Getting Serious about Gender Diversity in the Boardroom

Oct 2015

When considering board composition, there is clear empirical evidence that building a board with leaders who possess a diverse range of skills, experiences, and business perspectives is an essential element of good corporate governance.

Not surprisingly, research into the subject also indicates that board diversity delivers business results. Australia’s Reibey Institute has conducted research into the correlation between gender diversity at the board level and corporate business performance among the ASX 500, which includes the 500 largest listed companies in Australia. According to the report, ASX 500 companies with at least one female director delivered a three-year ROE of 6.7% versus a negative 0.1% return for companies with an all-male board. These statistics echo earlier findings of U.S.-based Catalyst in studies of female directors and their impact upon the performance of Fortune 500 companies.

Despite this evidence, among the ASX 200, only 21% of board seats are held by women. And more disturbing is the fact that approximately 30 of the ASX 200 companies still do not have a single female director.

And so a campaign to boost the proportion of women on the boards of Australia’s largest companies to 30% by 2018 is looking increasingly unattainable, with the latest appointments data suggesting it could take at least a decade unless something is done to materially alter the current pace of change.

Only 31% of new appointments to the top 200 listed companies so far this year were women. And while the pace of change in the private sector is slow, recent figures released by the federal government measuring the proportion of women serving across more than 360 government boards point to the fact that during 2015 female representation slid for a second consecutive year to 39.1 per cent — beneath the government’s minimum 40 per cent target.

Momentum Builds for Change

The revelation comes as momentum builds around a push to increase the number of women in leadership roles, including new laws that would make equal gender representation on government boards and committees (already the subject of government policy) mandatory.

The Australian Government Boards (Gender Balanced Representation) Bill 2015, sponsored by Senator Nick Xenophon, is proposing that all government boards comprise at least 40 per cent of both sexes. So, despite the public opposition among some quarters to quotas, Australia is likely to adopt a legislated quota to achieve and maintain gender diversity on government boards.

Concurrently, other significant stakeholders are exerting pressure for change too. For example, the Australian Council of Superannuation Investors will consider recommending against the re-election of directors of companies that don’t encourage more women on their boards. The council, which represents 29 Australian industry and public service super funds that manage $450 billion in assets, has a target of 30 per cent women on the boards of the top 200 ASX-listed companies by 2017.

Along those lines, in October 2015, Diane Smith-Gander, Chairman of Chief Executive Women, called for an equal split of men and women on both government and corporate boards. Bain & Co have just completed a study for Chief Executive Women confirming that a sufficiently large pool of qualified and talented women exists to make up 50% of Australian boards. At Johnson we absolutely concur with this finding.

Achieving Gender Diversity

So the question becomes: What are the best practices for achieving gender diversity in the boardroom, and what role should an executive search partner play in helping a company to achieve that goal?

The first—and perhaps most important—step for companies is to change the relationship they have with an executive search firm. Rather than engaging in transactional relationships, companies should seek an advisory relationship with a search partner that is prepared to help develop and support a structured and systematic succession process. This kind of relationship will ensure that a company can make sustained progress toward important leadership goals, such as gender diversity.

Clearly, a company must also evaluate a search partner’s commitment to gender diversity. Evidence of this commitment might be found by looking at the search firm’s own staff diversity, by inquiring about its gender diversity policy, and by learning about the firm’s diversity placement metrics.

For companies on the road to gender diversity in the boardroom, an appropriate search partner should be willing to develop a candidate short list with at least 50% female candidates, or even an entirely female list if so requested by the client. In Australia this practice is allowed under the Sex Discrimination Act 1984 if it is a temporary measure used to achieve gender parity.

Building Appropriate Search Parameters

Additionally, to achieve boardroom gender diversity, companies will need to be open to lateral and innovative candidate pools in markets and business sectors where female leadership is most scarce. This may involve looking to other business sectors to find female leaders with the appropriate skills and expertise for a particular board position, rather than being too prescriptive about the type of industry experience required.

Gender diversity in the boardroom won’t be achieved overnight, but neither should excuses be made that push the goal too far down the road. In partnership with a trusted executive search adviser and with a sustained process in place to address this corporate governance priority, committed companies should be able to achieve gender diversity—and other diversity goals that deliver tangible results—in the near future.