Beware ‘positive discrimination’ when reporting FCA’s disclosure rules, warns lawyer

The Financial Conduct Authority, the FCA, has published a paper reminding listed companies of their obligation under the Listing Rules to disclosure certain information on the gender and ethnic breakdown of their boards and senior management. The FCA warns that those reports must hit D&I targets or contain “clear and meaningful explanation’ of why targets were missed.

The new targets around diversity and inclusion reporting were introduced last year. They require at least 40% of board members to be women. Also, a woman should hold at least one of the four senior board positions – the chair, chief executive, senior independent director, or chief financial officer. In addition, at least one member of the board should come from a minority ethnic background.

In its latest Bulletin the FCA sets out the steps they expect listed companies to have considered in preparation for making the relevant D&I disclosures on a comply or explain basis with firms focusing on real-time data, as opposed to a historic emphasis on policies and mission statements.
On data collection and reporting they say: ‘establish or enhance your procedures, systems and controls over data collection and reporting, including for choosing an appropriate reference date for data collected. They want to see both consistency and consistent categorisation. 

In our view that presents a challenge and we have already been approached by a number of clients for help with that. So, take, for example, self-identification of gender. You are unlikely to get a ‘one size fits all’ response from your employees on that issue – you may have 10 different employees who self-identify their gender in 10 different ways, for example. So you need to be careful not to pigeonhole employees into certain categories in the interests of consistency. And the same applies for all the other data sets.
So, in short, complying with the FCA’s diversity requirements will be challenging so let’s hear more about that. Earlier I spoke to 
Anne Sammon and she told me this is exercise is more complex than many firms appreciated when this was being discussed two years ago:

Anne Sammon: “I think a lot of HR professionals within the FS sector were concerned by the diversity and inclusion discussion paper that the PRA, FCA and Bank of England published which suggested that they might start to gather data themselves from firms around how they were doing on different diversity characteristics and that led to a lot of discussion around well, how do we measure progress around diversity because there are nice, easy kind of simplistic ways of doing it by looking at, for example, how many women have you got in senior positions and how many women do you have across the organisation but sometimes those measures don't really give a full picture of what your firm is doing, where your starting point was, you know, whether you're in a sector where it's far more difficult to recruit women into, or whether there are other factors that might be at play and so working through how as an organisation, you're going to look at how you're measuring your progress is really important and, again, it's something that we see a lot of clients coming and wanting some advice on to make sure that they're not overstepping the mark when it comes to things like positive discrimination.”

Joe Glavina: “You say ‘positive discrimination’ – why is that a problem in this context? 

Anne Sammon: “So I think with all the focus around the FCA’s targets, for women in particular, on a board-level positions, at senior positions, there is a risk that you may find that that certain people who don't share those characteristics are going to feel that they are being disadvantaged by this and that, potentially, there is a degree of positive discrimination occurring on the basis that firms will want to show that they are making progress in those areas and, therefore, for example, female candidates might be pushed through at a faster rate than male candidates, and I think the balance here is about firms ensuring that their processes are fair, that they're looking at those kinds of systemic barriers and ways to remove them, but also the communication around this is really important. So it's making sure that that the communications that go out are sensitive to the fact that some of your employees may feel that these new measures may disadvantage them and, again, seeking external input in terms of where are the risks, where's the boundary between positive discrimination and positive action and what's lawfully allowed under the Equality Act is really important.”

Following the recent publication of the FCA’s reminder to firms, Anne wrote an article for Out-Law which you may be interested in reading where she warns against firms adopting a ‘light touch’ or ‘tick-box’ approach to compliance. That’s ‘UK financial regulator warns firms off D&I vagueness’ and available from the Out-Law website. We’ve put a link to it in the transcript of this programme. 

LINKS
- Link to Out-Law article: ‘UK financial regulator warns firms off D&I vagueness’
- Link to FCA Primary Market Bulletin 44