On 11 October 2011, the Financial Reporting Council (FRC) published its Feedback Statement in response to its consultation on gender diversity on boards which closed on 29 July 2011. We reported on this consultation in our July update. The FRC is planning to implement two amendments to the UK Corporate Governance Code (the Code) which will apply to financial years beginning on or after 1 October 2012. However, the FRC urges all companies to voluntarily apply and report on the new requirements with immediate effect.
The FRC issued its consultation in response to the report of Lord Davies of Abersoch on 'Women on boards' which was published in February 2011 (see our April update). In this report, Lord Davies recommended, among others, that the FRC should amend the Code to require listed companies to establish a policy concerning boardroom diversity, including measurable objectives for implementing such a policy, and disclose annually a summary of the policy and the progress made in achieving the objectives.
The new Code requirements
Disclosure of the board's diversity policy
The FRC followed Lord Davies' recommendation and will amend Code Provision B.2.4 requiring the section in the annual report which describes the work of the nomination committee to include the following:-
- A description of the board's policy on diversity, including gender,
- any measurable objectives that it has set for implementing the policy, and
- progress on achieving the objectives.
However, the FRC does currently not intend to produce further guidance setting out elements that might be covered by a policy on boardroom diversity.
A new Supporting Principle B.6 will require that any evaluation of the board should consider:-
- the balance of skills, experience, independence and knowledge of the company on the board,
- its diversity, including gender,
- how the board works together as a unit, and
- other factors relevant to its effectiveness.
Implementation timetable and other consultations
The FRC decided to defer the implementation of these Code changes to the Code until October next year to provide it with an opportunity to consult on other changes to reflect the current discussions and consultations on narrative reporting and effective company stewardship. The Code changes will be incorporated in an updated edition of the Code to be published in 2012 along with any changes resulting from these consultations. The new requirements will therefore apply from the same date as the proposed regulations requiring companies to disclose information about the percentage of women at different levels of the organisation.