The Parker Review Committee has recently published its consultation version of a report into the ethnic diversity of UK boards.
In late 2015, Sir John Parker, Chairman of Anglo American plc, was asked to conduct an industry led review into the ethnic diversity of UK boards with a view to building on the work done by Lord Davies on gender.
The report summarises the findings of a review which focused on companies within the FTSE 100 and concludes that ethnic minority representation on such boards is disproportionately low. Research undertaken in March 2016 revealed that of 1.087director positions in the FTSE 100, only 8% of positions is held by directors of colour when 14% of the total population of the UK is from a non-white ethnic group. Seven companies in the FTSE 100 accounted for one third of directors of colour whilst 53 of the FTSE had none at all.
The report also makes some key recommendations for consideration in three separate categories... These are:
Increasing ethnic diversity of UK boards
- At least one director of colour should sit on each FTSE 100 board by 2021, and on each FTSE 250 board by 2024
- Nomination committees should require search firms or human resources to identify and present qualified people of colour for consideration for a board vacancy
- The Standard Voluntary Code of Conduct for executive search firms should be extended to cover minority ethnic candidates in the context of gender-based recruitment
Develop candidates for the pipeline and plan for succession
- FTSE 100 and FTSE 250 companies should develop mechanisms to identify, develop and promote people of colour to build a pipeline of board capable candidates and ensure that managerial and executive ranks reflect diversity in the organisation
- Led by board chairs, existing directors of FTSE 100 and FTSE 250 companies should mentor and/or sponsor people of colour within their companies to ensure readiness to assume senior managerial or executive positions internally of non-executive posts externally
- Candidates from diverse backgrounds should be encouraged to take on internal board roles (as subsidiary directors) and external trustee and board positions to give experience and develop skills
Enhancing transparency and disclosure
- The board's policy on diversity should form part of the company's annual report and should include details of efforts to increase ethnic diversity within the organisation, including at board level
- Companies that do not reach the recommended board composition recommendations in 2021 and 2024 as set out above should disclose why not in the annual report.
The report also includes some useful appendices These include a set of questions for directors when considering the question of ethnic diversity on the board, framed in language which takes in both directors' duties under the Companies Act 2006 and consistent with the UK Corporate Governance Code. Details of useful resources available to companies are also included, together with a case study from EY about its Inclusive Leadership programme.
Comments on the report are requested by 28 February 2017 after which a report containing the final recommendations and findings of the review will be published.
A Report into the Ethnic Diversity of UK Boards by the Parker review committee can be found here and a press release here.
Investment Association updates principles of remuneration for 2017
On 31 October the Investment Association (IA) wrote an open letter to chairmen of remuneration committees of FTSE 350 companies setting out significant changes in its principles of remuneration. These changes are mostly made in response to the Executive Remuneration Working Group's report of July 2016. A copy of the letter which includes details of the key changes to the Principles and highlights issues IA members want focused on ahead of the 2017 AGM season can be found here.
ISS consults on its UK and Ireland Voting Policies
Institutional Shareholder Services (ISS) is consulting on changes to its UK and Ireland voting polices. These policies set out when ISS will recommend that shareholders vote against a proposed resolution. ISS plans to publish it final 2017 policies in the week of 14 November. The revised policies will apply to shareholder meetings taking place on or after 1 February 2017.
We will report further once the 2017 policies are finalised. The press release (which links through to the various papers) can be found here.
New FRC reports
The Financial Reporting Council (FRC) has been active recently and has issued a number of publications:
- A consultation on revised reporting review procedures for the FRC's Conduct Committee. This includes the proposal of publishing lists of companies whose accounts and reports have been the subject of a review. Feedback on the proposed revised operating procedure is requested by 4 January 2017. The Consultation paper can be found here.
- The FRC's annual advice to audit committee chairs and finance directors of listed companies highlighting improvements and key issues that could be made to annual reports in the 2016 reporting season. The FRC's Year End Advice to Preparers 2016 can be found here and the press release here.
- The FRC Corporate Reporting Annual Review 2016 has been published which highlights nine characteristics of good corporate reporting. The Annual Review can be found here and the press release here.
The FRC has also published the Technical findings of the Conduct Committee's Financial Report Review Panel 2015-16. This supplements the FRC's Corporate Reporting Annual Review for 2016 by highlighting technical findings from the past year. This publication can be found here.
- The FRC Financial Reporting Lab has published a project report on business model reporting which looks at the importance of business model information to investors and at what type of information they are looking for. The report also includes examples of good practice and how disclosures could be made more valuable to investors. Comments on the report are requested. The project report can be found here and the press release here.