The Financial Conduct Authority (FCA) is consulting on proposals to require the listed firms it oversees to do just that.
Women on Boards UK strongly supports these proposals and, indeed, considers that the Financial Reporting Council (FRC) should follow suit to apply these requirements to all listed firms.
The consultation is now closed, awaiting response.
About the proposals
In a consultation open until 20th October 2021, the FCA asks for views on its plans to require listed financial services companies to disclose their board and executive committee diversity as part of the annual reporting requirements.
The proposals set targets for 40% gender diversity, including one ‘senior’ board member being a woman. It also support the Parker Review target for one board member from an ethnic minority background. Companies would be expected to meet these on a ‘comply or explain’ basis (which is in-keeping with the bulk of the UK’s corporate governance regulations).
The FCA consultation also considers requiring ‘numerical reporting’ on board composition (i.e. how many women etc). It also asks whether and how it might extend requirements to sexuality as a protected characteristic, and to the executive team composition one level below the board.
It plans to introduce the new requirements for accounting periods starting on or after January 2022, to show in the following year’s company reports.
Women on Boards’ view
Women on Boards UK would like to see these proposals implemented in full on the proposed timetable. The last decade has shown that monitoring and scrutiny of board diversity is an effective, business-led route to meaningful change. We were deeply concerned to see the Hampton-Alexander & Parker Reviews end earlier this year with no plans for continuation. Incorporating diversity data into ‘business as usual’ corporate reporting strengthens the progress made and is a positive step to prevent back-sliding.
Diverse boards correlate with enhanced business performance, as an established body of research shows. Investors and other stakeholders therefore want to know about board composition to guide their investment choices, and it is appropriate this should be made available in company reports. Of course, a diverse board alone isn’t sufficient to enable cause a company to succeed. But no other reporting requirement has a sole statistical causal link to overall company performance and this is an unreasonable and irrelevant barrier to put up to these proposals.
The FCA oversees listed financial services firms, but we believe all listed firms should be subject to these requirements. We urge the Financial Reporting Council (FRC) to use its influence to require listed firms in all sectors to report on their board diversity, on a comply or explain basis.
Internationally, several countries and some US states have implemented quotas for women on boards in the past few years. Whilst we like what they achieve, quotas risk being met by a ‘tick box’ approach and not lead to real cultural change that releases the benefits of diversity. However, the UK is far from the point of diverse boards being ‘business as usual’ so we need continued action of some kind.
Our Hidden Truth research shows that progress made at the FTSE 350 level under the Hampton-Alexander Review did not trickle down to FTSE All-Share companies below the 350, who were not subject to monitoring or scrutiny in the same way. We found that 54% of FTSE All-Share companies outside the 350 had all-male executive leadership teams. In contrast, the Hampton-Alexander Review 2021 reports that only 8% of FTSE 350 companies are now all-male at the executive leadership level.
The proposals place no more administration burden on firms than the government-led Reviews have over the past decade. Morevoer, firms should be analysing their diversity data for their own culture and talent strategy anyway.
Read our full response.
What are your views?
We encouraged those with experience or an interest in listed financial services companies &/or boards to share their perspective with the FCA.
The consultation closed on 20th October 2021.