Diversity and inclusion on company boards and executive committees

General Background

Diversity is a very important subject and the FCA has chosen to address the need to incorporate diversity on the boards of listed companies. Whilst this is only applicable to listed companies it represents a move in the right direction in addressing the need for diversity on a wider scale from the FCA and as such the FCA should be applauded for this move.

On 20 April 2022, the FCA published its final policy decision on the proposals set out in CP 21/24. This has resulted in new diversity Reporting Requirements

The New Rules

The updated Listing Rules require in-scope issuers (broadly, premium or standard listed companies, excluding OEICs and “shell companies”) to incorporate into their annual reports certain disclosures on the diversity of their boards and executive management, including:

A “comply or explain” statement setting out whether they have met the following diversity targets:

  • At least 40% of the board are female
  • At least one of the senior board positions is held by a woman (Chair, CEO, Senior Independent Director, or CFO)
  • At least one board member is from a minority ethnic background (defined by reference to categories recommended by the Office for National Statistics (ONS)), excluding those the ONS lists as coming from a White ethnic background)

Numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions, and executive management in a standardised table (with issuers able to add to the fields “men” and “women” to include “non-binary” or other gender identities)

Issuers in scope of DTR 7.2 (i.e., UK issuers with securities admitted to UK regulated markets and certain overseas listed companies, subject to existing exemptions for small and medium companies) must ensure that the corporate governance statements set out in their annual financial reports contain descriptions of the diversity policies of key board committees having regard to wider diversity characteristics such as

  • Ethnicity
  • Sexual orientation
  • Disability
  • Socio-economic background

Timing

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

Action

In-scope issuers should proceed with developing and implementing their approach to report the relevant information in their annual reports.

For companies with a 31 December financial year end, the first disclosures will need to appear in their annual financial reports published after 31 December 2023 .

Conclusion

It should be noted that the FCA firmly encourages (and will look positively on) voluntary reporting against these new requirements for earlier periods. The FCA fully expects that the enhanced transparency will be very positively received by investors.

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Should you have any questions on either this topic or other regulatory issues please contact Xcina Consulting.

The new rules can be found here.

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