Last week, the ASX launched two major reports written by KPMG – one of them received extensive media coverage, while the other was largely overshadowed.
The first report covered listed companies’ compliance with ASX diversity recommendations and showed there is a long way to go to achieve gender equity. Headline findings were that among the top 200 companies, only 22 percent of board members were female, although this rose to 26 percent for Non-Executive Directors.
But a more sobering statistic was that for the most senior executive roles there had been no movement at all in the past five years in the top 100 companies. In both 2011 and 2016, 5 percent of CEOs and 10 percent of COOs/deputy CEOs were women, while for CFOs, the number had actually fallen, from 8 percent in 2011 to 6 percent in 2016.
More encouragingly, female representation in HR (65 percent), General Counsel (39 percent) and Marketing (33 percent) had increased, while a welcome development was the notable improvement in women in senior IT roles, up from 19 percent in 2011 to 29 percent in 2016.
In terms of reporting, most companies disclosed measurable objectives for improving diversity. However, very few companies set or disclosed transparent quantitative objectives such as ‘30 percent of director seats to be held by women by 2018’. And most of the measurable objectives reported by companies involved an action, such as setting up a new process, rather than an outcome.
This is important. Our studies have shown that those companies which disclosed clear quantifiable objectives demonstrated a higher level of gender diversity than those which did not set quantitative targets. Publicly committing to quantifiable objectives really does drive good diversity outcomes.
The slow pace of change in female representation in these roles over the past four years highlights the need for companies to rethink their strategy. The Male Champions of Change approach to setting ‘Targets with Teeth’ involves tying executive incentive payments to achieving quantitative diversity targets and has been adopted by some of the entities we surveyed. Others might wish to consider this policy.
It is perhaps not surprising that this diversity report generated much media and public interest. Gender equality is a topic on which many have strong views.
The second KPMG report, which covered listed companies’ compliance with the new recommendations in the third edition of the ASX Corporate Governance Principles and Recommendations, also had findings which deserve serious consideration by businesses.
This report identified clear room for improvement in the reporting of their board skills matrix, and exposure to economic, environmental and social sustainability risks.
We were a little surprised that, in the board skills matrix, geographical, and technology or digital experience were not identified by more companies as essential skill sets, particularly in the top 200. Companies tend to describe the current skills the board has, but few identify the gaps in the collective board skills or address what may be needed in the future – which is the purpose of the recommendation.
We encourage companies to improve their disclosure on the diversity component of the board skill matrix. A mix of skills, expertise, background, age, ethnicity and gender is important for two reasons. Firstly, it enhances decision-making capabilities and lessens the risk of ‘group-think’. And secondly, it helps to ensure a stronger connection with customers, employees and other stakeholders.
On sustainability risks the potential for improvement in reporting was even greater, especially outside the top 200. There seems to be significant differences across the ASX companies on what constitutes a material sustainability risk. A review of sector-specific reporting identified multiple instances of disclosures from entities in the same sector outlining very different risk profiles.
Over 20 percent of companies failed to report that they faced any material economic, environmental or social sustainability risks at all – which in our view seems unlikely. And others provided little or no information to support the way in which they determined whether they had any material risks.
We certainly hope listed companies will consider the issues identified by both of our reports for the ASX. They enable listed entities to benchmark their governance disclosures against their peers and identify areas where governance disclosures can be improved. As the ASX said last week, listed entities should find them especially helpful as they come to prepare their corporate governance disclosures for their FY16 annual reports.
We hope to be able to report in two years’ time that there has been clear progression in all the areas covered.