At the end of last year the Financial Conduct Authority consulted on increasing diversity and inclusion on company boards and executive management in the financial services sector, and on the back of the responses received, has yesterday published its “Policy Statement” which sets out the changes it intends.
By way of quick summary (more detail available in the link above), the FCA is introducing new rules to require issuers to include in their financial report a statement of whether they have met specific board diversity targets, to be put on a “comply or explain” basis. In other words, these targets are not legal obligations but they are designed to throw a not particularly attractive public light upon organisations which do not meet them, or at least are not seen to be trying to do so. In the same way as the Gender Pay gap rules or the Modern Slavery Act, therefore, they face judgement under not the law but the baleful stare of the Court of Public Opinion.
The targets are:
- at least 40% of the board should be women;
- at least one of the senior board positions (chair, CEO, Senior Independent Director or CFO) should be a woman; and
- at least one member of the board should be from an ethnic minority background (defined by reference to categories recommended by the Office for National Statistics, and excluding those listed as coming from a white ethnic background).
Issuers will also have to set out in their statement:
- the reference date used, and where this is different from the date used in their previous accounting period, why; and
- any changes to the board between the reference date and when the financial report is approved which have affected the company’s ability to meet any of the targets.
The original proposal had been for the targets in relation to women to include those who self-identify as women, but this has been amended due to the volume of responses opposed to this approach. Instead, companies can report on the basis of either sex or gender identity, provided the approach is explained and applied consistently.
In-scope companies will also be required to publish data on the sex or gender identity and ethnic diversity of their board, senior board positions (Chair, SEO, SID and CFO) and executive management in a table (further guidance on which is available within the Policy Statement). Issuers will also be required to explain their approach to collecting this data. Overseas companies and companies with overseas operations which are prevented from collecting and/or disclosing this information by local law will be permitted to provide an explanation as to why they cannot complete the relevant sections of that table.
The FCA has also provided guidance within the Policy Statement to the effect that in-scope companies may wish (but are not obliged) to include the following within their annual financial reports to provide further context:
- a brief summary of any key policies, procedures and processes, and any wider context it considers contributes to improving the diversity of its board and executive management;
- any mitigating factors which make achieving diversity on its board more challenging;
- any difficulties it foresees in meeting the diversity targets in the next accounting period