Board diversity is a crucial component of effective corporate governance. A diverse board of directors can draw on a variety of skills and perspectives, which in turn, has the potential to improve decision-making and performance.
BOARD DIVERSITY FRAMEWORK
The Corporations Act 2001 does not mandate diversity on boards, but it does provide a framework for companies to operate within. Section 180 of the Act imposes a statutory duty on directors to act with care and diligence. This duty encompasses the responsibility to make business judgement that are in the interests of the company. A diverse board would arguably be better able to exercise sound business judgement.
Corporate Governance Principles and Recommendations (CGPR) 2019 recommends that listed companies should have and disclose a diversity policy that includes measurable objectives relating to gender diversity, and take into consideration other diversity characteristics. A company included in the S&P/ASX 300 Index at the commencement of the reporting period should also strive to achieve gender diversity of not less than 30% of directors of each gender in the Board composition within the timelines set by the Board.
CGPR Gender Diversity Recommendations
Australia places considerable emphasis on transparency and disclosure in the corporate governance practices of companies. CGPR 2019 provides extensive guidance on adoption of diversity policy and setting measurable objectives. Notably, CGPR 2019 does not enforce a diversity quota, opting instead for a disclosure-centric approach. Other jurisdictions follow a mixed approach—in the UK, voluntary targets have been established by the Hampton-Alexander Review; in the US, there are mandatory targets for Nasdaq-listed companies but not for companies listed on NYSE; and in the European Union, mandatory targets (40% of non-executive directors or 33 percent of all directors should be women) have been established for listed companies. These varying approaches reflect a global commitment to enhancing gender diversity in corporate leadership.
BOARD DIVERSITY IN TOP 100 ASX LISTED COMPANIES
We analysed the board diversity of Top 100 ASX Listed companies by market capitalisation in our 2023 Governance Impressions Report. While CGPR’s main emphasis is on achieving gender diversity within a company’s workforce, an examination of the additional commentary reveals that the recommendations also encourage companies to incorporate other dimensions of diversity such as age, ethnicity, disabilities, and socio-economic and cultural backgrounds.
Among the Top 100 companies we analysed, the majority only disclosed their gender diversity practices. Only a handful of companies provided data on other facets of diversity. Following were our key observations:
The disclosure practices of board gender diversity were not uniform across the Top 100 companies.
According to CGPR, companies are required to set and disclose measurable objectives for achieving gender diversity in its board of directors, senior executives, and overall workforce. Except for a company included in the S&P/ASX 300 Index which must have a measurable objective of at least 30% gender diversity in its board of directors, other companies have the flexibility to define their own objectives. Companies should also disclose the extent to which these objectives have been achieved.
While a majority of companies revealed the gender makeup of their board of directors in various ways, not all of them shared information regarding the gender composition of their senior executives and the overall workforce. Additionally, there was no uniform approach to these disclosures. They took several forms:
Disclosure of the target diversity percentage and the progress made towards reaching that goal.
Disclosure of the target diversity percentage without providing information on the progress made towards reaching that goal.
Disclosure of the current diversity percentage, with no mention of the target percentage.
Disclosure that the company has achieved the targeted diversity percentage without specifying what that target or actual percentage was.
While there are no mandatory targets in place, the emphasis on disclosure and setting measurable objectives acts as a powerful motivator for companies to actively pursue diverse and inclusive boards. By complying with these provisions, companies position themselves to reap the benefits of diverse perspectives and skills in their decision-making processes. Also, establishing a standardised quantitative disclosure criteria would facilitate comparisons, enabling deeper insights into the real extent of diversity within boards and the overall workforce.