Since 1 January 2014, CRD IV has required the management bodies of credit institutions and CRD investment firms to reflect an adequately broad range of experiences. These requirements were subsequently extended (in identical terms) by MiFID II to all MiFID investment firms (with effect from 3 January 2018) and by the PRA to insurers from 9 April 2018.
The European Banking Authority and European Securities and Markets Authority have published guidelines, which came into force on 30 June 2018. Whereas the CRD IV and MiFID requirements applied to the management body, the guidelines go further and say that, in order to achieve diversity in the management body, there must be a diverse pool of suitable candidates. This joins the growing trend of initiatives looking beyond the C-suite, including:
- the Hampton-Alexander Review an independent business-led review supported by the Government, which is looking at the executive pipeline in the context of increasing the number of women in senior roles, and
- the Women in Finance Charter, under which firms commit to supporting the progression of women, focusing on the executive pipeline and mid-tier.
Interestingly, the CRD IV and MiFID diversity requirements diverge from the nine “protected characteristics” covered by the Equality Act 2010; instead, they require that management bodies should be “diverse in terms of age, gender, geographic provenance and education and professional background.” The reference to education and professional background is particularly interesting, given that socio-economic discrimination is currently ignored by discrimination law in England and Wales (s.1 of the Equality Act 2010 still has not been brought into force, a failure that was criticised in the recent Fawcett Society report into sex discrimination).
There are additional requirements in CRD IV for institutions that are “significant” in terms of their “size, internal organisation and the nature, scope and complexity of their activities” – such institutions have to establish a nomination committee, which should: (i) set a target for the representation of the underrepresented gender (which invariably will be female); and (ii) prepare a policy setting out how the target will be met and an appropriate timeline.
While some may see the CRD IV and MiFID II requirements as yet another box-ticking administrative exercise, diversity is only going to become more important over time and paying lip service is no longer enough. Aside from the widely reported benefits to business in having a diverse workforce at all levels, there is an increasing push from governments, investors and regulators to ensure that boards and senior management are diverse. Earlier this year, BlackRock targeted Russell 1000 companies with fewer than two female directors and Legal & General announced that it would vote against the chairs of FTSE 350 companies if their boards are not at least 25% female. In light of this, institutions should see these requirements and guidelines as a positive opportunity to assess their approach to diversity and put in place policies and practices to help future-proof the business.
There are a number of measures that all companies, not just those subject to CRD IV and MiFID can consider adopting or promoting for recruitment, retention and progression to help ensure that management bodies, and the firm as a whole, foster an inclusive and diverse workplace. For example:
- work with recruiters to ensure diverse shortlists;
- ensure interviewers have undergone unconscious bias training;
- set clear expectations on equal treatment for all staff, backed up with appropriate policies and processes for enforcement;
- provide diversity, inclusion, equality and unconscious bias training for all employees;
- establish mentoring, coaching and development programmes; and
- appoint a member of the senior executive team to be responsible for diversity and inclusion.