FRC wants more board diversity in update to UK governance code

Many of the voices close to the debate call it a sensible move. Others will probably think it lacks ambition. But because the UK Corporate Governance Code will now require companies to disclose what they are doing to promote more diverse boards, everyone will have easy access to data to press their arguments with the companies in the future. The Financial Reporting Council, which oversees the accounting profession as well as the code, wants listed companies to report annually on their boardroom diversity policy, including gender, and on "any measurable objectives that the board has set for implementing the policy and the progress it had made in achieving the objectives". Diversity of the board should also feature as one of the factors to be considered when companies consider board effectiveness. The requirement reinforces a provision, introduced after the last major change in the code, which came into effect in June 2010. That provision states: "The search for board candidates should be conducted, and appointments made, on merit, against objective criteria and will due regard for the benefits of diversity on the board, including gender."

The new provisions on diversity will apply to financial years beginning on or after October 1, 2012, but the FRC wants companies to start right away. The FRC will also consult on other changes on narrative reporting and company stewardship.

Baroness Hogg, chairman of the Financial Reporting Council, said the changes would reduce the risk of "groupthink" on boards. "We believe this gives a further opportunity to show that Britain’s 'comply or explain', Code-based approach can deliver a flexible and rapid response and is therefore preferable to detailed legal regulation, and we urge companies to demonstrate this as quickly as possible."

The change has been in the wind since the British government commissioned a report on board diversity – the Davies Review – last year. Lord Davies made a variety of suggestions that steered clear of quotas for women on boards, despite growing pressure in that direction that uses the Norwegian example of legislated quotas as its model. The European Commission received such recommendations in responses to its green paper on corporate governance a few months ago. That means the issue is on the legislative agenda in the European Union, but there may be time for the voluntary UK to show progress and prevent a showdown over quotas.

Source document: The FRC feedback statement is a 14-page pdf file.