City regulators consult on UK’s first diversity quotas
Banks and other top companies in the UK’s financial sector will be forced to implement quotas for women on boards under plans being devised by City regulators.
The move, to satisfy a new EU directive, will call for a nomination committee in large firms to decide on “a target for the representation of the underrepresented gender on the management body”.
The quotas will be set internally and apply to the largest financial institutions. But all companies in the sector will be obligated to outline a comprehensive diversity strategy regarding boardroom appointments.
This will affect up to 2,400 banks, building societies and investment companies that are regulated by the Financial Conduct Authority (the successor to the FSA) and the Prudential Regulation Authority.
The regulators are currently running a consultation on how to implement the new rules, known as CRD IV.
But commentators warned that while boosting senior female representation was key for businesses, fixed quotas could reduce diversity “to a numbers game”.
“There is a competitive case for diversity: it gives firms access to a wider talent pool and helps them to better represent their client base,” explained Tara Kengla, head of financial accounting advisory services for financial services, EMEIA, at EY (formerly Ernst & Young).
“We are definitely supportive of having more diverse boards in financial services, but introducing fixed quotas could reduce diversity to a numbers game,” she continued.
“Hopefully the FCA and PRA will use CRD IV as an opportunity to create meaningful and sustainable change at the top of the industry, encouraging firms to build effective diverse boards rather than chase targets.”
Linda Jones, an employment partner at law firm Pinsent Masons, added: “This is the first time that a regulatory requirement to set gender targets for senior management teams has been imposed on UK businesses.
“While the requirement only applies to financial institutions at the moment, it may be a taste of things to come for other large businesses.”
The UK government is against blanket mandatory gender quotas that have been mooted by the EU to address a lack of women on the boards of large companies.
But the coalition is pushing for FTSE 100 firms to voluntarily fill 25 per cent of their boardroom seats with women by 2015. Currently, the figure stands at 17.4 per cent.