Women should make up at least 40% of UK boards, says watchdog

UK and overseas companies listed in London would have to comply with the targets or explain to shareholders in their annual reports why they have fallen short. The FCA said that it may, at a later date, look to expand reporting and targets to other areas such as sexual orientation and disability and other aspects of diversity such as lower socio-economic background.

Women should make up at least 40% of the boards of all listed companies that should also have a minimum of one non-white ethnic minority director, the Financial Conduct Authority said on Wednesday, to increase diversity and inclusion in corporate Britain. Investors are increasingly putting their money into companies that meet environmental, social and governance (ESG) objectives, including cutting carbon emissions or employing a more diverse workforce.

The proposals build on voluntary initiatives to increase diversity, but will push companies to do more. Britain's top 350 listed companies have largely met a target of 33% women on their boards but fallen short of a target that each FTSE 100 board should have at least one director of colour by 2021. The FCA, which polices the listing rules for all types of companies, also proposed that at least one senior position, such as company chair, chief executive or chief financial officer, be held by a woman, and that at least one board member should be from a non-white ethnic minority background.

The changes to the FCA's listing rules are expected to take effect in late 2021 after a public consultation on the proposals that would affect 1,106 companies. UK and overseas companies listed in London would have to comply with the targets or explain to shareholders in their annual reports why they have fallen short.

The FCA said that it may, at a later date, look to expand reporting and targets to other areas such as sexual orientation and disability and other aspects of diversity such as lower socio-economic background. "We may also seek to widen the scope of the targets to levels below executive management," the watchdog said.

It proposed that a wider range of listed companies publish an increased amount of diversity and inclusion data in a standardised format. "This could include, for example, considerations of ethnicity, sexual orientation, disability, lower socio-economic background and other diversity characteristics," the FCA said in a statement.

"This is a significant step towards transparency in the sector," said Sarah Ozanne, an employment lawyer at CMS law firm. The diversity targets would apply to UK and overseas companies with equity shares in either the premium or standard listing segments on the London Stock Exchange.

Last year U.S. stock exchange Nasdaq proposed a new rule requiring all companies on its market to comply or explain why they do not have at least two diverse directors. Hong Kong and Japan have also made similar proposals.

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