Diversity on Boards

Jun 9 2020

Diversity of directors on boards is not about ticking a box to satisfy quotas or to be seen to be "doing the right thing." It is an important role of any board to put a lens over its composition on a regular basis to ensure that the board has the right talent at the board table.

As a matter of good corporate governance, it is important that each board has a board skills matrix which is reviewed regularly, identifying the skills, knowledge, experience and capabilitiesof each of the current directors and identifies any gaps, so that at the appropriate time through adding an additional director(s) to the board or by upskilling existing board members, the knowledge and skills gap can be closed.

One of the key skills to be addressed in the matrix is diversity. The board skills matrix is a fluid document that needs to be updated on a regular basis to align with the company's current and future strategy.

Groupthink

Some of the advantages of diversity on boards include:

  • challenges "groupthink" where board members adopt a certain identity that excludes outside viewpoints, which can lead to suboptimal decision making
  • diversity amongst board members means that theybring their own personal backgrounds and experiences to their position in the boardroom which enables great ideas to emerge
  • disrupting the status quo
  • robust discussion and well-rounded decision-making
  • improved strategic decision-making power and risk management1
  • Women bring a collaborative leadership style that benefits boardroom dynamics by increasing the amount of listening, social support, and win-win problem-solving.

Gender Diversity

Diversity is not solely about gender, however in April 2015 the Australian Institute of Company Directors (AICD) set a voluntary target to have 30% of board seats in the Australian Stock Exchange (ASX) top 200 filled by women by the end of 2018, it took until November 2019 to reach that target.

The data in the table below2 shows that there is a higher % of women on boards as the number of ASX entities decreases (which could be due to the influence of proxy advisers) and conversely a smaller % on the ASX All Ordinaries Index (All Ords) with only 24% of women sitting on these boards.

Group

Female Directorship (as at 30 Nov 2019)

ASX 20 35.2%
ASX 50 33%
ASX 100 31.8%
ASX 200 30%
ASX 300 27.7%
ASX All Ords 24%

Source: Australian Institute of Company Directors: ASX 200 hits 30% women on boards (19 December 2019) <https://aicd.companydirectors.com.au/media/media-releases/asx-200-hits-30-per-cent-women-on-boards> The table below3 shows the percentage of female directors on ASX 200 boards, annually for 2015-2018 and then monthly for 2019. The figures have remained constant since 2018 at between 29.5% and 29.8%, finally reaching 30% in November 2019.

Source: Australian Institute of Company Directors: Board Diversity Statistics (30 January 2019) https://aicd.companydirectors.com.au/advocacy/board-diversity/statistics Cultural Diversity

PERCEPTIONS OF BOARD COMPOSITION: 'MALE, PALE AND STALE'

In a study published in July 2018 "Beyond the Pale – Cultural Diversity on ASX 100 Boards"4 in-depth interviews were undertaken with 18 non-executive directors (56% born overseas, 56% culturally diverse, 61% female, 49% male) and 9 representatives from leading executive search firms to gain their perspectives on cultural diversity on ASX100 listed boards.

The findings reveal that in order for cultural diversity on boards to increase, there is a need to take action at a number of levels. There is a need to:

  • grow and develop the 'supply' of culturally diverse leaders in the pathway to board positions with special attention placed on the senior executive ranks of Australian business
  • develop transparent pathways to board membership to allow greater visibility for aspirants to director positions
  • broaden networking arrangements to open up access for potential directors from culturally diverse backgrounds
  • learn from other diversity campaigns, including the progress to date to improve gender diversity around the board table
  • clarify definitions around cultural diversity and make cultural diversity part of the narrative, going beyond the focus on a global mindset and cultural awareness
  • consider setting targets and report on progress toward cultural diversity in order to drive change.

Generational Diversity on Boards

Diversity discussions at the board level tend to focus on skills and experiences or the more obvious gender and ethnicity, but there is another type of diversity: generational diversity.

Consumer trends driven by millennials are dramatically changing the competitive landscape, especially where tastes and buying decisions are increasingly driven by social networking. A younger perspective at the board level can assist companies reach and connect to this market and understand the world from their lens.

Younger board members bring a very different perspective on a lot of issues, particularly in terms of technology and social media interactions. There a very few markets today that are not selling to young people and from the perspective of strategic board composition, millennials can be a value add to boards that are targeting that generational market.

Ultimately, the director needs to be the right person with the required skills and competencies to meet the requirements of each particular board acting in the best interests of the company, but let’s continue to develop the talent pool, so that we have more diverse boards as part of our corporate social responsibility.

1Vanessa Brown, David Brown and Debra Brown, 'Women on Boards: Not Just the Right Thing...But the Bright' Thing” (May 2002) The Conference Board of Canada Available at:<https://utsc.utoronto.ca/~phanira/WebResearchMethods/women-bod&fp-conference%20board.pdf> [Accessed 4 May 2020]
2Australian Institute of Company Directors: Board Diversity Statistics (30 January 2019) Available at: <https://aicd.companydirectors.com.au/advocacy/board-diversity/statistics>[accessed 23 April 2020].
3Australian Institute of Company Directors: Media Release: ASX 200 hits 30% women on boards(19 December 2019) Available at: <https://aicd.companydirectors.com.au/advocacy/board-diversity/statistics> [accessed 23 April 2020].
4Associate Professor Dimitra Groutsis, Professor Rae Cooper and Professor Greg Whitwell, The University of Sydney Business School The University of Sydney: Beyond the Pale Cultural Diversity on ASX 100 Boards (July 2018) Available at: <https://aicd.companydirectors.com.au/-/media/cd2/resources/advocacy/board-diversity/pdf/beyond-the-pale-full-report-web.ashx> [Accessed 28 April 2020].