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New targets to improve board diversity recommended by MPs

Out-Law News | 06 Apr 2017 | 10:52 am | 2 min. read

At least half the people appointed to the boards of public companies trading in the UK from May 2020 should be women, according to a prominent committee of MPs.

Proposed measures to boost board diversity were among the recommendations made in a new detailed report published by the Business, Energy and Industrial Strategy (BEIS) Committee.

On the specific issue of gender diversity in UK boardrooms, the Committee acknowledged that an increasing number of women had been appointed to boards in the UK since a 2011 review into boardroom inequality. However, it called on the government to set new targets to boost female representation in UK boardrooms and for businesses to report when they have failed to meet those targets.

"We recommend that the government should set a target that from May 2020 at least half of all new appointments to senior and executive management level positions in the FTSE 350 and all listed companies should be women," the Committee said. "Companies should explain in their annual report the reasons why they have failed to meet this target, and what steps they are taking to rectify the gender inequality on their executive committees."

The Committee also said that forthcoming revisions to the UK's Corporate Governance Code, being considered by the Financial Reporting Council (FRC), should also do more to promote ethnic diversity of boards.

"At the very least, we recommend that wherever there is a reference to gender, the FRC should include a reference to ethnicity, so that the issue of ethnic diversity on boards is made explicit in the revised Code, and is given as much prominence as gender diversity," the Committee said.

The government should also change the law to require FTSE 100 companies to "publish their workforce data, broken down by ethnicity and by pay band", it said.

"The Committee’s report highlights the point that although the Davies Review has had a positive impact on the gender balance of non-executive appointments in the FTSE 100, it has had virtually no impact at all on the gender balance in executive positions," employment law expert Linda Jones of Pinsent Masons, the law firm behind Out-Law.com, said. "That is hardly surprising, as requiring head-hunters to produce gender balanced shortlists for NED appointments is a relatively easy fix compared to changing the culture of a business so that female talent can flourish and rise to the top."

"However, listed companies may now be required to do exactly that, as the Committee has not only adopted the Equality and Human Rights Commission’s recommendation that from May 2020, 50% of all appointments to senior and executive level positions should be female, but has also recommended that companies should be required to report progress annually, to explain what their plans are to rectify gender inequality and to explain any failures to meet the target. They have also recommended that the FRC should take this into account as part of its rating system," she said.

"If adopted by the government, this will provide a strong incentive for companies to engage in immediate action to remove barriers to female career progression and to bring about the necessary culture change to achieve the target," Jones said.