Diversity and inclusion

In the UK, the seminal report that has shaped board diversity policies to date was the Lord Davies report which was commissioned by the government and published in February 2011. Recommendations were issued to various stakeholders, including companies, investors and the Financial Reporting Council (FRC). Companies were encouraged to adopt diversity targets whilst the FRC was encouraged to revise the UK Corporate Governance Code ("the Code") in order to accommodate greater disclosures on diversity.  The Davies Report introduced voluntary targets for women on boards. Its successor, the Hampton-Alexander report, focused not only on boards themselves but on the pipeline of executive women, including the executive committee and its direct reports. 

Following its predecessors, the FTSE Women Leaders Review issued an update on the progress made on gender diversity in 2021 and set out new targets and recommendations for the next stage in the journey to gender-balanced boards and leadership teams by the end of 2025. It has also expanded its remit to include the largest 50 private companies.

Ethnic diversity has been the focus of the Parker Review, which was first published in 2017, focusing initially on the FTSE 100 and FTSE 250. In March 2023, the Parker Review also expanded its remit to the largest 50 private companies to set targets and report their Board and senior management ethnic diversity over time in line with FTSE 350 targets.

Board diversity disclosure

The key sets of disclosure requirements regarding diversity and inclusion at a board level include the Listing Rules (‘LR’), Disclosure Guidance and Transparency Rules (‘DTR’) and the UK Corporate Governance Code which apply to premium and standard listed companies. The Code only applies to companies who choose to voluntarily adopt its principles and provisions i.e. large private companies.

Financial Conduct Authority

In April 2022, the FCA introduced new Listing Rules (LR 9.8.6R(9) and LR 14.3.33R(1)), effective for financial years commencing on or after 1 April 2022. These require, as an ongoing listing obligation, the majority of both standard and premium listed companies to include a statement in their annual financial report setting out whether they have met specific targets for gender and ethnic diversity on the board, on a 'comply or explain' basis, as at a chosen reference date within their accounting period and, if they have not met the targets, to explain why not.

Alongside this annual narrative comply or explain disclosure, there is also a requirement (in LR 9.8.6R(10) and LR 14.3.33R(2)) to publish numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions (Chair, CEO, Senior Independent Director and CFO) and executive management in a standardised table format. Issuers are also required to explain their approach to collecting the data.

Disclosure Guidance and Transparency Rules

DTR 7.2.8 requires companies to describe their composition and operation of the company’s board and their committees in their corporate governance statement. In April 2022, the FCA changed DTR 7.2.8AR to expand existing reporting requirements to cover the diversity policies of key board committees and to indicate that reporting on board and board committee diversity policies could consider wider diversity characteristics.

In March 2023, the FCA issued a Primary Market Bul­letin out­lining its su­per­vis­ory ap­proach and ex­pect­a­tions re­gard­ing listed company board and executive management diversity disclosures.

UK Corporate Governance Code

The Code recommends that companies should set out clear disclosures on diversity and inclusion, the policy and how it is linked to the company’s strategy, any measurable objectives that have been set for implementing the policy, and progress on achieving these objectives.  It builds in requirements for boards to consider diversity in all its forms, including gender, social and ethnic backgrounds, cognitive and personal strengths. It calls again for regular board refreshment and proposes that diversity should be incorporated into the succession and appointment process and should be considered in board evaluations. It also introduces a reporting requirement for diversity in senior leadership, which aligns to the Hampton-Alexander report.

Workforce diversity policy

In accordance with s414C(8)(c) and s414C(9) & (10) of the Companies Act 2006, in scope companies are required to disclose the gender diversity of directors, senior managers and employees in the company or group in the Strategic Report.  See the narrative reporting page for further information on narrative reporting.

For companies that are in scope for the Code, it should be noted that the definition of senior managers in the Companies Act will not always align to the definition of senior leadership in the Code.  Provision 23 of the Code also requires that the annual report describes the company's policy on diversity and inclusion, its objectives and linkage to company strategy, how it has been implemented and progress on achieving the objectives.  This disclosure should set out both the board and workforce diversity policy.

Pay gap disclosures

Employers with 250 or more relevant employees fall within the scope of the gender pay gap regulations, reporting on which is required to be published in April each year.

Employers publish the following information for each financial year:

  • the percentage difference in mean pay between male and female employees;
  • the percentage difference in median pay between male and female employees;
  • the percentage difference in in average bonuses received between male and female employees;
  • the proportion of men and women who receive bonuses; and 
  • the number of men and women in each quartile of pay within the workforce.

These gender pay gap disclosures are published outside the annual report.

In 2019, the UK Government consulted on introducing mandatory ethnicity pay gap disclosure regulations. After the consultation period, the Government Response concluded that it would not legislate for mandatory reporting, however published guidance for employers who wanted to report voluntarily on ethnicity pay gaps.

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