A recent report from Women on Boards UK finds that only 34% of FTSE ex350 companies have women on their executive leadership teams and only 5% have directors of colour on their executive leadership teams. These figures are equally bleak when you look at the FTSE 350 where 38% of companies have women on their board and only 12% have directors of colour.
To speed up the pace of change around diversity and inclusion, the new FCA rules require that all companies listed on the London Stock Exchange must now report on diversity and inclusion, at the board and executive committee level, in their annual reports for financial years starting on or after 1 April 2022.
Under the new Listing Rules, listed companies are now required to publish a statement in their annual financial report setting out whether they have met specific diversity targets at a board and executive level in relation to the representation of women and minority ethnic groups on a comply or explain basis.
The targets set by the FCA are:
- At least one individual on a company’s board of directors should be from a minority ethnic background
- 40% of the board of directors should be women
- At least one of the following roles should be held by a female: the chair, the chief executive officer, the senior independent director or the chief finance officer
Where a listed company has not met the targets it must explain why. Listed companies are also required to report numerical data on the ethnic background and the gender identity or sex of the individuals on the board and in its executive management. This data must be set out in the form prescribed in the new Listing Rules and accompanied with an explanation of the company’s approach to collecting the data.
Dovetailing the new Listing Rules, the FCA has also issued amendments to the corporate governance rules in the Disclosure Guidance and Transparency Rules (DTRs), encouraging companies to consider broader aspects of diversity in the context of their reporting on board diversity policies. Listed company’s corporate governance statements must now contain a description of the diversity policy applied to their administrative, management and supervisory bodies and the remuneration, audit and nomination committees of those bodies with regard to aspects such as age, gender, ethnicity, sexual orientation, disability, educational, professional and socio-economic backgrounds. The statement should also explain the objectives of the diversity policy and provide information on how the policy has been implemented and the results in the reporting period. If the listed company does not have a diversity policy in place, the corporate governance statement must contain an explanation as to why this is the case.
The new Listing Rules and Disclosure Guidance and Transparency Rules came into force on 20 April 2022 and reflect the FCA’s focus on the lack of diversity and inclusion in the financial services sector in the UK. The measures seek to improve transparency on the diversity of company boards and their executive management for investors and other market participants, increase engagement and inform investment decisions. In turn, through investor pressure, the FCA expects that listed companies will be encouraged to promote greater diversity which may have further benefits for corporate governance and decision-making. The FCA will review the new Listing Rules in 3 years’ time to assess the impact and consider targets on other aspect of diversity.
Stephen Hamilton, capital markets partner in our corporate team, says that the new Listing Rules will play a key role in driving the diversity and inclusion agenda in UK listed companies. He adds: "This is an opportunity for those companies already taking steps in this area to demonstrate leadership. Those companies not already collecting this data will need to consider how best to do so in a meaningful way and in a relatively short period of time. Our capital markets team can help clients understand the new reporting requirements and how to navigate these.”
The FCA’s full Policy Statement, including the new Listing Rules and Disclosure Guidance and Transparency Rules, can be found on the FCA’s website here.