Appoint more women to your board or explain why not, FCA tells listed firms

The FCA will review the rules in three years from now. (Kirsty O’Connor/PA) (PA Wire)

Companies that want their shares to trade on the UK stock markets will have to ensure that four in 10 of their board members are women, or explain why not, according to new rules.

A year from now businesses will need to account for diversity in their top teams and will report against targets set by the Financial Conduct Authority.

Some companies will not be able to meet the targets but should be able to explain why, the FCA said on Wednesday.

At least 40% of a company’s directors should be women and a woman should hold at least one of the senior board positions – either chair, chief executive, finance boss or senior independent director.

At least one member of the board should be from an ethnic minority background.

“As investors pay increasing attention to diversity at the top of the companies they invest in, enhancing transparency at board and executive management level will help hold companies to account and drive further progress,” said Sarah Pritchard, executive director of markets at the FCA.

The first reports will come in a year. The rules apply to the accounting periods from the beginning of this month.

The “comply or explain” approach allows small companies or those based abroad some flexibility around the targets, the watchdog said.

It plans to review the rules three years from now to make sure they work as intended and check whether the targets should be updated.

The watchdog said: “The FCA’s approach sets positive diversity targets for listed companies. If they cannot meet them, they need to explain why not.

“This approach allows flexibility for smaller firms or those based overseas.

“The rules also allow companies to decide how best to collect data from employees to show they are meeting the targets.”