News analysis
FTSE boards should be 40% women
As of 2023, companies listed on the London Stock Exchange will be required to report progress toward key gender equality benchmarks.
What’s happened?
The UK’s 1,100 publicly listed companies must now demonstrate that they are meeting gender and ethnic diversity targets – or explain why they are not meeting them.
At least 40% of the boards at such companies must be composed of women, and women must hold at least one of the most senior positions (chairperson, chief executive, chief financial officer, and senior independent director).
Also, at least one member of each FTSE-listed company board should be from an ethnic minority.
Shareholders and investors value diversity
The targets were set not only to create more equal opportunities but also to benefit shareholders.
Companies with diverse leadership teams make better long-term decisions and avoid groupthink, according to the Investment Association, which represents firms managing more than £10tn in assets.
Studies have shown that a good level of diversity can improve business decision-making, reduce risks, and maximise long-term profitability.
Read more: UK boards are improving their diversity.
UK regulators still haven’t applied gender quotas
This is the closest the UK regulators have come to imposing controversial gender quotas.
Critics of gender quotas say they can harm people because their colleagues often view them as tokenism.
Under the FCA targets, companies will only be asked to explain why they are not complying and won’t face fines or suspension of shares.
According to Denise Wilson, the chief executive of FTSE Women Leaders, the FCA’s rules should not “push the dial” beyond voluntary schemes’ targets.
Wilson says businesses are more likely to respond positively to carrots than to sticks, as they prefer to be rewarded for their successes rather than punished for failures.
Investors are hoping for more progress beyond the boardroom, according to The Guardian.
“We have made good progress on board-level diversity, but this has not yet flowed through to senior management levels, which is key to the most holistic change across an organisation,” says Nathan Leclercq, head of corporate governance at Aviva Investors.
