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Fresh push for boardroom diversity

The financial regulator is clamping down on male-dominated boards – but how do companies fare against its new targets?
Fresh push for boardroom diversity
  • New FCA rules say women should hold at least 40 per cent of a listed company's board seats, with an explanation now needed in annual reports if this is not met
  • Female representation on FTSE 100 boards has improved but senior positions are still largely male

The Financial Conduct Authority (FCA) is tightening the screw on businesses that fail to promote women into senior positions. From 1 April, UK-listed companies must confirm they have hit a series of diversity goals, or explain why they are lagging behind. At the moment, however, just a third of London’s biggest companies meet the gender brief. 

The targets set by the FCA are threefold. First, that at least 40 per cent of a listed business’s board members are women. Second, that at least one senior board position – chair, chief executive, CFO or senior independent director SID – is occupied by a woman. And third, that at least one person on the board is from an ethnic minority background (anyone not in the 'white British' category). 

While the regulator has stopped short of imposing mandatory quotas, companies must include a 'comply or explain statement' within their annual financial reports, and provide a standardised numerical table covering the make-up of their management team. 

When it comes to female representation, more companies are ‘explaining’ than ‘complying’ at the moment.

Research carried out by Investors’ Chronicle shows that 52 per cent of FTSE 100 companies – which are typically more diverse than businesses further down the market capitalisation ladder – have boards that are at least 40 per cent female. Meanwhile, 53 per cent have at least one woman in a senior board position. 

In total, however, just 35 companies in the FTSE 100 meet both gender targets. At the opposite end of the spectrum, 15 companies have boards that are more than two-thirds male. Despite the new rules only applying to main market companies, according to law firm RPC, there is plenty of work to do on the junior boards as well. Even among the top 10 Aim-traded companies by market capitalisation, Jet2 (JET2) has no female directors and none of the other top 10 firms would meet the 40 per cent goal. 

Sarah Pritchard, executive director of markets at the FCA, said the new rules should help investors hold companies to account and improve transparency. Things are already improving in this regard. Over the past 18 months, at least 10 companies in the FTSE All-Share have faced significant opposition from shareholders, who were reluctant to re-elect male directors because of diversity concerns.

Activist fund Legal & General Investment Management (LGIM) said last year it had voted against directors 40 times in the UK on gender balance concerns, down from 54 negative votes the year before. It had seen a huge increase in these negative votes in the US in the same period, however, from 31 to 102. 

At Ocado (OCDO), for example – which has three women and and 10 men on its board – almost a quarter of shareholders voted against the re-appointment of its senior independent director last year on diversity and remuneration grounds. Balfour Beatty (BBY), Biffa (BIFFA), Mitchells and Butlers (MAB) and Ultra Electronics (ULE) have all faced similar challenges. 

The FCA rules also build on the Hampton-Alexander equality review, which launched in 2016 and pushed for women to take at least a third of positions on FTSE 350 boards. The review prompted a 50 per cent increase on FTSE boards over the course of five years, and a final check-in  last year found that 34.3 per cent of FTSE 350 board positions were held by women.

However, the FTSE Women Leaders Review argues that focus now needs to shift away from board positions and onto leadership roles. 

Kate Dodd, a legal director at Pinsent Masons who launched the firm’s equality practice, said companies are starting to report a write down of equity by investors due to a failure to hit gender and ethnicity targets.

“Whilst it may have been convincing last year to say that progress ‘takes time’, there is no doubt that results will be expected by now, and that data will be needed to show that those results are more than just rhetoric,” she said.