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How to balance company boards

How to balance company boards

By Laura Ann Wilson

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Gender diversity and the place of women in senior Australian leadership positions remains a hot topic. There are ways to encourage gender balance on boards.

Public interest is continually stimulated by the appointments, sackings and retirements of notable women in senior leadership positions across the judiciary, federal and state politics, private and public sectors.

Gender diversity on company boards and in senior leadership positions is a critical factor in performance and economic development.1 It encourages the consideration of a wider range of views and can reduce the incidence of group think through creating an effective forum where teams are encouraged to consider new ideas and opinions. Increasing diversity is identified as one way to promote ethical and responsible decision making. Nevertheless, there remains a gender imbalance in senior leadership roles across the public, private, government and not-for-profit sectors in Australia. This is particularly acute in the private sector.
 

The barriers

Historically women have experienced barriers in seeking appointments on company boards, including:2
 

  • a limited knowledge of board vacancy opportunities
     
  • limited number of vacancies made publicly available
     
  • a lack of formalised mechanisms available to learn about board vacancy opportunities and a lack of transparency in how vacancies are advertised
     
  • underlying attitudes of “boys clubs” and current board members selecting candidates they know
     
  • entrenched negative attitudes and bias against female candidates
     
  • cultures of ageism against female candidates (experienced less by male candidates)
     
  • possessing the relevant qualifications and experiences desired for board appointment
     
  • broader attitudes and biases regarding ethnicity, religion, socio-economic status and where applicants reside.

Research indicates that achieving gender diversity in leadership roles is a crucial factor in enhancing effective corporate governance, which can increase a companies’ economic competitiveness. Board diversity also improves company public profiles and image, encouraging consumer loyalty and confidence, further increasing companies’ economic competitiveness.3
 

Corporate governance regulation

Corporate governance refers to the rules, relationships, systems and processes that regulate corporations. These systems include societal, legal, corporate and behavioural components which influence the control and management of a corporation. These rules and procedures are designed to ensure company boards are effective and that company management is held accountable to its shareholders and stakeholders.

Corporate governance can be influenced by wider societal, legal and market forces. It influences a corporation’s objectives, risk management strategies and performance management. While there is not a single corporate governance model in Australia, there is a heavy focus on effective corporate governance structures to encourage entrepreneurialism, transparency and accountability.
 

The role of legal regulation

The law underpins how corporate governance is regulated. “Hard law”, such as statutory rules provided for in the Corporations Act 2001 (Cth) and judicial rulings, and “soft laws”, including industry codes and standards, provide incentives for companies to engage in good corporate governance.4 The influence that soft laws have on corporate governance is increasing. One example is the ASX Listing Rules which provide for the corporate governance obligations of public companies.

The ASX Corporate Governance Council’s Principles and Recommendations provide eight principles to guide publicly listed Australian companies to aim for good corporate governance practices. Elements of these principles and recommendations pertain to gender diversity.

Principle 1 provides that companies should actively lay solid foundations for management and oversight. Recommendation 1.1 provides that companies should:
 

  • establish diversity policies
     
  • create measurable benchmarks for achieving gender diversity
     
  • ensure that boards annually assess the company’s performance against measurables.
     

Recommendation 1.1 explains that a company should provide in its annual report the measurables for achieving gender diversity, as well as the company’s progress in achieving these objectives. It provides that companies should report on the number of female employees, as well as the number of females in senior executive roles and female board members.

Further, the ASX Corporate Governance Council suggests that companies may consider several issues when developing diversity policies including:
 

  • the company’s commitment to promoting an environment where well qualified persons are appointed
     
  • the company’s commitment to and identification of ways to promote diversity of employees, senior management and the board, and the recruitment of suitable candidates
     
  • identification of factors that should be considered in the selection process and whether professional intermediaries should be used to identify or assess candidates
     
  • development of executive mentoring programs
     
  • recognition of work-life balance for all employees
     
  • transparency of board processes, review mechanisms and appointments
     
  • the extent to which the achievement of measurable objectives should be tied to company key performance indicators.

Principle 1 and the associated recommendations encourage company board members to turn their mind to gender diversity by establishing policies and benchmarks that the company can measure itself against and report on annually. These recommendations encourage company boards to actively develop strategies to increase gender diversity.

The ASX Corporate Governance Council’s suggestions concerning establishing mentoring programs, recognition of all employees’ work-life balance needs, and developing strategies to improve transparency of board processes, review and appointments, are all good starting points to encourage company boards to consider how to attract and retain high calibre female candidates.
 

If not, why not?

Nevertheless, these mechanisms are simply aspirational and are designed to be only a guide to publicly listed companies. It is not mandatory for publicly listed companies to comply with the principles and recommendations. Companies that fail to follow the recommendations must state why they have not done so – known as the “if not, why not approach”. This approach is designed to provide a disincentive to companies, however there are no sanctions and penalties for failure to comply.

All companies should be strongly encouraged to adopt the principles and recommendations, and tentatively, penalties and sanctions should be considered by companies that fail to comply. Ongoing education may assist in changing entrenched attitudes and processes which can create significant barriers to increasing gender diversity on company boards. Companies ought to adopt flexible work arrangements and increase transparency in board vacancy advertising and candidate selection. This may encourage more women to seek board positions.

Arguably, ongoing educational campaigns and broader social change, in conjunction with enhanced hard and soft laws regulating corporate governance, may assist in enhancing gender balance on company boards in Australia.
 



LAURA ANN WILSON is a Victorian lawyer. She has worked in legal, research/policy and advisory roles across the Victorian Public Service, university and community legal sectors.

1. Australian Securities Exchange Corporate Governance Council, Corporate Governance Principles and Recommendations (2nd ed, 2007) 25.
2. Diann Rodgers-Healey, Women Getting Into Boards, Australian Centre for Leadership in Women (2009) 51-60.
3. Australian Bureau of Statistics, Labour Force (2 August 2012) Australian Bureau of Statistics.
4. Jason Harris, Company Law: Theories, Principles and Applications (Lexis Nexus Butterworths Australia, 2012) 34-36, 170.

 


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