The importance of diversity is well rehearsed, including at Board level, and without a doubt progress has been made with regard to gender diversity in particular. But it’s far too early for complacency, and progress at Non-Executive level is not yet matched at Executive level.
Certainly, in Fidelio’s work with Boards we see the focus on diversity to be ongoing. Most companies are working hard to achieve and then maintain at least an approximation of gender balance at the top of organisation – we see this reflected in our Search mandates. Equally Fidelio’s Board Evaluations explore several dimensions of diversity, including:
- Gender, ethnic and cognitive diversity at Board and Executive level
- Board oversight of diversity, including understanding of structural challenges such as pay gaps
- Board leadership in encouraging and embedding Diversity and Inclusion throughout the organisation
Sharpening the Regulatory Focus
Regulators are also continuing their focus on diversity at a leadership level for companies that fall within their purview. Consider for example the recently published UK Financial Conduct Authority (FCA) policy statement on diversity and inclusion relating to both Boards and executive management.
“Setting targets on a ‘comply or explain’ basis for the representation of women and people from a minority ethnic background is designed to be a positive reporting benchmark to encourage progress. However, it serves as a starting point to encourage scrutiny and consideration of diversity and inclusion more broadly, both at senior levels of listed companies and throughout their businesses”
– FCA Policy Statement 2022
Though primarily a regulator of the financial sector, the FCA is also the custodian of UK stock market listing requirements, and this statement thus applies to all companies whose equity is listed in the UK (the rules do not apply to debt instruments, and there are exemptions for open-ended investment vehicles and shell companies).
The new requirement is for reporting periods starting on or after April 1st 2022 and is thus applicable to annual reports which will be published from the second half of 2023. Companies are required to report in a consistent manner in their annual financial reports on a ‘comply or explain’ basis against targets 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 minority ethnic background (based on categories recommended by the Office for National Statistics (ONS)).
Listed companies are also required to disclose reports with a standardised numerical table on the diversity of their board and executive management by gender and ethnicity and to provide transparency on how these have been calculated.
Following feedback received during consultation some flexibility on data collection and disclosure is given to companies, in particular those with overseas operations to enable them to comply with local laws while still providing information useful to investors.
It is important that regulators maintain focus on diversity. Along with shareholders they can be an important catalyst for change. There will undoubtedly be questions and debates about classifications, but discussion and feedback is healthy and the goal should be for companies to better understand what works.
We hear less and less pushback such as “not enough good women”. In terms of supply of strong candidates, Fidelio does not see a problem. In the past year 52% of Fidelio’s placements have been female and 30% from a minority ethnic background. A strong network combined with clarity of candidate brief and rigour of process readily leads to diverse long and short lists.
For more information on how Fidelio can support your Board with its Diversity, Equity and Inclusion goals, please contact Mark at firstname.lastname@example.org.
Fidelio Partners is committed to “Building Better Boards”. We are independent in our approach and advice and specialise in supporting Boards through practical solutions to complex challenges:
- Effectiveness – Evaluation / Development
- Alignment – Strategy / ESG / Engagement
- Composition – Board and Executive Search / Diversity and Inclusion
For more information, please visit fideliopartners.com or contact email@example.com.