Navigating diversity in corporate governance: UK Corporate Governance Code 2024

Published: 26 November 2024

3 minute read

In this In Conversation podcast episode, Emily Duncan, Head of Stakeholder Engagement, and Kelvin Ernest, Senior Policy Associate in the Corporate Governance team, explore the nuanced approach to board diversity and inclusion in the Financial Reporting Council's Corporate Governance Code 2024. Together, they unpack the FRC's strategic rationale for evolving diversity reporting, highlighting the importance of flexible frameworks that promote comprehensive boardroom perspectives and effective organisational governance.

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Transcript

0:11
Hello, I am Emily Duncan, Head of Stakeholder Engagement at the Financial Reporting Council, and you are listening to the FRC's snapshot series on changes contained in the Corporate Governance Code 2024, which come into effect in January 2025.

0:24
The topic of this podcast is diversity and I'm joined by my colleague Kelvin Earnest, Senior Policy Associate in the Corporate Governance team.

0:31
Now the changes on diversity may be on the smaller end of some of the changes that were made in this update, but nonetheless, they are still very important.

0:39
So I want to jump right in Kelvin by asking you what is the rationale behind moving away from the listening demographic characteristics, which is also known as Principal J?

0:49
Well, Emily, we recognise that company diversity policies can be wide-ranging and in some cases extended further than the previous iteration of the code.

0:57
And as a result, we revised the principle to promote diversity inclusion and equal opportunity in the wider sense.

1:05
Over the course of the years, we've also seen the rise of independent frameworks like the FTSE Women's Leaders Review and the Parker Review.

1:11
And also in recent years, the FDA has also introduced rules on diversity inclusion to enhance transparency in the wider sense.

1:18
And I guess lastly, as part of our annual reviews, we see that these initiatives are usually well reported against.

1:24
And as a result, we felt it was necessary to remove duplication and create a less convoluted reporting landscape.

1:32
So, why have the FRC included reference for companies to report on the progress towards any other established initiatives in Provision 23?

1:41
Well, we included this reference to encourage transparency and accountability on companies diversity and inclusion efforts and ones are highlighted in the previous question that these initiatives are usually well reported against.

1:52
We often see companies report on these initiatives at senior management level but they provide little information on their progress against these efforts.

2:00
We talk a lot about diversity initiatives but what exactly is it we are asking for?

2:05
What is it that companies can report on?

2:07
Well look, it's ultimately up to companies to decide what diversity initiatives is best suited to them and their organisation.

2:14
There are choices that companies can undertake.

2:16
They could either include a company specific effort or they could highlight their adherence to an independent framework which sets targets for the board and senior management.

2:26
Within our 2024 guidance, we provide examples on the type of initiatives companies may wish to undertake and consider when reporting on their targets.

2:35
So, Kelvin, a challenge is the FRC prioritising diversity over competent candidates.

2:40
Why is diversity important and what benefits does diversity bring to the boardroom?

2:45
Well, it's rightly recognised that diverse boards ultimately bring different perspectives and experiences, which in turn leads to comprehensive discussions, better decision making and reduce group think.

2:56
And these changes introduced are designed to enhance board effectiveness and encourage companies to seek out competent candidates, which in the long term leads to better governance and performance.

3:07
It should be recognised that having a diverse board provides a wealth of knowledge and is useful in particular to the board considering the skill sets, which is all needed to make sure that companies could at least look at potential better outcomes.

3:21
We know that there have been widespread calls for specific diversity targets and this is something that came up during our consultation on the code back in 2023.

3:29
So why was the decision made by the FRC to not include specific targets within the code on diversity for companies?

3:37
Well, the code is designed to be flexible and that allows companies to tailor their governance practises to their unique needs.

3:44
Not setting specific targets means that companies can implement diversity initiatives that best suit their circumstances and goals.

3:51
And the change in the code is designed so companies can of course establish their own targets, update them as they please and explain their progress towards their designated targets that they have decided on.

4:01
And how can boards be more inclusive?

4:03
What steps would we want to see them taking?

4:06
1st?

4:06
We just need to look at what inclusion is about.

4:08
And inclusion in the general sense is providing equal access to resources, particularly to those who are marginalised or excluded.

4:16
And I think the main thing board should consider is perhaps ongoing training and educating themselves on diversity inclusion as that helps them to understand issues and equips them with the tools to address them effectively.

4:28
They should also consider potential procedures and policies that may foster an inclusive environment and one of these could be providing accessible facilities to all directors within their organisation.

4:39
Thank you Calvin, I hope that this has proven to be a useful deeper dive on the changes on diversity contained in the Corporate Governance Code 2024.

4:48
Please do listen to the rest of the podcast series for more detail on the other changes and themes that are coming into effect in January 2025, and you can also listen to the webinar recording on this topic that is available on the FRC website.

5:02
In the meantime, if you would like to stay up to date with any of the work at the FRC, we encourage you to follow us on social media or sign up to our newsletter to remain up to date with all of the changes and developments.

5:14
Thank you.