UK Securities Regulator Unveils “Comply or Explain” Diversity Disclosure Framework

By Henry Eickelberg posted 08-06-2021 14:01


A United Kingdom proposal could require companies to “disclose annually on a comply or explain basis whether they meet specific board diversity targets and to publish diversity data on their boards and executive management.”

The process:  The UK’s Financial Conduct Authority (FCA), the regulatory organization responsible for overseeing the listing requirements of any entity listed on a UK securities exchange, issued the public consultation on Thursday, July 28, 2021 with a three-month public comment period.  The FCA’s consultation amounts to a “proposed rule,” which enables the agency to subsequently issue final listing standards which must be met by any entity listed on a foreign exchange. 

The proposed requirements include:  

  1. A “Comply or Explain Statement” on whether a company has achieved the proposed targets for gender and ethnic minority representation on its board;

  2. A narrative disclosure explaining key diversity and inclusion policies, processes, and any wider context relevant to the company’s diversity experts at the board and executive management level; and

  3. Separate “standardized numerical disclosures” on both the ethnic and gender diversity of a company’s board, key board positions, and executive management team.  A sample of the table is embedded below:

The targets are as follows:

  • At least 40% of the board self-identify as women;
  • At least one of the senior board positions (Chair, CEO, SID, or CFO) self-identify as a woman);
  • At least one member of the board is from a non-white ethnic minority background (as categorized by the UK’s Office of National Statistics).

If a company has not met the targets, it must disclose which targets were missed and the reasons for not meeting them.

Outlook:  Compared to the U.S., the UK is more progressive with disclosure and listing standards.  Therefore, it is not at all surprising to see the UK go forward with an official listing requirement.  With the publication of the UK’s initiative, however, U.S. officials and interested parties will no doubt closely examine the content and strategy being contemplated by the FCA.  HR Policy Global will monitor the proposal as it moves through the rulemaking process.