The Financial Conduct Authority (FCA) have proposed implementing new rules which would see firms pushed to increase the percentage of female board directors to at least 40 per cent.
A consultation launched by the FCA would hold companies responsible for ensuring that almost half of their board directors (40 per cent) are female.
It has also called for one of the senior board positions including Chair, CEO, CFO or Senior Independent Director (SID) to be a woman.
Earlier this year, a review into the topic found that women represented just over a third (36 per cent) of board positions within FTSE 100 companies.
As part of these changes proposed by the FCA, it will be made mandatory for firms to either “comply or explain” why they have failed to meet targets for gender and ethnicity representation at board level.
In addition, the conduct regulator further suggesteded that company boards should have at least one non-white ethnic minority director.
This comes after data from the Parker Review found that over a fifth of FTSE 100 companies had no ethnic diversity on their boards last year, raising major concerns about diversity and inclusion at senior level.
The Financial Conduct Authority have also asked companies to disclose the data on the make-up of their board and most senior level of executive management in terms of gender and ethnicity.
However, the FCA has maintained that these diversity targets will not be mandatory for companies to meet but ensures that companies have a “positive benchmark” to report against.
Clare Cole, Director of Market Oversight at the FCA commented on the proposals:
There is a current lack of standardised and mandatory transparency about diversity on listed company boards, particularly outside the FTSE 350 who do not provide data to the voluntary initiatives in this area. But interest from investors is growing and companies are increasingly focusing on this topic due to ESG investing, as well as wider social and public policy concerns.
Our proposals are intended to increase transparency by establishing better, comparable information on the diversity of companies’ boards and executive committees.
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 in due course.
Rebecca Hourston, MD of Women’s Leadership Programmes at Talking Talent, stated this was a “promising step”:
An inclusive workplace always starts at the top, so placing more pressure on UK boards is a promising step for the FCA.
Even more so, however, the FCA’s proposed “comply or explain” benchmark would allow us to better understand ‘why’ businesses are failing to meet diversity standards.
Despite impressive progress in recent years, women and minorities are still severely under-represented within business leadership, and the more understanding we have around the barriers, the better equipped we are to avoid slowing down, or reversing, progress.