On 22 February 2022, the UK Government-backed, independent, voluntary and business-led FTSE Women Leaders Review (the “FTSE Women Leaders Review”) published its first report aimed at achieving gender balance across FTSE 350 boards and corporate leadership teams (i.e., top management) (the “Report”).

The FTSE Women Leaders Review builds on the Davies and Hampton-Alexander Reviews, which set targets for representation of women on boards of 25 percent by 2015 and 33 percent by the end of 2020, respectively. In particular, the Report recommends that:

  1. The voluntary target for FTSE 350 boards and leadership teams should be raised to a minimum of 40 percent by the end of 2025; and
  2. The scope of the voluntary gender balance target should be expanded into the private sector (across the top 50 private companies in the UK by sales).

While the Report celebrates progress that has been made in terms of female representation, it notes that attention should now also be directed at the specific roles undertaken by women – given the ever-strengthening pipeline of experienced women in leadership, the Report suggests that many more women should have been appointed to more senior roles than seen at present.

The Report aims to highlight gender diversity issues within UK companies and to help shape UK corporate governance principles as a whole and in a way that will accelerate change.

Dechert’s International Capital Markets Team outlines the key recommendations of the Report below.

Recommendations

Target 1: Increasing the gender balance target

The Report recommends increasing the voluntary target for representation of women on FTSE 350 boards and corporate leadership teams from a minimum of 33 percent by 2020 to 40 percent by 2025.

Increasing this voluntary target aims to encourage companies that have not yet met the 2020 target to take further steps to promote gender balance and meet the target. As of February 2022, 171 FTSE 350 companies remain below the 2020 leadership target, and 72 remain below the 2020 board target (with women holding 36.8 percent of board positions of FTSE 250 companies and 39.1 percent of board positions of FTSE 100 companies). This indicates that gender diversity remains an issue across the FTSE 350.

While progress is evident, the Report notes that it has been slower than expected, suggesting many corporates are underinformed on the business and economic value of gender diversity. For example, the Report cites that 63 percent of all available roles in FTSE 100 leadership teams are still awarded to male candidates, despite an increasingly strong supply of experienced and capable female candidates. The Report calls for more work to address the behaviours of companies to create inclusive cultures, including measures to mitigate the negative impact of the COVID-19 pandemic.

Target 2: Appointment of women to the most senior board and leadership roles

The Report also recommends that, by 2025, FTSE 350 companies should have at least one woman appointed as chair or as a senior independent director (“SID”) or one woman appointed as chief executive officer or finance director.

A snapshot of the positions held by women across FTSE 350 companies in 2021 reveals that:

  • Female chief executives: 18 women served as a chief executive officer (an increase of only three since 2011), of which eight appointments were by FTSE 100 companies.
  • Financial directors: 49 women served as a financial director (a two percent increase since October 2020).
  • Chairs: 48 women held the role of chair in 2021, as compared to 13 in 2015.
  • SID: 32 percent of SIDs (or 115) were female, an increase from 57 SIDs in 2017.

The Report notes that barriers to female progression and appointment to FTSE leadership roles, including unconscious bias, are still evident, and progress in eradicating such barriers has, to date, been slow. Companies are encouraged in the Report to ramp up their efforts to understand and remove biases from selection processes.

Target 3: Key stakeholders to set best-practice guidance

One of the aims of the Report is to consolidate and build on progress made in recent years by encouraging companies, particularly those which have been slow to implement changes, to continue to promote gender diversity through corporate governance policies and engagement practices.

Key stakeholders, including industry leaders and investors, are encouraged by the Report to set best-practice standards that encourage companies that do not yet meet the 33 percent representation target to actively look for female candidates when considering additional appointments.

Target 4: Scope of the Report to be extended to include the largest 50 private companies in the UK by sales

Another aim of the Report is to encourage progress across a wider spectrum of businesses by including the largest 50 private companies in the UK by sales within the scope of the 2025 targets.

Any future audit and corporate governance reform package that aims to encourage corporate gender diversity would, according to the conclusions drawn in the Report, benefit from extending the 2025 targets and conducting a review into the private sector. This would, in turn, help to bring diversity expectations of private companies in line with FTSE companies.

Do voluntary targets go far enough?

The statistics included in the Report indicate that the UK’s current disclosure regulatory framework is not yet effective in encouraging equal representation of women on company boards. The Report suggests that this may be because existing targets do not apply to all companies, and no explicit requirements or deadlines have been set. This is something that the UK’s Financial Conduct Authority (the “FCA”) is looking to change. In April 2022, the FCA introduced a series of amendments to the Listing Rules and the Disclosure Guidance and Transparency Rules to improve transparency for investors as to the diversity of the boards and executive management teams of listed companies. Listed companies will be required to report against targets on board diversity, along with data on the gender and ethnic breakdown of the company’s board and senior executive management. The comply or explain targets suggest at least 40 percent of the board should be women, including one in a senior board position, and for one board member to be from an ethnic minority background. For more information on the amendments, please see “FCA takes steps to enhance board diversity.”

A different approach has been taken in the European Union. In March 2020, the EU adopted its Gender Equality Strategy 2020-2025 (the “2025 Strategy”), a framework formally endorsed by the European Commission, which aims to advance gender equality. The 2022 report on gender equality in the EU stated that:

  1. In 2021, women made up approximately 30 percent of board members across the largest publicly-listed EU companies (although this figure represents an all-time high, the annual percentage increase is the lowest value since 2010); and
  2. France was the only member state in which the largest listed companies had representation of women at board level of at least 40 percent, with Italy and the Netherlands at approximately 38 percent. In recognition of this, certain European countries (including Germany, France, Belgium, Portugal, Austria, Italy, Greece and the Netherlands) have introduced legislation mandating minimum female representation quotas of between 25 percent and 40 percent.

While the UK has not gone so far as to introduce quotas, which, despite international popularity, can be controversial and many believe to be counter-productive, the Report notes that more needs to be done to promote gender balance. The Report concludes that that increased investor pressure may be key to encouraging companies to focus on diversity. Investors increasingly expect companies to develop, support and maintain diverse board and leadership teams. The Investment Association’s Public Register, which tracks shareholder dissent at listed companies, recorded that, in 2021, eight FTSE 350 companies received significant shareholder votes against director re-elections due to a lack of diversity on board and leadership teams. In February 2022, the Institutional Voting Information Service, which publishes independent information on listed companies prior to corporate annual general meeting season, announced that it will issue its highest warning (a “red top” warning) to FTSE 350 companies where women do not represent 33 percent of the board and 28 percent of the executive committee. In addition, certain other industry players are taking steps to accelerate reform. For example, in 2020, Goldman Sachs published its board diversity initiative , stating that it would only take a company public in Western Europe or in the United States if it had at least one diverse board member. In 2021, the policy was updated to require two diverse board members, one of which must be a woman.