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FTSE Dawns New Diversity as Rules Change | Corporate Governance

When Sainsbury’s then-chairman, David Tyler, began walking the grocery chain’s stores in 2009 after being appointed to the board, he noticed a worrying trend.

Despite employing an ethnically diverse workforce, Sainsbury’s store managers were, for the most part, all white men. “And I wasn’t the only one concerned about it. Management was, of course, concerned,” he says Tyler.

It sparked a series of initiatives, including executive development plans, unconscious bias training, and a recruitment program that also focused on senior leadership, leading to Sainsbury’s appointing its first black woman, Jean Tomlin, to its board of directors in 2013. Did.

By the time he stepped down in 2019, Tyler felt they had made a difference. It’s much easier to understand that there is sexuality, and as far as I’m concerned, that’s really important.”

This comes as Tyler, who chairs the government-backed Parker Ethnic Diversity Review, has widely welcomed new regulations that will force some 1,100 listed companies in the UK to demonstrate they are gender responsive for the first time. That’s one reason why. and ethnic diversity goals – or explain why they are lagging.

The Financial Conduct Authority’s (FCA) ‘comply or explain’ rule will require companies listed on the London Stock Exchange to disclose progress against key benchmarks in their annual reports from this year. Benchmarks include whether women make up at least 40% of the board. Whether they hold any of the most senior positions (Chairman, Chief Executive Officer, Chief Financial Officer, or Senior Independent Director). whether at least one member of her board of directors is from an ethnic minority;

Outdoor portrait of Katherine McGuinness
Katherine McGuinness, Chair of the City’s Socioeconomic Diversity Task Force; Photo: Hannah McKay/Reuters

Beyond creating more equal opportunities, our goals are set with our shareholders in mind. The Investment Association, which represents companies managing more than £10 trillion in assets, said a more diverse leadership team would help companies avoid groupthink and make better long-term decisions that benefit investors and savers. said Michael Marks, Head of Investment Stewardship at Legal & General Investment Management. .

The new rules are the closest UK regulators have come to imposing controversial quotas, with some critics saying they are harmful to employees if their presence is seen by colleagues as mere figurativeism. But the FCA is still moving cautiously. Companies are only expected to explain why they fall short, with fines and suspensions if they fail to comply. are unlikely to face the threat of

Importantly, according to some business leaders, regulators are not asking companies to do more than existing voluntary regimes require.

For example, a Parker review chaired by Tyler found that all FTSE 100 companies set a goal of having at least one director from a minority ethnic background by December 2021, with 97% achieving it. bottom. Member of FTSE 250 by 2024.

The Gender Diversity Program has been in place for even longer, with three consecutive government-backed initiatives to increase the percentage of women in board roles across FTSE 350 companies from 9.5% in 2011 to 37.6 in 2021. % has been pushed up. The UK is second only to France, where there is a compulsory quota for gender representation.

Denise Wilson, chief executive of the FTSE Women Leaders review, says FCA rules don’t want to “push the dial” beyond its voluntary planning goals. That might mean slower progress, but Wilson says companies respond much better to carrots than to sticks, wanting the opportunity to root for their own successes rather than being punished if they fail. She says that voluntary planning ensured a deeper cultural shift around diversity and avoided it becoming just a “checkbox exercise.”

Nonetheless, the scope of the FCA’s rules still expands the UK business sector by requiring nearly three times the number of companies currently included in the Parker and Gender Reviews to report diversity data. will be This will make it easier for asset managers to put pressure on companies that are still lagging behind and set the standard for similar disclosures from companies investing abroad.

But investors want more data beyond the board. Nathan Leclercq, Head of Corporate Governance at Aviva Investors said:

Wilson’s gender diversity review has already been expanded to track changes in the roles of executives and senior management, and Tyler hinted that Parker’s review could soon do the same.

Others want more progress in other areas, including socioeconomic diversity. Task Force Chair Catherine McGuinness said. “But if you happen to be a woman from a low socioeconomic background and from an ethnic minority background, you’re really at a disadvantage. So there’s a complex issue here.”

The FCA has said it will be mindful of costs and potential burdens on businesses, but has not ruled out making changes when it reviews its policy in three years.

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