Where is the next generation of directors coming from?

By Claire Braund
Appeared in Keeping Good Companies, Journal of Chartered Secretaries Australia, August 2005

Succession planning to improve the diversity and composition of company boards is becoming increasingly important to meeting community and government expectations about corporate governance and company performance. This article discusses the under representation of women on boards and strategies for addressing the risk that this imbalance poses to Australian companies.

Profile of Australian company directors

In 2002 the average age of directors in the top 100 companies in Australia was 57. Male directors were significantly older than female directors, and non-executive directors were significantly older than executive directors.(1) Their ages ranged from 29 to 77 years. Coincidentally the latter figure is also the average life expectancy for an Australian male.(2) The minimum retirement age in Australia is 55 - two years younger than the average age of directors.

Fewer than 10% of Australia’s company directors are women and fewer than 2% come from minority ethnic groups. Research commissioned in 2003 by Women on Boards of 412 Australian organisations, including 338 of the top 500 publicly listed companies showed:

• 7% of all board members were women
• 29% of boards had one female board member
• 6% of boards had two female board members
• 2% of boards had three female board members
• 3% of public companies and associations had female Chairs
• 37% of the first 175 public companies and 73% of the next 325 companies had no female board members

A survey of 60 chairs and company secretaries revealed that the main process for identifying prospective board members is referral by existing directors (78%) or the MD or CEO (57%) rather than through selection criteria. Compatibility with existing ‘board culture’ was identified as important for selecting names to put forward to shareholders.(3)

The need for change

On the surface, the current culturally homogenous crop of company directors has served us well. Australia is still riding a 10-year wave of resource-fuelled prosperity. The All Ordinaries Index is at record levels and our companies are lining shareholder pockets with record profits.

However, companies are under growing scrutiny from governments, courts and the community over their ethics, values and responsibilities, as recent media coverage of large companies such as NAB, HIH, OneTel and Hardie Industries, demonstrates. Companies are being asked to address to recognise the need for real and transformational change in the structure and composition of their boards.

Currently, the composition of our boards does not reflect the diversity within their company shareholder bases, customers/ clients and Australian society. There is pressure to improve the diversity of our boards to ensure continued success of Australian companies in the rapidly changing and expanding global market place, where flatter structures and borderless organizations will proliferate.

Hudson in its 20:20 report series identified a strong business case for diversity: “Best practice in business requires that diverse and global differences are reflected in values in the workplace. This requires moving away from treating everyone equally to treating all differences equally. These challenges highlight the need to better understand processes and ameliorate marginality and instead foster tolerant and inclusive organisational cultures. In other words, the masculine ethos of current Australian business culture is no longer sustainable.”(4)

The case presented by Hudson and others is supported by the findings of several major research reports in the United Kingdom, Canada and United States that present sound arguments for board diversity being made part of a risk management strategy for any company. These arguments are outlined below.

1. The consumer market

• Women are major consumers – in the USA alone this is estimated at nine trillion.
• Women also sign 80% of cheques, represent 40% of travelers and purchase 80% of consumer goods.
• Women make major financial and legal decisions.
• Boards with women are more likely to make decisions with women consumers in mind.

2. Corporate governance

• Women on boards significantly improve corporate governance performance in director training, evaluation of board performance, succession planning and use of selection criteria (Cranfield University) (5).
• The Conference Board of Canada found 94% of boards with 3+ women insist on conflict of interest guidelines and 72 % of boards with women conducted formal board performance evaluations compared with 49% for all male boards (6).
• In Australia, company regulators in some sectors are starting to look hard at the quality of boards and succession planning.

3. The bottom line

• The Women on Boards survey indicated profitability is positively correlated with the presence of women on boards.
• In the UK and USA, having women on boards improved market capitalisation and Return on Equity (7).
• Women provide different viewpoints for critical decision-making.
• Investment managers assess board composition as one of the key factors when considering a potential investment.

4. Corporate reputation

• Women on board enhance corporate reputation.
• Culturally homogenous boards do not have the same appeal as dynamic, vibrant, diverse boards.
• Shareholders are more likely to query companies without a woman on their Board

Some strategies for change

For CEOs

The role of the CEO in providing career pathways for women through company leadership/ line management is critical to promoting women to leadership positions, such as board membership (8). CEOs could also:

• Visibly support diversity.
• Define diversity and how it will be managed.
• Appoint an organisation wide “diversity council’.
• Appoint women to senior decision-making positions and mentor and support them.
• Provide and act on a clear statement of organisational ethics and values.
• Introduce professional development programs / coaching for women.
• Adopt International Labor Organisation maternity leave standards (14 weeks’ paid maternity leave).

For Boards

• Actively support the CEO’s diversity definition.
• Use outside expertise to develop a board profile including skills, experience, learning styles and personality types.
• Identify gaps and develop selection criteria.
• Seek directors based on the selection criteria.
• Use an independent panel to review and interview applicants.
• Involve fellow directors once suitable applicants have been identified.

Strategies being used by Women on Boards

Women on Boards is a national program to improve the gender balance on Australian company boards through skills based selection. It aims to help women fulfil their directorship aspirations by providing professional development opportunities, enhance corporate governance skills and build networks.

We are employing a number of strategies focused on networking and mentoring, which our research tells us is the way most people make it onto a board. It is a shift away from the prevailing ethic that what women need is ‘training’ or to complete courses in order to be considered for directorships. Some of our initiatives include:

1. Partnering with major companies. Law firm, Blake Dawson Waldron, and global investment bank, UBS, are supporting the Women on Boards program. UBS will provide specific sector briefings for board ready women and access the skills of the Women on Boards network of 2000 professional women seeking directorships. This is designed to improve the range of opportunities available to women to be considered for subsidiary boards and governance entities of major companies or those associated with Initial Public Offerings. These boards and entities have been described as ‘hidden boards’ and typically comprise an external non-executive director together with a majority of executive directors. They are an important training ground for the next generation of directors.

2. Breaking into traditional male networks. In Australia, these are often sports clubs, whose board is an influential list of all male directors. Sydney University Football Club, the second oldest rugby union club in the world outside of Oxford, came to Women on Boards as it wanted to attract more women supporters after the success of the World Cup in 2003. Women on Boards established a skilled professional all female marketing committee for SUFC, which works directly with the board. The women involved have joined an influential network and SUFC is working towards having someone with marketing skills on its board.

3. Giving boards exposure to aspirant directors. Mentoring and networking events where influential and established directors provide advice and strategies to aspirant directors. Women report that they felt empowered and informed to successfully seek directorships after these events or establish mentoring relationships with directors.

4. Identifying board-ready women. Working with our online network of more than 2000 women to improve their CVs and promote them within our network of corporate partners.

5. Empowering women to access board positions. The website (www.womenonboards.org.au) is the hub of our self-help program. Women register and manage their own details and CVs, register and pay to attend events, access research and other information and find board positions posted by a range of organisations.

Conclusion

Women are poorly represented on Australian boards. At the same time, gender diversity at board level is gaining recognition both as a risk management strategy and for improving company performance. Improving the participation of women on boards, proactive diversity strategies and a commitment to objective selection criteria when seeking directors are required. Professional networks for women play an important part in working with companies to make board positions available and promote the many board-ready women into these roles.

References

1 Australian Council of Super Investors Inc: Board Composition and Non-Executive Director Pay in the Top 100 Companies: 2002, 2003, www.asci.org.au

2 ABS Year Book Australia 2001. www.abs.gov.au/ausstats/abs@.nsf/0/b066d450abaaa4c7ca256dea000539dc?

3 Delta Outlooks, Practices and Procedures relation to the appointment of directors in Australia and New Zealand, December 2003 and January 2004, www.womenonboards.org.au/research

4 Hudsons 20:20 Series report “Breaking the Culture Mould: The key to women’s career success.” 2004

5 The Female FTSE Report 2004: Centre for developing women as business leaders, Cranfield School of Management, www.som.cranfield.ac.uk/som/research/centres/cdwb

6 Rosner, J. Women on Corporate Boards Makes Good Business Sense, 2003, www.womensmedia.com/new/Rosner-corporate-board-women.html

7 The Bottom Line: Connecting corporate performance and gender diversity, Catalyst (USA) 2004, www.catalystwomen.org/knowledge/titles/files/exe/fpexe.pdf

8 Women on Boards, Global investment bank partners Women on Boards, www.womenonboards.org.au/news/media050414