FCA Policy statement: Diversity and inclusion on company boards and executive management

Of interest to members in all sectors, but particularly those working in listed corporates

On 20 April, the Financial Conduct Authority (FCA) published its final policy decision for proposals set out in CP 21/24 ‘Diversity and inclusion on company boards and executive committees’, a consultation which ran between July and October 2021. 

The FCA believes that “These measures will improve transparency on the diversity of company boards and their executive management for investors and other market participants.” Certainly, they will require re-thinking from some organisations.

The FCA is introducing new Listing Rules to require issuers to include a statement in their annual financial report setting out whether they have met specific board diversity targets. These are that:

  • At least 40% of the board are women.
  • At least one of the senior board positions (Chair, Chief Executive Officer, Senior Independent Director or Chief Financial Officer) is a woman.
  • At least one member of the board is from a minority ethnic background.

That statement must include:

  • the reference date used, and where this is different from the reference date used in respect of the previous accounting period, an explanation of why, and
  • any changes to the board that have occurred between the reference date and the date on which the annual financial report is approved that have affected the company’s ability to meet one or more of the targets.

It is also expanding reporting requirements to cover the diversity policies of key board committees and to indicate that reporting on board and board committee diversity policies could consider wider diversity characteristics.

The FCA believes that “Setting targets on a ‘comply or explain’ basis for the representation of women and people from a minority ethnic background is designed to be a positive reporting benchmark to encourage progress. However, it serves as a starting point to encourage scrutiny and consideration of diversity and inclusion more broadly, both at senior levels of listed companies and throughout their businesses.”

The new rules apply to UK and overseas issuers with equity shares, or certificates representing equity shares, admitted to the premium or standard segment of the FCA’s Official List, excluding open-ended investment companies and ‘shell companies’ but including closed-ended investment funds and sovereign controlled companies.

In-scope companies are required to make these disclosures in their annual reports for financial years starting on or after 1 April 2022.

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