20/08/2009 - 00:00

Australian boards fail the diversity test

20/08/2009 - 00:00

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There is a relatively limited pool of directors in Australia and an under representation of women on company boards, a new report has found.

IN Australia, women make up 8.3 per cent of board members of the top 200 ASX-listed companies.

This is similar to New Zealand, where women comprise 8.7 per cent of board members of the top 100 companies.

In Europe the average figure is 9.7 per cent, though this varies from 1 to 2 per cent in Portugal and Italy up to 44 per cent in Norway, which employs quotas.

In the US, the proportion of women on the boards of Fortune 500 companies has grown steadily from 9.6 per cent in 1995 to 15.2 per cent in 2008.

Canada has also experienced a big increase during the past decade, to 13 per cent in 2007.

While care needs to be taken in making international comparisons, there is an apparent under-representation of women on Australian boards.

While some studies suggest a positive link between diversity and corporate performance, this is not an easy matter to tie down.

A more sustainable proposition is that enlightened companies can be expected to perform better and that they will inevitably be the ones that seek talent from all sources and to whom gender is a very secondary consideration.

In other words, diversity itself is not the issue in terms of effective governance; what counts is a studied approach to the constitution of a governing board with a mind open to available talent.

While a mix of backgrounds and perspectives is beneficial on a board, it is not a case of diversity at all costs; there needs to be some common purpose and ability to work together.

Nor is there an ideal pattern for the composition of a board. The number and mix of directors is a matter for consideration by each company in the context of its own business and needs.

The ultimate question in terms of the governance culture of Australian companies is whether the environment and current practices are conducive to boards being constituted with well qualified candidates in an effective mix for the furtherance of their corporate purposes.

Although information is limited, there is some indication of a relatively limited pool of directors of public companies in Australia, with appointees often being drawn from the ranks of other boards or senior corporate executives.

An increasing emphasis in recent years on the compliance role of directors may itself have led to more focus on direct business experience in board candidates at the expense of other disciplines or backgrounds.

Again, the promotion of a class of professional directors, leading as it does to multiple directorships, has the effect of limiting opportunities for those not yet within that rank.

A starting point in any move to encourage greater gender (or other) diversity on boards is to promote the move, already undertaken by some companies, to make their appointment processes more transparent, and to formalise their processes for keeping board composition under review in the light of performance and changing needs.

A board that actively reviews its continuing capability, and is prepared to turn over directors as may be required, is more likely to be open to new talent than one that regards directors, once appointed, as entitled, in effect, to continue in that role from term to term.

More transparent board processes, and more information about the reasons for putting forward new directors, will assist shareholders in questioning a board's approach or in voting on board appointments.

The other side of the equation is possible action to increase the pool of women available for board appointment, in particular by addressing impediments to the advancement of women through executive management.

This could include mentoring programs and management practices that may assist the emergence of more female candidates for board positions.

There would be problems in imposing a gender (or other) model of diversity on companies in the private sector.

Such a move, by dictating aspects of board selection and composition, would cut across the right of shareholders to choose the directors who are to be the stewards of their investments, and is not supported.

There is, however, scope for governments, business leaders and others to encourage companies to take a more open approach to board selection, and to facilitate opportunities for women to gain experience that will equip them for board roles.

Change is more likely to follow where a company sees the benefits of adopting a more open approach to board composition rather than simply being required to satisfy certain aspects of diversity.

While there is unlikely to be a quick fix, leadership by example, encouragement of a more robust and open approach to board appointments and attention to any impediments in the area of executive management should contribute to change including more diversity through better utilisation of valuable talent.

n This is an edited extract from a Companies and Markets Advisory Committee report, titled 'Diversity on boards of directors'.

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