The last month was significant for Australia’s boards – both positively and negatively.
To take the bad first, we have seen the issues of misconduct in the financial services sector hijacked by some from a cultural issue and turned into an attack on the goal of gender diversity.
But on the plus side, we saw an important regulatory breakthrough with the release of the revised ASX Corporate Governance Principles & Recommendations, where for the first time there has been an express objective of 30 percent women directors on the top 300 boards within a specified period.
This represents a significant change to the existing recommendation 1.5*, boosting its impact and increasing accountability with measurable gender diversity commitments. While it is generally acknowledged that it makes good sense for a board to reflect the diversity of its stakeholders, Australian boards have been slow to react. Boards are failing to leverage the greater innovation, more rigorous questioning and the improved bottom lines that come from a diverse board.
I firmly support the measurable objective, given Australia’s overall slow progress in this area. My own firm, KPMG, has adopted gender targets, and we are making good progress towards our target of 30 percent women in partnership by December 2020.
My observations, from working extensively with boards are:
- Sameness is the most dangerous thing around a board table, particularly in times of change, digital innovation and fluidity.
- Raising the number of women on the board aligns with global expectations and increases the resilience of the board. Fairness and equity are also considerations.
- There is significant data supporting the performance benefits derived from having access to a variety of unique perspectives, expertise and knowledge of 50 percent of the talent base.
- Chairs who have met the 30 percent target note the improved decision-making capacity of their diversified group and the ability to discuss issues from various angles.
If ASX 200 companies want supporting evidence, they can look at their smaller counterparts. A study by KPMG Enterprise last year of the ASX 300-1000 listed companies showed that:
- Female CEOs in the ASX 300+ delivered a 10 percent increase in revenue in 2016, compared to the group wide average of 0.5 percent.
- Companies with women on their boards achieved higher revenue growth, profitability and shareholder returns in 2016.
It will be disappointing if the potential for reform from the strengthened recommendation 1.5 is lost in the current furore arising from the Banking Royal Commission. By any reckoning it is evident that current cultural and accountability shortcomings have occurred under the watch of both genders, but given male dominance of our boardrooms, you would have to say more male.
The need for diversity goes beyond gender and should be extended to cultural, age, skills (STEM shortages are evident) and social/environmental. Years of homogenous boards does require targets and extra effort, to tackle the discomfort and extra “getting to know you time” that it takes to engage with different board members and to leverage diversity.
The AICD Chairman, Elizabeth Proust, has been explicit in noting: “A culture of diversity has not been deliberately and consciously created by those at board and executive ranks, and to change this will take deliberate and conscious steps. The leadership of most Australian businesses does not reflect their staff, their customers or the broader community.”
When queried at the recent AMP AGM as to which consideration would take priority – merit or diversity – Mike Wilkins’ (interim chairman) response was one I believe we should all be aspiring towards. He replied: “You can have both. It all comes down to diversity of thought. Gender diversity also promotes that difference of thinking.”
Should boards choose not to adopt the 30 percent target, they will be required to also adopt the “if not, why not” approach to reporting that choice. Principle 1.5 will require organisations who do not adopt a 30 percent target to carefully consider why they have taken this position and the impact that it might have on their social licence to operate, risk management approach and culture. It could be hard for companies to defend such a position in the prevailing market.
KPMG is a strong supporter, led from the top, of the push for diversity through our engagement with the 30% Club and Male Champions of Change. As boards face the challenge to commit to greater diversity, especially gender diversity, we hope that they see it not as an exercise in compliance, but that they leverage what others have learnt. The biggest success stories welcome diversity as a chance to change their boards for the better.
*Proposed changes to existing recommendations
Recommendation 1.5 (diversity) to achieve better gender diversity outcomes, including a new provision recommending that an entity in the S&P/ASX 300 have as a measurable objective at least 30% of directors of each gender on its board within a specified period.