How diverse stakeholder inclusion can uplift board effectiveness

While Australia’s top boards are making strides in gender diversity, the new Watermark Board Diversity Index shows backward steps for other diverse groups. Prominent directors examine why this is and what it may cost companies.

The latest Watermark Board Diversity Index has found the number of women on ASX 300 boards has almost doubled over the past decade, increasing from 399 in 2015 to 781 in 2024.

Other gains have been made, reflecting significant shifts towards greater gender diversity on boards. In 2025, 130 boards hit the 40:40:20 milestone set by the 30%+ Club and nearly three quarters of all ASX 300 boards have more than 30 per cent women — up four per cent on last year. The number of women on boards has increased by one per cent each year since 2023 and the percentage of women on ASX 300 boards currently stands at 37 per cent.

This year, the number of ASX 300 all-male boards has dropped from 13 to 11. Forty boards have one or no female directors, an improvement on the tally of 58 last year.

However, the levels of representation of people from First Nations and non-Anglo cultural backgrounds is falling behind gender progress. So too are the number of directors with disabilities or from LGBTQ+ backgrounds. In fact, although the report intended to detail the number of people with disability on ASX 300 boards, none have been identified in recent years.

The percentage of people of Anglo-Celtic ethnicity increased to 91.9 per cent from 91.2 per cent in 2024, almost two points higher than the 2017 tally of 90.5 per cent.

The number of directors from outside Australia dropped from 30 per cent in 2024 to 29 per cent in 2025, while the number of directors from Asia has continued to decline. In 2016, the percentage of Asian directors was 13.9 per cent, which fell to 10 per cent in 2024. It is currently at nine per cent.

“Boards across the market still aren’t broadly reflective of their customers, stakeholders or the broader Australian community,” says Brad Welsh GAICD, founder and CEO at Mawal — which raises equity for First Nations-specific investments — and a director at nib Group.

“Boards can be appropriately risk averse — that’s their role — but they can no longer afford to be passive about cultivating future directors. If boards don’t build broader talent pipelines, they leave latent value on the table for shareholders. That’s not just a diversity issue, it’s a governance and commercial risk.”

He adds it makes little sense to speak of rapidly changing landscapes — in politics, markets or customer expectations — while resisting change in the boardroom.

“A board that fails to evolve its representation fails to evolve its thinking. It risks not only moving too slowly, but not even seeing the wave of innovation or disruption coming.”

Check-box sentiment

The Board Diversity Index notes that boards with a critical mass of diverse perspectives will be better positioned to navigate today’s complex business and geopolitical environment, challenge groupthink and seize new and emerging opportunities.

However, as David Evans, managing partner at Watermark Search International adds in his introduction, “A growing number of leaders are becoming more apprehensive about discussing diversity, equity and inclusion — and are choosing to opt out of what is viewed as compliance-driven approaches. This sentiment was also recently shared by some members of the ASX Governance Principles Council, culminating in the council ceasing work on the fifth edition of the principles.”

President Trump’s decision to abandon DEI initiatives in the US could be seen as an invitation by some organisations to stall diversity initiatives.

“It’s become clear there are organisations that are saying, ‘Well, now we don’t have to do it, so let’s not do it,’” says Marina Go AM FAICD, chair of Adore Beauty and a director at Metcash, the AICD and Southern Cross Austereo.

“It says to me that they didn’t genuinely ever believe in it and they were never listening to their customers, community and staff in the first place.”

The latest Director Sentiment Index survey from the AICD found 24 per cent of boards indicated a stronger commitment to diversity initiatives, while another 14 per cent flagged a reduced commitment.

Gender as a case study

Go believes the progress made with gaining greater gender diversity can be replicated for other forms of diversity.

“The increased female representation didn’t happen overnight — and we’re not there completely,” she says. “It was only a couple of decades ago when the numbers of women around board tables were in single digits and it was very difficult for women to get onto a board. Let’s look at the early successes from the gender diversity agenda and think about what it took to achieve it.”

Go says this included targets — whether published externally or not — and returning to the fundamental benefits of having gender-diverse leadership. Another important step was ensuring there were board-ready female candidates by developing a pipeline of talent.

Welsh agrees, stating the ASX could be supported by organisations like the AICD in playing a leadership role in actively developing diverse director talent.

This could include structured initiatives like two-way mentoring, commercial and governance skills development, and board observership programs tied to ASX-listed companies. He describes mandatory quotas as a “blunt instrument” adding the goal is not to force change, but to make it easier for boards to see that doing so is commercially sensible and strategically valuable.

“Mandatory quotas can create unintended consequences, including undermining the achievements of diverse directors who are appointed purely on merit,” he says. “At the same time, purely voluntary measures have proven insufficient — some boards engage, but others simply ignore them.”

However, Welsh is confident that there is a middle ground.

“Boards would not be mandated to appoint, but those with persistently low diversity would be challenged — with a visible, prepared field of talent to choose from,” he says.

Developing a diverse talent pipeline

“Being Indigenous, my best leaders have always challenged me around my delivery and decision-making, whereas a lot of my Indigenous peers, working in other places, haven’t had the same level of what I call ‘courageous’ coaching,” says Welsh. “You can’t grow without it. I think there is some fear around giving what can be called ‘coaching feedback’, but you’re not helping the talent without it.”

Welsh set up a two-way mentoring program at Rio Tinto in 2020 that is still running today. It was part of his role as chief adviser to the CEO on Indigenous affairs. He had been appointed to the role in 2020 in the wake of the Juukan Gorge crisis, when a sacred rock shelter was destroyed by the mining company. The program involved 50 Rio Tinto executives and 50 of its top First Nations talent undertaking two-way mentoring and rotating every six months.

“Experienced board members connected with aspiring diverse directors — not just to offer advice, but to genuinely exchange learning,” explains Welsh.

“Experienced directors gained insights into how broader talent pools perceive risk, opportunity and value creation. Aspiring directors, in turn, deepened their understanding of governance, commercial stewardship and the dynamics of supporting management teams from the boardroom. It opened the eyes of the senior executives about what it meant to be Aboriginal and it helped Indigenous talent work out what it took to become an executive.”

This article first appeared under the headline 'Diversity Dilemma' in the June 2025 issue of Company Director magazine.