Governance Briefing — April 20, 2022
The FCA’s April 20, 2022 diversity and inclusion disclosure rule pushes UK-listed companies to meet gender and ethnicity targets and report granular board and executive data, demanding coordinated governance, HR, and investor relations efforts.
Executive briefing: On April 20, 2022 the UK Financial Conduct Authority (FCA) confirmed new diversity and inclusion requirements for premium and standard listed companies through Policy Statement PS22/3. For financial years starting April 1, 2022, in-scope issuers must disclose annually whether they meet targets for board gender and ethnicity representation, provide detailed numerical data on board and executive management composition, and explain shortfalls. The rule applies to UK and overseas companies (excluding open-ended investment companies and certain shell companies) and aligns with broader environmental, social, and governance (ESG) expectations from investors. Boards, HR leaders, and investor relations teams must collaborate to gather accurate data, set improvement plans, and communicate progress transparently.
Key requirements
The FCA set three "comply or explain" targets for board composition:
- At least 40% of the board should be women.
- At least one of the senior board positions (Chair, CEO, Senior Independent Director, or CFO) should be held by a woman.
- At least one board member should be from a minority ethnic background (as defined by the UK Office for National Statistics).
Companies must state in their annual reports whether these targets were met and describe actions taken or planned if they were not. Additionally, issuers must publish standardized tables—based on FCA templates—showing the number of board members and senior executives by gender (men, women, non-binary, other/not disclosed) and by ethnicity categories.
The disclosure obligation extends to executive management, defined as individuals responsible for day-to-day management and who are members of the executive committee or the most senior management level below the board. Companies must also explain data collection methodologies, including how they handled individuals who do not disclose gender or ethnicity information.
Operational priorities
Establish a cross-functional project team including company secretariat, HR, legal, and investor relations to oversee compliance. Map data sources—HR information systems, director questionnaires, nomination committee records—and verify data accuracy. Develop processes for updating data ahead of the annual report cycle, incorporating sign-off checkpoints from HR and company secretaries.
Review nomination committee charters and succession planning frameworks. Document how diversity considerations are embedded in director recruitment, board evaluation, and leadership development. Update skills matrices to include gender and ethnicity representation, and plan pipelines for future appointments. Consider engaging executive search firms experienced in diverse talent pools, and ensure contracts include diversity objectives.
Implement privacy-compliant data collection. Update employee and director privacy notices to explain the purpose of diversity data collection, lawful bases, and retention policies. Offer inclusive self-identification options and communicate how data will be used. For overseas directors or executives, consider local legal restrictions on collecting ethnicity data and document mitigation approaches.
Governance and reporting
Boards should incorporate diversity metrics into corporate governance statements, aligning with the UK Corporate Governance Code’s principles on board composition and succession. Provide narrative disclosure on progress, challenges, and plans to achieve targets. Audit committees should review controls over data collection and reporting, ensuring assurance over accuracy. Internal audit may conduct periodic reviews of diversity data governance.
Investor relations teams must prepare messaging for investors, proxy advisors, and ESG rating agencies. Develop briefing materials highlighting diversity strategy, talent development programs, and measurable outcomes. Anticipate questions about how diversity targets align with broader ESG commitments, remuneration policies, and risk management. Update sustainability or ESG reports to cross-reference FCA disclosures with other frameworks (FTSE Women Leaders Review, Parker Review, TCFD reporting).
Ensure the annual report’s diversity statement is consistent with other filings (e.g., gender pay gap reports, modern slavery statements) to maintain credibility. Coordinate with legal counsel to draft clear "comply or explain" narratives that balance transparency with legal considerations.
Strategy and talent development
Use the FCA rule as a catalyst for broader inclusion strategies. Set multi-year diversity targets for board, executive management, and pipeline roles. Implement mentorship, sponsorship, and leadership development programs targeting underrepresented groups. Review recruitment processes for bias—standardize interview panels, implement diverse shortlists, and leverage inclusive job descriptions.
Monitor retention and progression metrics to identify barriers. Analyze performance review outcomes, promotion rates, and compensation equity across demographic groups. Align diversity goals with executive remuneration where appropriate, ensuring metrics are specific and measurable.
Engage employee networks and affinity groups to gather insights and co-create initiatives. Incorporate feedback into succession planning and cultural transformation programs.
Sourcing and external partnerships
Evaluate partnerships with executive search firms, leadership development providers, and board advisory consultancies. Select partners with demonstrable track records in sourcing diverse candidates and supporting inclusive board cultures. Include key performance indicators in contracts—such as the diversity of candidate slates and progression rates.
Collaborate with organizations like the 30% Club, the Parker Review, and sector-specific initiatives to share best practices. Participate in investor-led diversity coalitions to demonstrate commitment and gain insights into investor expectations.
Consider technology solutions for diversity analytics and reporting. Deploy dashboards that integrate HR, board, and recruitment data, enabling real-time monitoring of representation and progression. Ensure vendors comply with data protection laws and provide audit trails for reporting.
Risk management and assurance
Incorporate diversity compliance into enterprise risk management frameworks. Identify risks such as data quality issues, failure to meet targets, or reputational damage from perceived inaction. Develop mitigation plans, including enhanced talent pipelines, stakeholder engagement, and crisis communication strategies. Report risk status to the board’s risk or governance committee.
Engage external assurance providers to review diversity data and reporting processes, especially when investors demand high confidence in ESG metrics. Coordinate with auditors to align assurance scope with FCA requirements and voluntary reporting frameworks.
Monitor regulatory developments. The FCA may refine targets or extend requirements to other issuers, and UK government reviews on ethnicity pay reporting or socioeconomic diversity could introduce additional disclosures. Stay informed through FCA newsletters, industry associations, and legal advisories.
Communication and stakeholder engagement
Craft a communication plan that addresses investors, employees, regulators, and the public. Highlight achievements and acknowledge areas needing improvement. Use storytelling to illustrate how diversity enhances innovation, decision-making, and risk oversight.
Engage with proxy advisors (ISS, Glass Lewis) to understand their evaluation criteria and address any concerns proactively. Prepare for shareholder questions at annual general meetings, ensuring directors can articulate diversity strategies confidently.
By implementing robust governance, data management, and talent strategies, companies can meet the FCA’s diversity disclosure obligations while strengthening organizational performance. Treat the rule as an opportunity to embed inclusion into corporate culture and demonstrate accountability to investors and stakeholders.
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