Smaller ASX listed companies are letting the side down on diversity

This article written by Fiona Smith was originally featured on the Australian Financial Review website on the 12th April 2016. Click here to access the original article (subscription required).

DAWN's Dai Le has never been asked to provide a recommendation for an Asian-background non-executive director.

DAWN’s Dai Le has never been asked to provide a recommendation for an Asian-background non-executive director. Image source – AFR website

 

 

 

 

 

 

 

 

 

Smaller listed companies continue to ignore the advantages of getting some diversity on their boards and are sticking with the “stale, pale and male” directors with whom they feel so comfortable.

At least 48 of the ASX 300 companies have no women on their boards at all and, despite all the hype about the Asian Century, the number of directors with an Asian cultural background is so small it could be counted as a “rounding error”, according to a new diversity report.

“There’s much more work to do,” says the managing partner of Watermark Search International, Graham Willis, who released the Watermark Board Diversity Index this week.

The biggest companies (in the ASX 50) are on track to meet the Australian Institute of Company Directors’ target of women taking 30 per cent of board seats by 2018. Smaller listed companies, however, are woefully behind.

Watermark AFR Image 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Over the past year, the ASX 50 have lifted female representation three percentage points to 25.6 per cent. This comes down to 15 per cent in the ASX 300.

In the ASX 100, telecommunications and IT company TPG Telecom and logistics and infrastructure company Qube Holdings have no female board members at all.

The index also makes it clear that some boards are trying to fix their diversity problem by appointing from a very small pool of experienced female directors.

SMALL POOL OF WOMEN

In the ASX 300, there are 74 directors who hold three or more board roles and 31 of them are female. This means 42 per cent of those with three or more board roles are women – an outsize proportion.

Of the 13 directors with four or more board roles, nine are women.

The executive director of Women on Boards Australia, Claire Braund, says there are fewer instances of loading a small number of women with multiple directorships than there were five years ago, “but it is still true that organisations are less willing to hire an untested and unknown woman than a man”.

Women on Boards exists as a source of board-ready women, and half of its members already have board experience. Advertisements for director roles can be advertised for free on the organisation’s website.

Ms Braund said she was frequently contacted for names, “but often outside the ASX, in sectors including superannuation and government”.

Some industry sectors are notoriously poor performers when it comes to appointing women to boards – and it is not just the mining sector to blame. The materials sector, which is dominated by miners, is the worst performer, with 11 companies having no women on the board. It is followed by the capital goods sector (manufacturing), real estate, energy and retailing.

EVEN FURTHER BEHIND ON CULTURAL DIVERSITY

However, when it comes to cultural diversity, boards are even more reluctant to search out directors with backgrounds different from their own, according to DAWN, a non-profit organisation to promote Asian Australian leadership.

The chief diversity and inclusion director of DAWN, Dai Le, says that in three years of building a public profile for her organisation she has never been contacted for names of board-ready people with an Asian background.

“I don’t believe it is a focus for organisations to do that. They talk about it, but they are not doing it,” she said.

“I don’t want to be seen as a search or recruitment firm, but we do have people we can identify. I’ve got at least a dozen, easily.”

The federal government’s Australia in the Asian Century white paper in 2012 recommended that ASX 200 companies should aim for one-third of their board members to have” deep experience in and knowledge of Asia”.

In the ASX 200 this year, there are fewer board members with an Asian background (3.2 per cent) than in 2015 (5 per cent). When looking at the ASX 300, this figure drops to 2.6 per cent. Around 10 per cent of the Australian population has an Asian cultural background.

The number of non-executive director roles filled by people of Asian heritage in the ASX 300 is 52 out of 1980 positions.

LOOK WITHIN

Ms Le says organisations can look into their workforces to find potential Asian background leaders: “They don’t have to go outside and look, it is within”.

The lack of Asian-background directors in some sectors is puzzling. The Watermark index states that the large consumer sector is a bit of a “mystery”, because the low proportion of Asian background directors (2 per cent) reflects neither the population it serves or the countries to which it exports.

And “only two of the eight largest banks have any Asian representation on their boards,” the index notes.

Mr Willis says the whole point of cultural diversity is to bring different thinking styles. “There’s plenty of good information now that shows that companies with more diverse boards outperform companies with less diverse boards. Do I, as a shareholder, say ‘Hang on, you are limiting my returns?’ It seems a fairly logical step to me.”

Indeed, last year, the Australian Council of Superannuation Investors wrote to the chairmen of ASX 200 companies with no women directors, threatening to recommend their members vote against their re-election unless they acknowledge that an absence of women on their boards presents a governance risk and present a credible plan to fix it.

In terms of skills diversity, accounting, finance and law are still the most common backgrounds of company directors, making up 50 per cent of backgrounds in the ASX 300. Boards seem to be relying on advisers for their technology and human resources advice, rather than embedding that expertise in their boards.

Board members with technology expertise only represent 4 per cent of board members and non-executive directors with HR and change management expertise are even more poorly represented with just 0.5 per cent (down from 1.6 per cent in 2015).

While, as the old saying goes, people may be a company’s best asset, the human resources profession continues to struggle for board representation. In fact, there are four times as many directors with agricultural backgrounds than there are human resources specialists.

“Those with HR depth remain a rounding error in the scheme of things,” according to the Watermark index.