The changes will require that:
- at least 40% of the board are women
- at least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID) or Chief Financial Officer (CFO)) is a woman
- at least one member of the board is from a non-white ethnic minority background (as referenced in the categories recommended by the Office for National Statistics (ONS)).
We found that most companies (93%) are compliant with the Parker Review target of at least one board member from an ethnic minority background (58%) or are working towards this (30%). There is a clear split between those that are proudly on course to achieving the FCA targets of at least 40% female board representation and at least one woman in a senior board position, and those that don’t seem to be aware of this new target or feel that, being members of the 30% Club or compliant with the Hampton-Alexander Review target, they have done enough.
We also found that only 13% of companies provide a detailed policy, including timebound targets, for increasing ethnic diversity in the workforce, and almost half (45%) don’t even mention ethnic diversity. The new requirements mean that companies will be more inclined to discuss their policies more prominently in the annual report, which we are already starting to find in some of the latest reports reviewed.
We recently reviewed reporters with year ends of June, July, August and September 2022 to see how they are saying about the upcoming changes.
We found that reporters who address their status of compliance with the disclosures from the get-go and demonstrate plans to meet the requirements signal accountability and transparency which we encourage; for example AJ Bell page 37 and DuneIm page 84.
We also identified an increase in reporting on people policies, with companies highlighting updates to their targets and policies in light of the new diversity requirements. Severn Trent page 116 clearly presented its targets for the future year which were reflective of the new requirements. Likewise, Virgin Money page 105 informs readers in its Nomination Committee report that its Board had approved revised diversity and inclusion targets.
The FCA rules require reporters to disclose the diversity details of the members on the board and executive committee in tabular format. Of the reporters reviewed in our sample only Compass Group was found to be compliant with this requirement and, while the rules do not apply until the company’s September 2023 year end, it has disclosed the information and has demonstrated high levels of transparency as well as openness to change; see page 63 of Compass Group’s Annual Report for an example of the table.
While we found companies willing to highlight changes in their policies, few have discussed this in the context of remuneration, and of the companies sampled we found Close Brothers chose to address the FCA’s diversity reporting requirements in its Directors’ Remuneration Report, page 127.
Best-practice tips
- Explain how the new requirements are being addressed by the Board and include any challenges along with how these are being managed to demonstrate accountability.
- Be transparent about changes to policies and explain your rationale.
- Set and define timebound targets to increase credibility.
If you would like further information, please get in touch with kirsten.winter@luminous.co.uk.
