Listed companies may soon have to explain why they have missed diversity standards at top management level, if a ‘comply or explain’ proposal by the Financial Conduct Authority goes ahead.
The watchdog is proposing that boards are made up of at least 40% women and at least one of the senior board positions (chair, chief executive, chief financial officer or senior independent director) should be held by someone self-identifying as a woman.
Moreover, at least one member of the board should be from a non-white ethnic minority background.
The FCA – whose board has 30% of women, all in non-executive director roles – noted there is lack of transparency, particularly outside the FTSE 350, as it’s not mandatory to disclose diversity targets.
The top 350 companies have been subject to the government-backed Hampton-Alexander and Parker reviews, which set targets for representation of women and ethnic minorities.
But the small caps are lagging, according to recent research.
“Our proposals are intended to increase transparency by establishing better, comparable information on the diversity of companies’ boards and executive committees. This will provide better data for companies and investors to assess progress in these areas and make investment decisions, reduce investor search costs, and inform shareholder engagement, enhancing market integrity,” said Clare Cole, Director of Market Oversight at the FCA.
“Over time, we expect enhanced transparency may strengthen incentives for companies towards greater diversity on their boards and encourage a more strategic approach to diversity in their pipeline of talent. This may have broader benefits in terms of the quality of corporate governance and company performance.”