Mid-market companies need to take initiative on board gender equity

Boardroom diversity in mid-market companies is still at modest levels and represents an opportunity for business growth, a study of ASX300 companies carried out by KPMG with the 30% Club, shows.

The report finds that, as at April 2020, companies in the ASX201-300 bracket had 22% female representation on boards, compared with nearly 32% in the ASX100 and nearly 31% in the ASX200. We spoke to eleven ASX200 non-executive directors so they could give their advice for mid-tier companies on increasing board and senior executive diversity.

There are some positive examples – a quarter of businesses in the ASX201-300 category had achieved a 30% level of female board membership. But there are more concerning cases – over a half had either zero (23%) or one (35%) female director.

So what is the relevance of the 30% threshold? The 30% Club (which began in the UK and whose Australian chapter started in 2015) explains that this level is widely recognised as the ‘tipping point’ at which the dynamics of the board conversation change. That is the critical mass for diversity.

This was illustrated by the interviews with ASX200 non-executive directors we did in the course of the research. A clear finding from companies which have already gone through the process of increasing board diversity was that women directors want their voices to be heard and valued on a board and do not want their appointment to risk being seen as tokenistic or ticking a box.

Female directors are more likely to join a board with more than one woman already on it – so those mid-tier businesses which the study showed have none or one female should think about the impression they are giving to the market.

Investors are increasingly asking questions on this issue – it is seen as good governance, at a time when ESG issues are becoming ever more important. Regulators too – changes to the ASX Corporate Governance Principles & Recommendations last year specifically referenced boardroom diversity as good practice.

But most importantly of all, there is a bottom-line implication to this. NEDS we spoke to all agreed with what research has consistently shown – that there is a correlation between greater boardroom diversity and better business performance. And our study gave further backing to this – we found those companies in the ASX201-300 bracket which had significant female representation on their boards grew more than others in the 12 months going into the COVID-19 crisis.

There were several other key findings from the interviews:

  1. Achieving board diversity is a function of leadership – NEDS said that the personal commitment of the board chair was crucial in driving a diversity agenda.
  2. Diversity improves outcomes for the company in the long-term – companies in the top 200 see diversity as a business imperative, which research has proved brings long-term financial and non-financial benefits by recruiting from the broadest talent pool, challenging groupthink and improving governance and risk management.
  3. Modern, growth-oriented businesses strive for greater diversity – for top companies it is now embedded in their culture but for businesses striving to get into the top 200, it is important to explicitly spell out greater diversity as a source of competitive advantage.
  4. Progressive companies look beyond line experience as prerequisite for NEDS – skills, rather than direct sector line experience is key. NEDS say that many ASX300 companies tend to have a restrictive view on what they need, but diversity of skills and capabilities is more important.
  5. Focus on building diversity in executive roles and senior management as well – boards need to use their influence to increase diversity throughout the company and create an environment and framework conducive to female career progression into top management roles. Mentoring and role modelling is also important.
  6. Companies should set stretch targets for board and senior exec diversity – NEDS say the setting of specific targets and goals is the most effective method of increasing women and other minority board members.
  7. Line experience can be useful – but should not be used to preclude other candidates. Often businesses feel direct executive experience in their sector is obligatory before they will consider appointing them to their boards. This frequently acts as a barrier to females in traditionally male-dominated sectors. NEDS we spoke to say the key is the range of unique skills and capabilities a candidate will bring to complement existing board capabilities.

The strong belief of KPMG – and the 30% Club – is that the greater range of views and experiences across the boardroom table which diversity provides will be crucial in leading businesses out of the Covid-19 shutdown. Businesses are re-imagining themselves, looking at how they use technology, future strategic direction, workplace practices, new structures and a whole range of issues. They are considering what skills they might currently lack and will increasingly need, in their boardroom and management teams.

So while there are many priorities at the moment this is not a ‘nice to have’ – mid-market companies need to see increased diversity as a business imperative coming out of the lockdown and an opportunity for growth.

Read the full report.

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