The government, through the Department of Business, Innovation and Skills (BIS), published last week draft regulations which will require all large and medium sized companies to produce a new 'Strategic Review' as part of their annual report, similar to the current Business Review but with some significant changes. The changes are aimed to increase corporate transparency and to make it easier for shareholders to hold companies to account. In particular, the draft regulations contain a new requirement for quoted companies to report on the gender make up of their organisation.
With an announcement from the European Parliament expected this week on the potential introduction of mandatory quotas for women on boards of listed companies, the government's announcement comes at a time when board level diversity is firmly under the spotlight.
The draft regulations follow a consultation in September 2011 which asked whether quoted companies should be required to disclose the number of women on the board, in senior executive positions and in the whole organisation. Around three quarters of those responding supported the requirement.
Accordingly, the draft regulations now contain a requirement that the Strategic Review for quoted companies must include details of the gender breakdown of:
- the board of directors of the company;
- the managers of the company (defined as employees who have responsibility for planning, directing or controlling the activities of the company); and
- the employees of the company.
Jo Swinson, Business Minister, commented that the proposed reforms "…will persuade companies to pursue greater diversity and develop the pipeline of talent, helping drive a long-term culture change at the heart of business".
It is unclear from the draft regulations, how the definition of 'company' is to be applied in a group context. In particular, it is unclear whether quoted companies will be required to report on the gender of directors and managers throughout the group, including minor subsidiaries. It is hoped that the final version of the regulations will clarify the position.
For quoted companies, the Strategic Review must contain (as is currently the case for the Business Review) a description of the company's strategy and business model, main trends and factors likely to influence the company's future, and information about environmental matters, employees, and social and community issues. There will also be a new requirement (which is not currently included in the Business Review) for the Strategic Review for quoted companies to include information on human rights issues.
Consultation on the draft regulations is open until 15 November 2012 which, once finalised, will come into effect for companies with accounting periods ending on or after 1 October 2013 (the original version of the draft regulations refers to the rules coming into effect for companies with accounting periods beginning on or after 1 October 2013 but we understand that this is to be changed). The Financial Reporting Council aims to issue draft guidance to assist companies in completing the Strategic Review early in the new year.
Please see our recent corporate briefing for further detail on the content of the Strategic Review from a corporate perspective. The draft Regulations and Consultation Paper are available on the BIS website.