Key Takeaways
Having a diverse board representative of various genders, ages, skills and experiences is essential to tackle the diverse challenges a company faces.
While gender diversity among Australian company boards is increasing, cross-appointing the same women on multiple boards has become a serious issue.
IBISWorld’s company data reveals that 16.4% of female board members account for 33.3% of female board seats.
Nearly 40% of the top 4000 companies in the dataset have no female representation on their company boards.
The concept of board diversity has emerged as a way to provide equal opportunities to all qualified people, irrespective of their race, gender, background, and other factors. One might assume that a company’s board diversity only benefits its executives, but this is not the case. Rather, the advantages of having a diverse board can have far-reaching positive effects on a firm’s overall performance.
Businesses, and the people who run them, are known to encounter a diverse range of challenges and complexities. With this in mind, should it not be a priority to have a board diverse enough to tackle these issues?
Why is it important to have a diverse board?
Put simply, a diverse board promotes people from different age groups, ethnicities and cultures, who have different gender identities, perspectives and experiences. While a like-minded, homogenous board might make compliance and functioning easier, these boards are at risk of doing just enough for their companies to survive.
By contrast, a successful company focuses on thriving, as opposed to surviving. Ideas and perspectives need to be discussed – and even challenged – to deliver the best possible holistic outcomes to a company and its stakeholders. To this end, ensuring diverse representation across a company’s board would, in turn, ensure effective decision-making, guidance and risk management in companies across several industries and sectors.
Gender diversity on boards
One of the most spoken about forms of diversity happens to be gender. Several studies have been conducted that try to find a relationship between gender-diverse boards and a firm’s financial performance. The results are promising, with the majority of these studies broadly suggesting that gender diverse boards and firm performance share a positive association. One such study conducted in 2011 by La Trobe University’s Department of Accounting suggests that a 1.0% increase in female directors is associated with an approximate 0.2% increase in return on assets, and an approximate 0.4% increase in return on equity.
More recently, the Australian Institute of Company Directors (AICD) released a Gender Diversity Progress Report in March 2022. The report states that women accounted for 34.5% of the ASX 200 companies’ boards at the end of February 2022, which happens to be the highest level of female representation ever recorded.
Although it is phenomenal to see the percentage of women on Australian boards almost reach parity, a closer look at the picture reveals an interesting caveat. While the percentage of women on company boards seems to be increasing, the Governance Institute of Australia’s 2022 Board Diversity Index, released in partnership with Watermark Search International, reveals that the concentration of these women is also rising.
In other words, the same women are occupying several chairs across different boards – a detail that might appear benign on paper, but defeats the purpose of diversity.
Let’s take a closer look at how Australian businesses have addressed gender diversity in their boardrooms.
Statistics
IBISWorld’s company data ranks the top 5000 companies in Australia by revenue for each financial year. It also includes information on the industries in which the companies operate, the board of directors, financials, subsidiaries and shareholders of the companies. The dataset shows that women only occupy about a quarter of the total board seats available in Australian companies. This proportion falls beneath Australia’s 30% benchmark for female representation, and well below the ASX 200 companies’ 34.5%.
An even more notable – if not concerning – statistic from the data is that 16.4% of female board members occupy 33.3% of female board seats.
A further revelation found in the data is that, of Australia’s top 4,000 companies ranked by revenue, nearly 40% of them have no female members on their boards at all.
Public vs. proprietary companies
Since 2010, ASX-listed companies, which represent over three quarters of the public companies in IBISWorld’s company database, have been required to disclose the proportion of women across the organisation, including on the board, in each annual report. This requirement acts as a self-checking measure for these companies to maintain a healthy ratio of men to women on their boards.
Unfortunately, the same is not required of Australian proprietary companies, as is echoed in our data findings. While approximately 42% of public companies have no women on their boards, this number increases to an overwhelming 64% for proprietary companies. It appears that Australia has a long way to go in reaching gender parity on company boards.
Additionally, IBISWorld’s company data shows that women account for a little less than 20% of total board seats in public companies, and less than 15% in proprietary companies. While 23.8% of women appointed to public company boards occupy 43.8% of female board seats, 13.6% of women appointed to proprietary company boards occupy 25.1% of female board seats.
These figures confirm what we learned from the Board Diversity Index – that the practice of cross-appointing women to multiple boards is occurring to a significantly high degree.
Outside of the above public vs. proprietary split, the proportion of board seats women occupy in other types of companies are as follows:
- 45.2% in government bodies
- 39.2% in associations
- 38.2% in trusts
- 21.3% in partnerships
- 12.4% in co-operatives
Other aspects of board diversity
Some other aspects of board diversity include ethnicity and skills. The Governance Institute’s 2022 Board Diversity Index states that 90.0% of ASX 300 board members are from an Anglo-Celtic background, which is extremely skewed in comparison with Australia’s cultural diversity.
Furthermore, the report states that little improvement has been made in terms of skills diversity. Nearly 33% of ASX 300 board directors are from accounting, banking and finance backgrounds, making up the majority of representation.
By contrast, the proportion of board appointees from other skills backgrounds include:
- Mining, energy and resources: 14.9%
- Technology: 7.1%
- Legal: 6.8%
- Human resources: 1.1%
Another interesting fact is that, although men account for a larger proportion of the ASX 300’s board seats, women appointees hold more educational qualifications than their male counterparts.
Tips for better board recruitment
It is clear from the examples above that a lack of diversity is one of the main issues with Australia’s board recruitment standards. The need for company boards to promote diversity, especially in a multicultural country like Australia, cannot be overstated. The sooner companies realise that diversity plays a key role in corporate governance – be it in terms of gender, skills, ethnicity or any other factor – the sooner these companies can elevate their growth and performance.
Of course, examining how Australia needs to improve its board diversity begs the question: What exactly is best practice for board recruitment, after all?
Here are some tips to make your company’s board a successful one:
- Don’t just consider the present, think of the future. Specifically, how do you want your board and its members to align with your company’s long-term strategies?
- Choose candidates who have the time and motivation to contribute to your company’s growth and well-being.
- Identify what your current board has and, more importantly, what it lacks – then fill those gaps with the right set of skills, experiences and talent.
- Consider all suitable candidates to ensure your board’s composition represents a variety of genders, ages, skills and ethnicities. For example, there is little to gain from having a board full of financial masterminds with no representation from HR.
As is often the case, diversity is essential for a company to succeed. Appointing a diverse range of board members promotes outside-the-box thinking by design and ensures that a company’s decision-making is informed by a wealth of experience, not an echo chamber.
We know how important a diverse board can be for a company’s success. It is now up to Australia’s companies to gain some fresh perspective by appointing more women to their boards – ideally outside of the existing pool of female directors – and incorporating members from different age groups, backgrounds and ethnicities.
If we want our boards to be truly representative of an Australian company, and to benefit from the unique attributes and skillsets their members can offer, we need to build them first.
