Board Composition

Five Ways Boards Improve Diversity

The Watermark Index, which tracks boardroom diversity in Australia, registered some progress in board composition in 2018, but much less than expected.

There are still not enough women on boards at major companies: Eleven companies in the ASX200 have no women on their boards. It is true that this is up from 30 companies in 2015, but that is little cause for rejoicing, according to the report.  In the Capital Goods and Commercial Services sector, 73 per cent of boards have zero or only one woman on them.

As for New Zealand: “Well, it’s embarrassing,” says Miranda Burton, CEO of the international organisation Global Women. Figures released by the NZX show the percentage of women directors on listed company boards increased to 22 per cent from 19.7 per cent in 2018 – just four more women than in 2017.

As for cultural diversity, in Australia, 95.5 per cent of board directors are from Anglo-Celtic origins. “Our approach to cultural diversity in boardrooms is really in its infancy,” the report complains.  In New Zealand, a “boardroom culture of consensus”

continues to impede efforts to make boards more diverse, according to the Diverse Thinking Capability Audit of New Zealand Boardrooms 2018.

Nor has there been much progress in either country for improving board-of-director skill sets.

There is ample evidence that diverse boards perform better than homologous ones.

Qualified, diverse candidates for board directorships abound if you know where to look for them and you have adequate vacancies on your board when they’re available.

Making changes in board composition calls for sweeping changes in the structure of the board recruitment and succession planning processes. Here are five ways to improve board diversity.

5 Best Practices for Improving Board Diversity

  1. Look Beyond Sitting and Retired CEOs

Your CEO could be a great asset to your board. He/she has years of experience in the sector your company operates in, and knows the inner workings of your organisation.

Unfortunately, putting the CEO on the board can also be a great mistake. Your board is in need of new ideas, fresh opinions, a diversity of skills – the CEO brings all the old ideas, and it is unlikely that the CEO’s skills will fill gaps in your board matrix. For a board to remain ‘curious,’ that is, intellectually stimulated and seeking debate and discussion, the CEO is likely to remind them more of the past than of the future.

Before putting your CEO on the board, discuss how he/she will develop strategy for the future.

  1. Fix age and term limits

By fixing an age for board director retirement, and by establishing a limit to the period they may serve on the board, board refreshment becomes easier and provides greater opportunities to build diversity. Some investors  choose to screen companies for director tenure before casting their votes for or against candidates. Investors are concerned that directors who serve too long may not be objective or independent enough.

The Watermark survey for Australia finds that the average age of a board director is 61, and it’s about the same in New Zealand. Many feel that this is too old to get a sense of what is happening in a market that is dominated by Millennials and Generation X. This often means that the close relationship which consumers now have with technology is not really understood by these older boards.

  1. Make diversity a priority 

Planning for good board composition should be the responsibility of the Nominations & Governance committee, but often that committee doesn’t look far enough afield for the talent the board of directors needs.

There should be a firm commitment for diversifying at the board level, championed by the chairman and senior non-executive director. Management, in the person of the CEO, should also get behind this effort.

The committee should make use of Modern Governance tools which enable finding the best candidates and building the ideal board matrix.

  1. Consider first-time board directors

It has always been hard for an executive to get that first engagement as a board director. But today, with the demand for younger directors strong and the need for skill sets greater, more first-time board appointments are taking place.

In considering first-time board directors, boards should consider whether candidates have sufficient time to dedicate to board service for the short term and the long term. New directors also need to understand that their time dedicated to the company could increase sharply if the organisation entered into a major transaction or suffered a crisis. Board directors also need to allow time in between meetings for discussion, preparation, etc. Qualified board directors should have a clear understanding between the roles of directors and managers and add value to the board as a whole.

5. Compose a Board for the Future

In seeking to form a qualified, diverse board, Nominations & Governance committees must seriously consider what skills and abilities are needed from the board to support its strategy over the next three to five years. Boards will need greater agility, which will require opening up new opportunities for board candidates with a wide diversity of backgrounds.

Business professionals with managerial experience, IT expertise and specialised backgrounds will be especially valued. While there have been, unfortunately, relatively few women CEOs, there’s no shortage of women with entrepreneurial and leadership experience.

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