FTSE companies could be forced to explain to investors why they have missed diversity targets set by UK’s financial watchdog, which is mulling tougher rules on gender and ethnic minority representation.
The Financial Conduct Authority (FCA) has launched a consultation on proposals to improve transparency on the diversity of listed company boards and their executive management teams.
If enacted, the rules would require listed companies to publish a ‘comply or explain statement’ every year on whether they have achieved certain targets around diversity.
These targets would stipulate that at least 40% of the board should be women, at least one senior board position should go to a woman, and at least one member of the board should be from a non-white ethnic minority background.
‘There is a current lack of standardised and mandatory transparency about diversity on listed company boards, particularly outside the FTSE 350 (^FTLC) who do not provide data to the voluntary initiatives in this area,” said Clare Cole, director of market oversight at the FCA.
“But interest from investors is growing and companies are increasingly focusing on this topic due to ESG investing, as well as wider social and public policy concerns."
The FCA’s proposals aim to build on progress achieved under existing initiatives to improve diversity on the boards of the largest UK companies.
Such initiatives include the Hampton-Alexander Review and the Parker Review.
Earlier this year, the Parker Review showed that out of 100 of Britain's best-known firms, 16 companies, including the London Stock Exchange Group (LSEG.L), International Consolidated Airlines Group (IAG.L) and BAE Systems (BA.L) have all-white boards.
It found that 81 out of 100 firms had ethnic representation at board-level. This was up from 74 in November 2020 and 52 in January last year.
"When everyone takes diversity and inclusion seriously, including the regulators, that’s when the whole corporate landscape will change for the better," Ann Cairns, global chair of the 30% Club and executive vice-chair of Mastercard (MS) told Yahoo Finance UK, as she welcomed the FCA's proposals.
The 30% Club campaigns for beyond 30% female representation at board and executive committee level.
"It's taken over a decade to see the percentage of women serving on the boards of the FTSE rise from 12% in 2010 to just over 37% today, according to BoardEx. However, we remain far from parity" said Cairns.
The FCA is also proposing changes that would require companies to ensure any existing disclosure on diversity policies considers broader aspects of diversity, like sexual orientation, disability and lower socio-economic background.
Subject to consultation feedback and FCA bard approval, the regulator will seek to make new rules by late 2021.
"If the FCA can focus on requiring financial institutions to materially enhance disclosure and transparency about representation and compensation, these two actions alone would fundamentally focus minds in the boardroom and executive committees, thus driving culture and systems change at a more acceptable pace" said Debbie Tembo, managing director of the Black British Business Awards.
She added that the FCA should also look at driving investment in Black founder ventures.