"We expect enhanced transparency may strengthen incentives for companies towards greater diversity on their boards and encourage a more strategic approach to diversity"
The FCA is consulting on changes to its Listing Rules to require listed companies to publish an annual ‘comply or explain statement’ on whether they have achieved certain proposed targets for gender and ethnic minority representation on their boards.
The ‘comply or explain’ statement targets are:
- At least 40% of the board should be women (including those self-identifying as women),
- At least one of the senior board positions should be a woman,
- At least one member of the board should be from a non-white ethnic minority background.
As part of the same annual disclosure obligation, firms must also annually report data on the make-up of their board and most senior level of executive management in terms of gender and ethnicity.
The FCA is also proposing changes to its disclosure and transparency rules to require companies to ensure any existing disclosure on diversity policies addresses key board committees and also considers broader aspects of diversity. This could include, for example, considerations of ethnicity, sexual orientation, disability, lower socio-economic background and other diversity characteristics. The FCA also encourages companies to provide further data on the result of their diversity policies considering these wider aspects where possible.
The Listing Rule diversity targets are not mandatory for companies to meet, so the FCA is not setting ‘quotas’, but providing a positive benchmark for issuers to report against. The proposals would apply to UK and overseas companies with equity shares in either the premium or standard listing segments of the FCA’s Official List, while the disclosure and transparency changes apply to companies with securities traded on UK regulated markets, such as the Main Market of the London Stock Exchange.
Clare Cole, director of market oversight at the FCA, commented: "There is a current lack of standardised and mandatory transparency about diversity on listed company boards, particularly outside the FTSE 350 who do not provide data to the voluntary initiatives in this area. But interest from investors is growing and companies are increasingly focusing on this topic due to ESG investing, as well as wider social and public policy concerns.
"Our proposals are intended to increase transparency by establishing better, comparable information on the diversity of companies’ boards and executive committees. This will provide better data for companies and investors to assess progress in these areas and make investment decisions, reduce investor search costs, and inform shareholder engagement, enhancing market integrity.
"Over time, we expect enhanced transparency may strengthen incentives for companies towards greater diversity on their boards and encourage a more strategic approach to diversity in their pipeline of talent. This may have broader benefits in terms of the quality of corporate governance and company performance in due course."
