LONDON – The UK Financial Regulator has proposed changing the rules for companies listed on the UK Stock Exchange to include a “Comply or Explain” requirement for failure to meet diversity goals.
The UK’s Financial Conduct Authority presented its proposals on diversity and inclusion in a consultation paper published on Wednesday.
It suggested that at least 40% of company boards should be women, including those who describe themselves as women. In January 2021, women made up 36% of board positions in the UK’s top FTSE 100, according to the Hampton Alexander review data.
Additionally, the FCA said that companies should have at least one woman to hold leadership roles as chairman of the board, CEO, senior independent director, or chief financial officer.
The FCA also suggested that at least one director of a company should be from a non-white ethnic minority. A report published by Green Park Business Leaders in February found that only 10 of the 297 people in the top three positions in the FTSE 100 companies had ethnic minority backgrounds.
The financial regulator said it wanted publicly traded companies to publicly disclose whether they met certain board diversity goals in their financial statements. If not, companies would have to explain why they didn’t achieve these goals, also known as the “comply or explain” requirement.
“This gives companies the flexibility to provide a relevant context for their approach to board diversity, whether or not these goals are met,” said the FCA in its paper.
Along with these goals, the FCA required companies to publish data on the composition of their boards of directors and senior executives.
Nasdaq diversity proposal
The FCA’s proposals follow a push by the US stock exchange operator Nasdaq to increase diversity among the 3,000 companies listed on its stock exchange.
It filed a proposal in December calling on the Securities and Exchange Commission to approve new rules for the composition of company boards. The Nasdaq suggested that the majority of companies must have at least two different board members: a woman and a person who identifies as either an underrepresented minority or LGBTQ. It also made a “Comply or Explain” requirement.
In March, however, the Nasdaq’s proposal was delayed as the SEC needed more time to review the plan.
Speaking in March to mark the launch of a charter for women in finance, FCA CEO Nikhil Rathi said the Nasdaq had taken the lead on its listing rules and said the UK watchdog is investigating similar requirements.
He said: “I want to encourage all capital market participants to consider the reasons why there are so few female CEOs and CFOs or CEOs and CFOs of color presenting at IPOs or raising capital – there are challenges in the culture of private equity, underwriting , Equity Syndication? What else can we do to promote and celebrate female leaders and entrepreneurs? “
The FCA is asking for feedback on its proposals during its consultation period, which ends in October. It said it would try to make all the rules formal by the end of 2021.
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