The FCA is proposing to change the Listing Rules to require companies to disclose annually, on a comply or explain basis, whether they meet specific board diversity targets and to publish diversity data on their boards and executive management. Subject to feedback from a consultation which is underway, and subject to FCA Board approval, the Listing Rules will change by the end of this year.
The consultation was launched on 28 July on proposals to improve transparency, chiefly for the benefit of investors. The FCA explains the context which centres on three main themes: (1) domestic and wider international initiatives to promote greater diversity on listed company boards; (2) increasing scrutiny of companies with a focus on environmental, social and governance factors, and a desire for better data to inform decisions; and (3) academic studies which suggest that greater diversity on boards may have a positive effect on corporate governance and corporate performance. The consultation will run until 20 October.
So let’s get some reaction to this and whether the planned changes will be effective. Anne Sammon works closely with a number of clients in this sector and she joined me by video-link to discuss it. I asked her what stands out from this consultation paper:
Anne Sammon: “I think there's two points. The first point to note is that this is a ‘comply or explain’ approach which means that what firms are going to have to do is firstly say whether or not they've hit the relevant targets and, if not, provide an explanation as to why not.- I suppose the cynic in me wonders about the extent to which those explanations are going to be challengeable, to which they're going to be plausible, and what the consequences are for firms that don't hit those, other than, obviously, investors being able to evaluate firms on that basis. I think that the second point that's really interesting is that, as well as this consultation, we've also had the joint FCA, PRA and Bank of England diversity discussion paper which deals with a much wider range of diversity and inclusion characteristics. So, whereas our consultation around the Listing Rules is focused on race and gender, the wider diversity discussion paper looks at all the protected characteristics, so that's disability, it's religion, it's everything that that's kind of encompassed by the Equality Act already, and also socio-economic backgrounds, and that's a really interesting departure from what we've seen in the past and it’s almost slightly disappointing that the Listing Rules paper doesn't go a bit further than just gender and race to look at that wider issue about diversity of thought which is so important when it comes to the kind of leadership in organisations and driving change forwards.”
Joe Glavina: “How effective do you think these measures will be, Anne, in terms of transparency and meeting targets?”
Anne Sammon: “I suspect that part of it is about making sure that these are realistic and achievable and therefore they aren't necessarily the most stretching targets. We know that firms have made some progress around gender and race. It's much harder to see what progress there has been around issues about disability or socio-economic mobility, particularly when there's limited data out there about the composition of boards from those diversity characteristics.”
The FCA’s consultation is called ‘Diversity and inclusion on company boards and executive committees’ and will be running until 20 October. If you want to comment on the proposals you can – there is a form for that purpose on the FCA’s website and we have put a link to that in the transcript of this programme.
- Link to FCA consultation on diversity and inclusion on company boards and executive committees
- Link to FCA consultation response form