Diversity needs to start from the top

For a company to be truly diverse its board and leadership needs to embody the principles behind the culture it is trying to promote.

According to research conducted by Deloitte Access Economics, greater diversity in the Australian workforce could deliver a $12.7 billion boost to the country's economy.

Additionally, companies with leadership that prioritise diversity, equity and inclusion (DEI) have been found to outperform their competitors in several key metrics.

Board composition is indirectly a reflection of organisational culture, and according to the ASX50 chairs report from Heidrick & Struggles, organisations would benefit from increased diversity at the Chair level.

C-suite candidates are increasingly scrutinising board composition to determine whether there is cultural alignment before they sign their offer letter.

Employees will also observe whether or not the board embodies the values the organisation stands for. For example, a 2018 study by the Australian Institute of Company Directors found that boards with a higher proportion of women had better financial performance than those with fewer women.

Gender focus is wider than simply female board representation. Companies that adopt LGBTQIA-supportive policies achieve higher productivity and profitability than those companies that are not supportive of these employees.

Almost three quarters of allies (72 per cent) say they are more likely to accept a job at a company that is supportive of LGBTQIA+ employees than one that is not.

Cultural diversity in the boardroom is also currently stagnating with our boards continuing to be dominated by those of Anglo-Celtic and European ethnicity.

Given Australia is increasingly multicultural, it is an indicator that our boardrooms are becoming less representative of our communities.

Getting closer to organisational culture means engaging with people on the ground and understanding their goals, challenges and concerns.

This can be difficult when there is a pronounced generational gap between board members, C-suite and regular employees, or where the composition of the board and leadership team doesn’t reflect the desired diversity of the company.

Generational differences can create a disconnect on key issues like diversity, support for working parents, work-life balance, transformation and innovation.

Ensuring that the board resembles the broader organisation in terms of demographics, gender, multiculturalism and age is important in bridging this gap. Another way for board members to better understand the dynamics on the ground is to garner a deeper understanding of the underlying business challenges, employee demands and key drivers of growth.

More than three-quarters of all job seekers and employees (76 per cent) report that a diverse workforce is a priority when considering companies and job offers. And that needs to start from the top down.

Having a diverse workforce is particularly important to under-represented groups: Almost a third of employees and job seekers (32 per cent) won't apply for a job where there is a lack of diversity among its workforce.

That significantly reduces the talent pool for employers.

We need to agitate for change.

In 2021 the U.S. Securities and Exchange Commission approved a proposal from Nasdaq to enhance diversity and inclusion in board representation.

It now requires all listed companies to disclose board-level diversity. They must have at least two directors from under-represented groups, “including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+,” or explain why they do not.

There’s no reason why Australia can’t adopt something similar.

It is particularly important to have a diverse C-Suite and Board in industries that are perceived as typically masculine. 

Research suggests diversity can benefit traditionally male-dominated industries such as mining, manufacturing and construction in Australia.

While not recent, Credit Suisse research showed that a more gender diverse board is linked to better financial performance.

It said: “Of the top 500 mining companies surveyed, the 18 mining companies with 25 per cent or more of their board comprised of women had an average net profit margin for the 2011 financial year that was 49 per cent higher than the average net profit margin for all top 500 mining companies.”

Research found that diverse workforces in the mining industry were more innovative and had higher levels of employee engagement. The study found that companies with more diverse teams were likelier to implement new ideas and improve their operations.

Overall, a robust DEI policy that includes all aspects of diversity can positively impact a company's bottom line by improving financial performance, driving innovation, and attracting and retaining top talent, but to create such a company means the change has to start at the very top with a board and C-suite leadership team that reflects the desired outcome.

1. Set clear diversity goals and metrics: Setting clear DEI goals and metrics can help you track progress and ensure that you're making real progress towards a more diverse and inclusive leadership team. Australian Institute of Company Directors, recommends a target of at least 30 per cent female representation on boards for ASX 200 companies, and all companies serious about DEI should set targets for other diversity indicators. That said, it is critical to utilise selection criteria that reduces or eliminates bias, and remains focused on the objectives of the appointment to the Board to ensure you shy away from ‘token’ appointments. It’s critical to still see the impact from the appointment as more than just ‘diverse’.
2. Provide mentoring and sponsorship opportunities to help underrepresented groups gain access to senior leadership opportunities. These programs can provide valuable guidance, support, and networking opportunities to help underrepresented individuals advance their careers. The ASX50 remain leaders in women’s representation in the boardroom today due to the “Chair’s mentoring Program” implemented back in 2009.  Mentoring can be widened to include other underrepresented groups.
3. Hold leaders accountable: Holding leaders accountable for diversity and inclusion can help ensure that DEI initiatives are taken seriously and prioritised. This can be achieved by setting measurable goals and objectives, monitoring progress, and tying diversity and inclusion outcomes to performance evaluations and compensation. The Australian Government’s Workplace Gender Equality Agency recommends holding senior leaders accountable by making them responsible for achieving diversity and inclusion outcomes.