UK sets goals for gender, ethnicity for leaders, boards

The Financial Conduct Authority has set UK listed companies three diversity targets, including a target of at least 40% women on their boards, in the latest move to strengthen the diversity of the UK’s top echelons of business.

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

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

Companies that fail to comply cannot attract investment from institutional funds, according to Delphine Currie, a partner at law firm Reed Smith.

“Different boards make better decisions, but for far too long, boards of listed companies have been characterized as ‘white, male and outdated,'” she said in an email. “While many listed companies have appointed directors with different backgrounds in recent years, there are many who have not or have only made symbolic appointments.”

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

“As investors become more aware of diversity at the top of the companies they invest in, increased transparency at the board and executive level will help keep companies accountable and make further progress,” said Sarah Pritchard, chief marketing officer at FCA.

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

Phillippa O’Connor, head of reward and employment at PricewaterhouseCoopers, said companies will need to consider how they protect the privacy of their staff, especially where they face multiple reporting requirements. “Improving diversity, especially at the highest levels, remains a challenge and will take time,” she said in email comments.

The reporting obligation will be included in the UK listing rules. It comes after various initiatives to promote diversity in companies, including the Hampton Alexander Review and Parker Review.

The regulator will review the situation again in three years and decide whether to move forward to promote diversity and inclusion. Companies need to explain their approach and ensure consistency with any other company reporting.

© 2022 Bloomberg

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