FCA Sets Diversity Targets for UK-listed Company Boards
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The Financial Conduct Authority (FCA) has finalized rules and set targets for the representation of women and ethnic minorities on the boards of UK-listed companies
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Women’s representation in the FTSE 100 companies has increased from 13% in 2011 to 39% in 2021
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Diversity and inclusion have become some of the critical factors in ESG (environmental, social, and governance)
FCA Sets Diversity Targets for UK-listed Company Boards
A board with diversity will likely be able to integrate diverse perspectives or opinions and thus make better business decisions. The UK’s Financial Conduct Authority (FCA), the financial regulatory body, has ruled that listed companies in the UK are now accountable for diversity in their corporate executive boards. The FCA has set three rules and will follow the “comply or explain” approach, wherein companies must comply with the following three rules and non-compliance will require the company to present an explanation to the FCA. The following three rules have been laid down by the FCA to ensure diversity in company boards:
- At least 40% of the board should consist of women.
- At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Chief Financial Officer (CFO), or Senior Independent Director (SID)) should be held by a woman.
- At least one member of the board should be from an ethnic minority, excluding white ethnic groups (as set out in categories used by the Office for National Statistics).
FCA will review these rules after 3 years to ensure that they are being implemented and check if the diversity targets are still appropriate at the given time. In a recent survey conducted by GlobalData in the UK, when respondents were asked if they agreed that their company promoted gender diversity, nearly 59% of them responded positively. According to the data published by the UK government, the UK has moved up to the second position in the international rankings for women’s representation on boards at FTSE 100 companies, with nearly 40% of the board positions being held by women in the FTSE 100 companies. The FTSE 100 companies have made tremendous progress in terms of gender diversity in company boards since 2011, with a 3-fold increase in the number of women holding board positions reaching 39% in 2021. Other countries have enforced such quotas with varying degrees of success:
Europe
Norway passed a quota law in December 2005, requiring listed companies to reserve at least 40% of the board seats for women, with a 2-year period to comply with the law. Failing to comply would result in the dissolution of the board. As a result of the law, the number of women as board members increased from 5% in 2001 to 40% in 2008. Since 2008, Belgium, France, Germany, Italy, the Netherlands, and Spain in Europe set similar quotas for women to be appointed as directors.
The US
In 2020, the state of California passed a law that required public companies headquartered in California to have at least one board member from the LGBTQ+ or minority community by the end of 2021 and successively increase the number of diverse members to two by the end of 2022. The law was struck down by the Los Angeles County Superior Court citing that it was an unconstitutional law because it mandated quotas.
On June 27, 2020, New York enforced the law: “The Women on Corporate Boards Study Act”, which legally binds any for-profit corporation doing business in New York to disclose the total number of directors and the total number of women directors on its board.
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