UK boards are set for a seismic change. Pressure is now on UK’s biggest firms to ensure their boards are more diverse and inclusive.
The UK Financial Conduct Authority (FCA) has updated its diversity and inclusion policy. Now UK-listed companies have to disclose information about the following targets in their annual reports:
- 40% of the board are women
- One senior board position is held by a woman
- One member of the board is from a non-white ethnic minority background
When does this take effect?
Accounting periods beginning on or after April 1, 2022 will be affected by the new rules, so many of next year’s Annual Reports will need to include this information.
The proposal also requires listed companies to include in their annual reports a sex/gender and ethnicity table.
Not mandatory for UK boards
The proposal is not mandatory for the big UK boards, it is voluntary. It does, however, mean that big firms in the UK are under increasing pressure from investors and the public to improve diversity and inclusion in their boardrooms.
Diversity at the top is likely to pose the greatest challenge to the FTSE 250 and FTSE 350 companies. There are 36.8% women on FTSE 250 boards, as opposed to 39.1% on FTSE 100 boards.
In the very big organisations, women represent less than a third of leadership roles, with only 18 women serving as CEOs among FTSE 350 firms.
Diverse boards are better boards
According to a spokesperson for the FCA, the regulator will allow companies to define “women” however they see fit, including whether it includes trans women. It will review the situation again in three years and determine if further steps must be taken to promote diversity and inclusion.
“Diverse boards make better decisions but, for too long, the boards of listed companies have been characterised as ‘white, male and stale,” says Delphine Currie, a partner at law firm Reed Smith. “While many listed companies have appointed directors from diverse backgrounds in recent years, there are plenty which haven’t or have made only token appointments.”
European efforts to achieve gender balance on boards are losing momentum
According to the European Institute for Gender Equality (EIGE), France remains the only member state to achieve over 40% of women on boards.
“The introduction of legislative quotas from 2010 and 2015 led to rapid improvements in representation of women on boards in France, Germany and Italy, but progress since has stalls as countries fail to take action. In countries that have taken no action, the proportion of women on boards rose less than 3% from last year. Even with increases in representation on boards, less than one in ten of the largest listed companies in the EU-27 have a women chair or CEO,” says the EIGE.
“There is still a long way to go to reap the social and economic benefits of gender-balanced workplaces. By introducing national quotas for more women in decision-making positions, taking active measures to tackle vertical segregation in business and finance, and by closing the 35% gender gap in financial activities, policymakers, civil society, business leaders, and individuals can take important steps forward to help achieve gender balance in business and finance.”