European financial institutions should improve the diversity of their management bodies to ensure sound governance, said the European Banking Authority and the European Securities and Markets Authority in new guidelines published this week.
Institutions should ensure that their diversity policies “at least” address the following key areas: educational and professional background, gender, age, and geographical provenance, especially in the case of institutions that are active internationally.
“It is important to improve the diversity of management bodies to overcome the risk of ‘group think’; to this end, the Guidelines determine how diversity is to be taken into account in the process for selecting members of the management body,” said the authorities in the executive summary of the guidelines.
The guidelines on “the assessment of the suitability of members of the management body and key function holders” are a requirement under EU directives on Capital Requirements and Markets in Financial Instruments, and are designed to remedy managerial “weaknesses” identified in the light of the financial crisis.
Gender targets
According to the guidelines, the diversity policy for larger financial institutions should include a quantitative target for the under-represented gender in the management body.
“Significant institutions should quantify the targeted participation of the underrepresented gender and specify an appropriate timeframe within which the target should be met and how it will be met.”
For smaller institutions, especially those with a management body of fewer than five members, the target may be qualitative, said the authorities.
To ensure “an appropriately diverse pool of candidates” for director positions, institutions should also introduce policies such as career planning, equal treatment and opportunities for staff of different genders.
The authorities also outline measures to ensure the reputation, honesty and integrity of managers as well as their independence, and set out how institutions should provide for induction and training of individuals to the management body.
The new guidelines come into force on 30 June, 2018.