The Financial Reporting Council (FRC) has published a consultation paper on 'Gender diversity on boards' in response to one of the recommendations in Lord Davies' report, published in February this year (see our April update). Lord Davies recommended amending the UK Corporate Governance Code (Code) to require listed companies to establish a policy concerning boardroom diversity, including measurable objectives for implementing the policy, and disclose annually a summary of the policy and progress made in achieving the objectives.
The FRC notes the absence of women on the boards of UK listed companies and points out that the percentage of women on the boards of FTSE 100 companies only increased from 9.4% in 2004 to 12.5% in 2010, and that more than 50% of all FTSE 250 companies have no women on their boards at all. The FRC is concerned that this lack of diversity affects board effectiveness as it may:-
- weaken the board by encouraging "group thinking";
- demonstrate a failure to make full use of the talent pool; and
- weaken the board's connectivity with, and understanding of, customers and workforce and offer little encouragement to aspiration among female employees.
The FRC is therefore consulting on the following matters:-
- whether further changes to the Code are needed in order to help achieve more diverse and more effective boards;
- if so, what these changes should be; and
- if changes are made to the Code, when these should come into effect.
In particular, the FRC is suggesting the following changes to the Code:-
- Report of the nomination committee (Code Provision B.2.4). The section in the company's annual report describing the work of the nomination committee should include "a description of the board's policy on gender diversity in the boardroom, including any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives".
- Board evaluation (new supporting principle to Principle B.6). Without singling out gender diversity for special attention in the board evaluation process, the FRC is suggesting that "[E]valuation of the board should consider the balance of skills, experience, independence and knowledge of the company on the board, the board's policy on gender diversity, how the board works together as a unit, and other factors relevant to its effectiveness."
The consultation closes on 29 July 2011, and the FRC will announce its decision on whether to amend the Code and, if so, the timetable for doing so, later in the year.
Separately, the Department of Business Innovation & Skills is planning to consult on one of Lord Davies' other recommendations that quoted companies should be required to disclose each year the proportion of women on the board, women in senior executive positions and female employees in the whole organisation.