Locations
Transpire Global Director Network & Fieldfisher LLP
On 7 February 2023, Fieldfisher's Inclusion, Diversity & Culture Group (IDC) hosted a presentation in conjunction with the Transpire Global Director Network (a membership organisation for NEDs). The topic of the evening was FCA Proposals – Diversity & Inclusion on Company Boards.
Speakers from Fieldfisher included the following IDC Group members:
- Lily Searle, a Senior Associate in the Equity Capital Markets team who covered the regulatory rules for Main Market listed issuers concerning mandatory board composition targets and diversity reporting.
- Ranjit Dhindsa, Head of EPIC (Employment, Pensions, Immigration and Compliance) who discussed risks for the Board in complying with the new rules, possible tensions with the Equality Act 2010, as well as culture change.
- Kirsten Whitfield, a Director in the Privacy Team covered the approach to data collection around diversity statistics and the lawful basis of processing and storing this data.
The new FCA regulations set mandatory board composition targets for Main Market listed companies with equity shares (or depositary interests), as well as closed-ended investment companies and sovereign controlled companies. The regulations set out that that women should make up 40% of the Board (including at least one of the senior board positions, such as CEO, CFO, Chair or Senior Independent Director) and that at least one Board position should be held by a candidate from a non-white ethnic minority background. To the extent that companies do not meet these targets, they must now explain to what extent they have failed to meet the targets, and explain why in their annual report. The FCA has also mandated numerical disclosures around gender and ethnicity in standard form tables as to the numbers of individuals at holding board and senior management positions.
The below represents a select summary from the Q&A section of the event:
- Can issuers rely on the "legal basis" for processing special category data in relation to the FCA requirements to collect gender and ethnicity data?
- It is unclear whether the Listing Rules neatly fall under the definition of 'laws' since they are set and maintained by the Financial Conduct Authority, therefore it may be safer to rely on the "legitimate interest" basis for processing both gender and ethnicity data.
- Note, ethnicity data is special category personal data and requires an additional lawful processing basis (such as substantial public interest) compared to gender data, which is not considered special category personal data.
- Do the latest FCA rules on diversity apply to issuers of listed debt?
- No, they do not.
- Can the data collected to comply with the FCA obligations be anonymised when reported?
- Yes, it can when including data in the standardised tables however if the board or senior management team is small, it may be difficult practically to apply anonymity.
- When can a board make its own classifications regarding an individual's gender or ethnicity (in circumstances where no response has been received from individuals requesting such data)?
- The best approach is not to assume, and to have a data capture approach that is fair and transparent to encourage participation. To the extent certain data cannot be collected, issuers should explain this in their annual report, rather than try and guess an individual's gender or ethnicity. Organisations must also be mindful of data accuracy requirements under UK data protection laws.
- Do the FCA regulations have "teeth" regarding non-compliance?
- The information we have on this is limited, since the FCA have stated that they intend to review the diversity disclosures given over the next few years. It is likely that it is stakeholders, such as institutional shareholders and lobbying bodies who will effect change by applying pressure to those organisations who fail to comply.
- Organisations will be required to provide information about compliance in their annual reports.
- Can organisations be open in the recruitment process around their desire to attract certain categories or groups of candidates which are underrepresented in the workforce?
- If a company has made a considered assessment that there are underrepresented groups in their organisation, and wish to address this, they could consider using phrases such as "we welcome applicants with a background of [x]" but they should avoid saying "we only invite candidates with a background of [x]".
Key takeaways:
- Effective culture change requires the Chair or CEO or relevant senior leader to lead the change.
- The nomination, remuneration and audit and risk committees should also be aware of the FCA's mandatory targets.
- A top-down holistic approach to improving diversity at all levels of the organisation is likely to have the most beneficial effect rather than a tick-box compliance exercise implemented only at board level.
- Boards should expect regulators and stakeholders to take an increased interest in diversity and associated reporting and should expect stakeholder engagement on the same.
- Thought is required as to the approach to data collection around personal and special category data – does the organisation have a legitimate basis to collect and store such data, and have they been transparent with employees as to the purpose and ultimate goals relating to the collection?
- Boards should be mindful of their obligations under the Equality Act 2010 to avoid discrimination claims from existing board members as well as new board members.
- Boards should consider implementing a bespoke diversity policy which sets out their approach to diversity in relation to a number of characteristics, not just gender and ethnicity and this should apply to all relevant board & advisory committees,