FCA proposals on board diversity send a clear message

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There is a new age dawning in the financial services industry – and not a moment too soon.

The UK’s Financial Conduct Authority has set out a series of proposals to improve transparency for investors about the diversity of listed financial services company boards and their executive management teams.

The proposals would require listed financial services companies to report against targets on board diversity, along with data on the gender and ethnic breakdown of the company’s board and senior executive management.

The proposals place no more administrative burden on companies than the government-led reviews have over the past decade.

The comply or explain targets proposed by the FCA suggest at least 40 per cent of the board should be women, including one in a senior board position, and for one board member to be from an ethnic minority background.

Women on Boards has long advocated a 40:40:20 gender split, where 40 per cent of the board is male, 40 per cent female and the remainder the result of natural fluctuation. This represents a true gender balance.

Deciding how interventionist to be in diversity and inclusion matters is a careful road to navigate.

Despite increasingly international popularity, many believe that quotas can be counter-productive, but what is becoming increasingly clear is that excessively homogeneous leadership constitutes a business risk.

I applaud the FCA for sending this clear message to the financial services industry that diversity matters and those that do not improve will be held accountable. 

Women on Boards urges the FCA to implement these proposals, and fervently recommends that the Financial Reporting Council considers these proposals for all listed firms; this will ensure that progress is maintained and advanced. 

Making a difference 

We now have an established body of research showing that diverse boards correlate with enhanced business performance, which is why the pressure is heating up from investors.

A few notable studies include Credit Suisse's Gender 3000, McKinsey’s Diversity Wins, and the recent London Business School, SQW and FRC report Board Diversity and Effectiveness in the FTSE 350.  

The government’s Hampton-Alexander and Parker reviews have been gathering this data from FTSE 350 companies for a decade and we have seen progress as a result. In my view, this constitutes proof of concept that monitoring and scrutiny can drive change. 

However, the data clearly shows we are far from 'job done', and it is extremely concerning to see those government-led reviews end this year with no firm plans for continuation.

Incorporating board diversity into reporting requirements would both strengthen the UK’s business-led approach, as well as ensure that the progress made does not roll back.