The FCA is moving forward with new rules requiring listed companies to disclose information about the number of women and ethnic minorities on their boards and senior leadership teams in a bid to improve transparency for investors.
Companies with a standard or premium listing on the FCA’s official list, including investment trusts, must set out in their annual reports how they stack up against certain diversity targets.
- -At least 40% of the board must be women
- -At least one of the senior board positions (chair, CEO, CFO, or senior independent director should be a woman
- -At least one member of the board should be from an ethnic minority background excluding white ethnic groups (as set out in categories used by the Office for National Statistics)
Companies that do not comply must explain why they have failed to do so. The City watchdog said this “comply or explain” approach would allow flexibility for smaller firms or those based overseas.
Under the rules, companies will determine how best to collect and report the data, however, they will be required to explain their rationale and “be expected to take a consistent approach”.
The consultation, which closed on 20 October 2021, garnered 540 responses in total from institutional market participants, trade bodies and interest groups.
Respondents were “broadly supportive” of the main elements of the proposals, but the City watchdog noted concerns were raised on its decision to include those self-identifying as women as part of the targets, as well as potential data privacy issues.
‘Targets alone seldom achieve much’
The FCA said the new rules reflect its “focus on speeding up the pace of change around diversity and inclusion in financial services,” which has continued to lag other industries.
Despite asset and wealth managers rolling out a raft of diversity initiatives in recent years, there is still a dearth of women at the top, which has led to a persistent gender pay gap problem. Black, Asian, and minority ethnic (BAME) representation at senior levels is even more scarce.
Laura Whitcombe, global campaign manager of the 30% Club, said: “Great to see the FCA commit to drive diversity across Britain Plc. What’s needed to deliver true diversity is companies dismantling obstacles that stop all talent progressing. Targets alone seldom achieve much; corporate culture change is required.”
The 30% Club has had similar targets for its CEO and chair members for the last few years, Whitcombe added.
“It’s clear that while the FTSE 350 is almost at the 40% goal for women board members, we need far more women board chairs, CEOs, CFOs and senior NEDs.”
See also: Women manage just 2% of UK funds
Disclosures will help long-term stakeholders
City Hive founder Bev Shah welcomed a “renewed commitment from the regulator on diversity at senior levels,” which follows a similar move by the SEC for the Nasdaq in 2021.
“The proposal will focus firms’ attention to the task, but we also know it is a process that takes time – and that diversity is the outcome, not the target,” she said.
“To enable companies to deliver that outcome, we have to ensure there is a robust pipeline of candidates attracted to the roles and skilfully retained. Companies must demonstrate inclusive opportunities for people to gain the experience and training to rise to senior levels. These kinds of disclosures help firms to stakeholders about their longer-term efforts and progress.”
The FCA will review the rules in three years’ time to ensure they are working and diversity targets are still appropriate.