16/07/2014 - 09:09

Gender part of the diversity riddle

16/07/2014 - 09:09

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Diverse boards include people from a variety of backgrounds with a range of views, and women are an essential component of that mix.

Gender part of the diversity riddle
VALID MIX: Diversity at executive level leads to better decision-making, and better results. Photo: iStockphoto

Diverse boards include people from a variety of backgrounds with a range of views, and women are an essential component of that mix.

The term ‘diversity’ has been around for many years and is to some degree misunderstood. So, just to be clear, I’m talking about diversity as more than just being a ‘women’s issue’.

Rather, the point as I see it is making sure we get the right people, with the right experience, right background, views and personalities around the boardroom table. 

In a 2013 report called ‘High Performing Boards – What’s on their agenda?’, McKinsey’s research identified that high-performing boards were more aware of their ‘meta’ practices, which is deliberating on how ‘group think’ might affect their decisions. In other words, they were acutely aware of their composition and understood how that composition could contribute or detract from robust discussions and decision-making and performance.

These high-performing boards are made up of directors who can have rigorous debates and discussions and offer truly fresh insights from a variety of perspectives that can challenge management thinking, and drive innovation and performance outcomes that are not just financial.

The commonsense argument suggests that a diverse board with different perspectives and insights can foster better problem solving, decision-making and greater innovation. This is because boards that select diverse individuals are drawing from the largest talent pool available and, by definition, avoiding the risk of group think that you might get from a narrow group of directors with similar backgrounds, experiences and perspectives. 

So when we talk about diversity it’s not just about having women around the board table (although it is certainly one component of the equation). The term should be understood and used as defining the full range of attributes  – which includes experience, qualifications, perspectives, views, age, ethnicity, and cultural backgrounds to inform and contribute to good decision-making.

Gender diversity

If we are to look at gender diversity (based on ASX200 boards), however, there has been some good news in Australia lately.

The percentage of female directors on boards has more than doubled over the past four years – from around 8 per cent to a more respectable rate of 18 per cent this year.

The number of boards without any female directors has halved from 87 boards to 42 boards and the number of female chairs has doubled from five to 10 in the four years since 2010. 

Now for the not-so-good news. While we’ve had an upward movement in the gender dynamic of Australia boards generally, the mining industry lags behind all others in the number of females on their boards.

The percentage of female directors on mining company boards currently stands at 11 per cent, compared to the full index, which is at 18 per cent. Of the 41 companies with no female directors in the ASX 200, 19 are in the resources sector.

Let’s consider a global comparison for female executives in the mining industry.

This year, the UK Group Women in Mining, in collaboration with PwC, surveyed a number of companies and countries to collect data on women involved at executive levels in the mining industry. Of all countries surveyed, Australia had the lowest percentage of females in senior executive roles in mining companies. We rated at less than 9 per cent and were lower than Canada, South Africa, the UK and the US.

What the numbers show

The next question that needs to be asked is, what role does board diversity play in a company’s performance?

A 2007 Catalyst study of Fortune 500 companies over four years found that, on average, companies with at least three female directors performed better than other companies, producing on average 5.3 per cent higher profits.

They also identified that companies with a higher representation of women on their boards had: a 66 per cent greater return on capital; a 42 per cent outperformance in sales; and 53 per cent greater return on equity

In 2010, McKinsey’s report ‘The Business of Empowering Women’ found that companies with gender-balanced boards achieved a 56 per cent higher operating profit than male-only boards.

In 2012, a Credit Suisse Research Institute report on gender diversity found that, among 2,400 companies over the preceding six years, the shares of companies with at least one female director outperformed companies with no female directors by 26 per cent. 

Finding the balance

So if we agree that diverse, or balanced, boards are effective boards, and that this means better business, then how can we go about creating these boards and finding directors to make them more diverse?

Firstly, set measurable targets to increase the representation of females at executive and board level.

Secondly, develop a board competency framework, and then assess the current board against this framework to identify gaps, and develop a description of the competencies and other key attributes desired in new directors.

Thirdly, undertake a comprehensive search to identify a wide range of potential candidates and a thorough process to assess the suitability of each. Ensure you use outside sources, brief your recruiters and push them to search outside the usual fields.  Demand a full list of male and female candidates. Also, expand your own networks; you’d be amazed at what is out there if you only just ask – trust me, these women are out there and they are keen to be found.

Communities are changing and, along with investors, stakeholders are looking for answers. They are now questioning board appointments, seeking information on director skills, competencies and suitability for a seat at the board. A more rigorous board appointment process should help to unearth the talent that you will need around your board table. These practices – combining a mindset shift, with sustained and continued action, should move the dial towards more diverse boards in the mining sector. 

* This is an edited version of an address given by Suzanne Ardagh to 2014 AMEC Convention Perth, titled ‘Driving Board Performance: Creating Balanced and Effective Boards’


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