The FCA is consulting on changes to its Listing Rules to require listed companies to publish annually:
A ‘comply or explain statement’ on whether they have achieved certain proposed targets (see notes to editors) for gender and ethnic minority representation on their boards, and
As part of the same annual disclosure obligation, 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 (see notes to editors) 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.
While some companies may already provide diversity disclosures to existing voluntarily UK initiatives and in annual reports, the FCA’s measures will help ensure reporting beyond the largest listed companies and ensure more consistency. Its approach also provides flexibility for overseas companies, since the ‘comply or explain’ approach allows any national or cultural context to be explained.
Clare Cole, Director of Market Oversight at the FCA commented on the proposals:
‘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.’
The FCA’s proposals aim to build on progress achieved under existing initiatives to improve diversity on the boards of the largest UK companies. Such initiatives include the Hampton-Alexander Review and Parker Review, and similar initiatives in international markets.
The changes also follow the FCA’s recent discussion paper published earlier in July, exploring how to promote diversity and inclusion across the financial services sector as a whole. Diversity will be an ongoing focus for the FCA, beyond the proposals it sets out here.
The FCA is consulting for 12 weeks on these proposals, with a closing date of 22 October 2021. Subject to consultation feedback and FCA Board approval, it will seek to make relevant rules by late 2021.
Notes to editors
The ‘comply or explain’ statement targets are as follows:
At least 40% of the board should be women (including those self-identifying as women).
At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Chief Financial Officer (CFO) or Senior Independent Director (SID) should be a woman (including individuals that self-identify as a woman.
At least one member of the board should be from a Non-White ethnic minority background (as defined by the Office for National Statistics).
‘Key board committees’ include those required under the UK Corporate Governance Code, specifically committees on audit, remuneration and nominations.
The scope of the Listing Rule proposals includes UK and overseas companies with equity shares, or equity shares represented by certificates (including global depositary receipts), admitted to either the premium or standard listing segments of the FCA’s Official List in the UK or considering admission to such listings.
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