend to think of tall buildings and busy roads. But the wealth of cities derives from the people they contain: London is as successful as it is because it manages to grow, attract and retain talented workers. Yet too many of its employers fail to make the most of the talent around them – which is bad from the point of view of equity, but also bad from the point of view of business effectiveness. If London is to continue to complete globally, its organisations need to get better at identifying, recruiting, developing and rewarding the talent around them, regardless of background.

Fortunately, City Hall has increasing influence over London’s economy. The Chancellor’s latest budget signalled that City Hall might have greater say over careers and employment support services. The Mayor is in a good position to improve the way employers approach recruitment, remuneration and workforce development, so creating both a fairer and a more prosperous city.

Vast and diverse

London is one of the world’s truly global cities. Its economy represents 20 per cent of the UK’s GDP, making it larger than the economy of Sweden. It is the world’s leading financial trading centre and one of its most diverse cities, home to more than 8m people, including more than 50 national or ethnic communities whose populations number more than 10,000. According to the 2011 census, around 45 per cent of Londoners were British nationals while 37 per cent were born outside the UK, with almost 25 per cent from outside Europe. This is an amazingly rich and diverse base of talent and skills, yet organisations don’t always make the most of it, with women and ethnic minorities in particular tending to be underemployed and underpaid.

The opportunities for women and BAME workers have barely improved over the last couple of decades, with ethnic minority unemployment rates in London consistently running at twice the rate of white unemployment. Recent research by the Learning and Work Institute suggests that BAME applicants to apprenticeships are half as likely to succeed in their application. New requirements for gender pay gap reporting, and calls from the recent McGregor-Smith Review for similar reporting on ethnicity, will undoubtedly shine more of a spotlight on diversity. We expect the figures to show that progress remains slow.

What, then, could the Mayor do to address the issue? He should start with a focus on London’s small-to-medium-sized organisations (SMEs). While global multinationals with bases in London are highly visible, the reality is that most people in London work in SMEs of 250 or fewer employees.

This is also where the city’s jobs growth has been in recent years. According to BIS data from early 2016, around 60 per cent of people now work in SMEs, with more than half of those working in microenterprises of up to nine employees, which account for 96 per cent of all businesses. As many as 17 per cent of all employees are now sole proprietors or in self-employment, whether by choice or of necessity.

If we are to create better workplaces and opportunities for all, then we have to understand small businesses. Large corporates already have significant capabilities in HR and are able to invest in the training and development of their people. We should challenge them to improve accountability, transparency and practice, but this will come primarily through the influences of policy and stakeholder pressure, particularly from financial stakeholders.

Name-blind recruitment

Over the last 18 months, the CIPD, with the support of the J.P. Morgan Foundation, has been piloting high-quality HR support to SMEs without dedicated HR capabilities or the scale to do much beyond meeting their basic needs. Set up as the People Skills service, this has looked at how to make best use of talents, how to engage with and recruit young people, and how to improve people-management practices. One of the pilots was in Hackney in collaboration with Hackney Council, and the others took place in Stoke-on-Trent and Glasgow.

In general, the findings reveal a number of challenges. SMEs frequently lack the experience or confidence to manage their staff effectively, and the role and beliefs of the owner-manager dominate management attitudes and practices. There is no doubt that some do a great job of managing people, are often highly innovative, and could teach large businesses a thing or two. But running a small business, particularly in uncertain economic conditions, is challenging. Busy leaders under pressure can easily view investing in skills development as a low priority. Engaging young people or bringing on apprentices can be seen as too difficult, time-consuming or risky. Well-researched human biases against working with someone who is “different” mean that there is resistance to bringing in people from more diverse backgrounds. In a transient jobs market, where people are not expected to stay in their posts for long, there is less incentive to overcome prejudice.

Technology is increasingly being deployed in larger organisations to overcome bias in recruiting, especially when those doing the hiring may not even be aware of it themselves – for example by name-blind recruitment, which can reduce unfairness in the screening of candidates and help recruiters concentrate on a candidate’s experience, skills and potential.

Large organisations such as the BBC and the Civil Service are championing this shift, and it should be encouraged more broadly, given what research shows about the ways in which applicants are treated differently on the basis of their perceived backgrounds. CV-blind recruitment, which has been adopted (for example) by Clifford Chance, is a still more concerted effort to strip away factors that might be prejudicial or irrelevant. The HR technology sector is currently seeing a marked uptake in its solutions to bias in hiring and decision-making, and this seems likely to grow. A number of these products are designed to allow jobseekers to showcase a portfolio of work and skills instead of having to rely on the traditional CV.

A CIPD report published in 2015, A Head For Hiring: The Behavioural Science of Recruitment and Selection, highlighted simple techniques for improving rigour and success in recruitment. Examples range from the ways in which the wording of an advertisement can affect the balance of male/ female applicants, to the influence of subtle changes in environment on decisions. From the advertising of a role to the culture that the organisation projects as new recruits join it, employers of all sizes need to aim for greater inclusivity if they are to make the best of London’s rich talent pool. The investment of larger organisations in improved approaches to recruitment should provide lessons for employers more widely.

Where help is available, SMEs welcome it. Those that participated in the People Skills service valued even basic advice on how to recruit or manage their people. Yet the pilots also showed the scale of the challenges in reaching very diverse small businesses. In Hackney, as across London, the kinds of networks on which small businesses can draw are sparser and less stable than elsewhere in the country: the Chambers of Commerce, Local Enterprise Partnerships (LEPs), or even connections to the local Council that, in Stoke and Glasgow, were very effective. In some cases, such as Tech City, there are other ways of drawing together sectors, but the more diverse nature of business and communities in London remains a challenge for small businesses looking for help and guidance.

What can city hall do

The case for diversity – as for wage equality – has been largely made and accepted. The focus now needs to shift to the “how”: creating and signposting support for organisations and highlighting examples of success.

To help, City Hall could encourage a more coordinated service for small business support. SMEs need more information on how to improve people management and development, as well on as the services available to support them. Across the London boroughs, there are a wide range of initiatives – but without more coordination and sharing of good practices, business support can be confusing and something of a postcode lottery.

There is an opportunity for City Hall to support diversity by looking at how young people are being prepared for future careers, including through work experience. City Hall has already done much to encourage businesses to work with schools through the Team London initiative. But the range of initiatives, charities, and other organisations can be confusing. Government-sponsored initiatives like the Careers and Enterprise Company are a positive step towards providing better coordination and dissemination of good practice.

City Hall can make a big difference by lending its weight to initiatives to improve inclusion and opportunity. Ensuring that young people have support at the early stages of working life will go a long way towards creating a more diverse and inclusive workplace in the future.