UK sets gender, ethnicity targets for executives, boards

The Financial Conduct Authority has set UK-listed companies three diversity targets, including a goal for at least 40% women on their boards, in the latest move to bolster diversity in the upper ranks of British business.

Companies should also have at least one woman in the role of chief executive officer, chief financial officer or senior independent director, the FCA said in a statement Wednesday. The regulator also said that at least one member of the board should be from an ethnic minority background, excluding white ethnic groups.

A spokesperson for the FCA said the regulator will give firms the flexibility to decide how they define “women” and whether the term includes trans women. It will review the situation again in three years and decide whether further steps are needed to promote diversity and inclusion.

Companies that fail to comply may fail to attract investment from institutional funds, according to Delphine Currie, a partner at law firm Reed Smith.

“Diverse boards make better decisions but, for too long, the boards of listed companies have been characterized as’ white, male and stale,” she said in an email. “While many listed companies have appointed directors from various backgrounds in recent years, there are plenty which have not or have made only token appointments.”

The watchdog said firms should publish the information in their annual financial reports, and if they do not meet the targets will be required to explain why. The rules will apply for accounting periods starting from April 1, 2022, meaning they will start to appear in reports from the second quarter of next year.

“As investors pay increasing attention to diversity at the top of the companies they invest in, enhancing transparency at board and executive management level will help hold companies to account and drive further progress,” said Sarah Pritchard, executive director of markets at the FCA.

The regulator’s policy follows a consultation last year and several warnings that the FCA would be shining a light on how firms are increasing diversity. The percentage of women in FTSE 100 boards is 38% and the parallel figure for FTSE 250 boards is 35%, according to a study last year by Cranfield School of Management.

Phillippa O’Connor, head of reward and employment at PricewaterhouseCoopers, said firms will have to consider how to protect their staff’s privacy, especially where they face multiple reporting requirements. “Improving diversity, particularly at the most senior levels, remains a challenge and will take time,” she said in emailed comments.

The reporting obligation will be included in the UK’s Listing Rules. It comes after various initiatives to promote diversity within companies, including the Hampton Alexander Review and the Parker Review.

The regulator will review the situation again in three years and decide whether to go further to promote diversity and inclusion. Firms will need to explain the approach they take and ensure consistency with any other corporate reporting.

© 2022 Bloomberg

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