On 20 April 2022, the Financial Conduct Authority (“FCA”) published its final statement regarding diversity and inclusion on company boards and executive management with a view to increasing the disclosure of diversity and inclusion on listed company boards and executive committees, with benefits to corporate governance and management decision making (“PS22/3”). PS22/3 sets out the final proposals as previously set out in the Consultation Paper 21/24 ‘diversity and inclusion on company boards and executive committees’ (CP21/24) published in July 2021 to improve transparency on the diversity of listed company boards and executive management teams. To support the FCA’s focus on implementing diversity and inclusion, they have introduced new Listing Rules (the “Listing Rules”), previously consulted on in the consultation paper. The final proposals are the same as those set out in the consultation paper, with some changes to how data is collected and reported.
The companies in scope of the new Listing Rules apply to UK and overseas companies with equity shares, or certificates representing equity shares, admitted to the premium or standard segment of the FCA’s Official List. The rules exclude open-ended investment companies and ‘shell companies’ including closed-ended investment funds, and sovereign controlled companies. Further, the rules do not apply to companies with listed debt-like securities, securitised derivatives, or miscellaneous securities.
The new listing rules
The new Listing Rules require in-scope companies to include a public disclosure in their annual financial report stating whether such companies have met their specific board diversity targets in relation to gender and ethnicity on a ‘comply or explain’ basis. Where the targets have not been met, the companies are to provide an explanation as to why. It is important to note that companies are not legally bound by these targets, however where the targets are not complied with, or where companies have not tried to comply with their targets, this will not be viewed positively by the public. The targets proposed by the FCA are:
- at least 40% of the board are women;
- at least one of the senior board positions (Chair, Chief Executive Office (‘CEO’)), Senior Independent Director (‘SID’) or Chief Financial Officer (‘CFO’) is a woman; and
- at least one member of the board is from a minority ethnic background.
data collection and reporting
In addition, the FCA requires in-scope companies to publish a table of numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions including Chair, CEO, SID, CFO, and executive management. In-scope companies are required to explain their approach to collecting the data, and show their approach is consistent across the individuals being reported on and reporting against the targets and numerical disclosures. The FCA proposed some examples on how this data could be presented:
Numerical reporting tables
Table 1: Reporting table on sex/gender representation
Table 2: Reporting table on ethnicity representation
policies and procedures guidance
The FCA has also provided guidance within the Policy Statement to the effect that in-scope companies may (but are not obliged to) include the following within their annual financial report:
- a brief summary of any key policies, procedures, and any wider context that it considers contributes to improving the diversity of its board and executive management;
- any mitigating factors or circumstances which make achieving diversity on its board more challenging; and
- any risks it foresees in being able to meet or continue to meet the board diversity targets in the next accounting period, or any plans to improve the diversity of its board.
In-scope companies are required to make these disclosures in their annual reports for financial years starting on or after 1 April 2022, meaning that the new disclosures will start to appear in annual financial reports published from quarter two onwards.
For more information, and any guidance or advice on the new measures Cleveland & Co External in-house counsel™, your specialist outsourced legal team, are here to help.
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