Watchdog pressures companies to ensure two fifths of board members are women

The FCA’s proposed new rules could come into force by the end of this year but experts warn against an ‘add women and stir’ approach

Watchdog pressures companies to ensure two fifths of board members are women

The UK’s financial watchdog has proposed changes to its rules that would require listed companies to ensure at least 40 per cent of board directors are women or self-identify as women.

The proposed change is part of a consultation on a new diversity target focusing on both gender and ethnicity, as part of a bid by the Financial Conduct Authority (FCA) to improve transparency on the diversity of company boards.

Under the proposed new rules, companies will need to either “comply or explain '' why they failed to miss their new benchmarks.

As part of its proposal, the FCA said it would also look to expand reporting targets at a later date to cover other aspects of diversity, including sexual orientation, disability and socio-economic background.

The proposals were welcomed by Scarlett Brown, corporate governance lead at CIPD, who said they recognised that the issue was “broader than gender and ethnicity”.

“It is encouraging to see this included in the proposals, to avoid some of the pitfalls that can be faced if boards simply ‘add women and stir', rather than reflecting on the value of genuine diversity of perspectives,” she said.

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But, she warned against any reporting requirements that might “encourage a 'tick box' approach”, stressing that “attention must be paid to the quality of narrative, not only to the numbers”.

Sandra Kerr, race equality director at Business in the Community, said the proposals had clearly taken lessons from both the Parker Review on ethnic diversity and the Hampton-Alexander Review on gender diversity in boardrooms, and showed that the FCA were “serious” about improving gender and ethnicity targets in the financial sector.

“Saying a company wants to achieve transparency is one thing, but making it a regular protocol is quite another, and it’s measures like these that will encourage more businesses to publicly disclose whether they have met specific board diversity targets,” added Kerr.

“Even if it’s uncomfortable reading, the requirement to publish gender equality and ethnicity data will be an incentive for companies to do better, and that in itself is a big step forward.”

But, Ranjit Dhindsa, head of employment at Fieldfisher said the consultation raised a number of questions around the effectiveness of “mandating” inclusiveness. She questioned how meaningful ethnicity and race reporting could be when the current practice still used “outdated BAME [Black, Asian and minority ethnic] groupings”.

“Lumping ethnic and race under BAME does not address many diversity issues that businesses face, so more thought is needed here as to how we show representation in a meaningful way.”

While the consultation was a “move in the right direction”, Dhindsa urged that it be rolled out in a “meaningful way” which is clear for businesses to engage with.

The FCA opened a consultation on the proposals yesterday (28 July). It will close for submissions on 20 October 2021. Subject to the feedback it receives, it will seek to implement any rule changes by late 2021.