Diverse thinking

John Brogden outlines the Australian Institute of Company Directors’ latest landmark policy to increase female representation on boards.

The Australian Institute of Company Directors (AICD) has seized the leadership in efforts to increase the number of women on boards by setting a target of 30 per cent for female directors on all boards. This new policy represents not just common sense but also good business sense.

We are the first major Australian organisation representing business to set such a target. This landmark policy is part of our long-running campaign to improve gender diversity in local boardrooms.

The benefits of such diversity are undeniable – there is a whole body of research to demonstrate a positive link between the level of female representation on boards and improved corporate performance.

A report by Credit Suisse released in August 2012, for example, demonstrates a positive link between female representation on boards and in senior management with improved financial and sharemarket performance.

A Catalyst report has shown that US Fortune 500 companies with more women on their boards tend to be more profitable. And McKinsey research shows that companies with a higher proportion of women at board level typically exhibit a higher degree of organisational efficiency, above average operating margins and higher valuations.

Research also suggests that the presence of three women, or 30 per cent of a typical 10 member board, is the proportion of representation where “critical mass” is reached in a group setting. It is at this level where the voices of the minority group become heard rather than being simply represented and where, therefore, this increased capacity for diversity to deliver value begins to be optimised.

Instigating change
Our previous initiatives in this area have borne success. The number of women on S&P/ASX 200 boards has increased from 8.3 per cent in 2009 to 19.8 per cent today and in 2014 females accounted for 30 per cent of new directorships for the first time.

We played our own part in this increase by offering scholarships, mentoring programs, targeted education programs and other opportunities for talented women to reach their full potential as directors.

But this new policy is a step-change. Our aim is to encourage all Australian boards – not just those at our biggest listed companies – to make the decisions that will help their companies more quickly reach the critical mass required to produce the optimal business benefits of gender diversity.

We urge all S&P/ASX 200 boards to reach the 30 per cent target by the end of 2018 to set a clear example that gender diversity is achievable when the proper planning and processes are in place.

Many of these companies are household names and among the country’s largest employers, so they have a significant leadership role when it comes to issues such as equal opportunity.

Of course, we recognise that such a time frame may not be practical for smaller listed companies, private business and not-for-profit organisations which lack the flexibility and resources to implement such a change quickly. We have not set a specific target date for these entities to achieve the desired ratio of female directors, but encourage them to set about adopting the spirit of our new policy.

Part of the rationale for our policy is that it is far better for directors, as a collective, to set about creating change than to be subjected to mandated quotas that are imposed by outside authorities such as governments or regulators.

Indeed, we have long maintained that companies should set their own measurable targets for gender diversity and to facilitate their efforts we are now nominating a standard that we consider to be appropriate in an Australian context.

Directors, rightly, consider themselves leaders in the community due to the nature of their roles, and the significant responsibilities that comes with their position. 

It is therefore natural for the AICD to take a prominent stance in setting standards that should apply if businesses and other organisations are to achieve outcomes that are widely considered to be desirable.

I hope that you will support us in our new initiative and recognise the benefits that diversity of all kinds can bring to the boards on which you sit and, ultimately, the organisations which your boards govern.