FCA seeks to promote greater diversity of company boards
The UK Financial Conduct Authority (FCA) today launched a consultation on a proposal to change Listing Rules to require certain companies to disclose publicly in their annual financial report whether they meet specific board diversity targets relating to gender and ethnicity on a ‘comply or explain’ basis.
Alongside this, the regulator is proposing that in-scope companies publish standardised data on the composition of their board and most senior level of executive management by gender and ethnic background.
To encourage a broader consideration of diversity at board level, the FCA is also proposing to amend the corporate governance rules within its disclosure guidance and transparency rules (DTRs) to indicate that existing reporting requirements on board diversity policies by in-scope companies on could consider wider diversity characteristics. This could include ethnicity, sexual orientation, disability and socio-economic background.
The FCA proposes to change LR 9.8.6R and LR 14.3 by adding in a new requirement (LR 9.8.6R(9) and LR 14.3.27R(1)) that in scope companies include a statement in their annual financial report setting out whether the listed company has met the following targets on board diversity, as at a specific date within the accounting period selected by the listed company:
- At least 40% of the board are women (including individuals self-identifying as women)
- At least one of the senior board positions (Chair, CEO, SID or CFO) is held by a woman (including individuals self-identifying as a woman)
- At least one member of the board is from a non-White ethnic minority background (as categorised by the ONS).
At this stage, the FCA focuses on disclosure of representation and targets on gender and ethnicity, with proposals aligning to areas that FTSE 350 issuers already report on under voluntary initiatives.
However, by encouraging wider considerations of diversity in board diversity policies, including key committees of the board, the FCA may later look to expand reporting and targets to other protected characteristics such as sexual orientation and disability and other aspects of diversity such as lower socio-economic background. The regulator may also seek to widen the scope of the targets to levels below executive management.
The companies in scope of the Listing Rule proposals are UK and overseas issuers with equity shares, or certificates representing equity shares, admitted to the premium or standard segment of the FCA’s Official List.
The FCA is proposing to exclude open-ended investment companies, and ‘shell companies’ as defined in LR5.6.5AR from the companies in scope of the proposal. It is not proposing to apply the proposals to issuers of debt securities, securitised derivatives or miscellaneous securities at this stage.
Comments are accepted by 20 October 2021.