Why Diversity Matters

Thursday, 14 June 2018

Kevin McCann AM FAICDLife photo
Kevin McCann AM FAICDLife
Chairman, Citadel Group and Telix Pharmaceuticals

    As a Male Champion of Change (MCC) I had assumed the business case for gender diversity on boards, and in executive leadership of companies, the public service and not-for-profits was generally accepted in Australia.

    This article appeared in the AICD's Gender diversity progress report for March 2018 – May 2018 on 14 June 20 and in The Australian on 18 June 2018 (subscription may be required).

    For instance, ASX 200 companies have increased women’s participation on boards from 8 per cent in 2008 to over 27 per cent in 2018. Only five companies in the ASX 200 now remain without a female director. In the case of the ASX 50, the 30 per cent target set by the Australian Institute of Company Directors (AICD) and the 30% Club has been achieved. This has created a critical mass, enabling women directors to move from a minority, to colleagues participating on an equal basis with their male counterparts.

    Alleged misconduct by the management of a number major financial corporations, revealed in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, has led some in the media to assert that advocacy for gender diversity has led to unqualified female directors being appointed to boards, and they have contributed to the deterioration of governance. From this, many have concluded the increase in women’s participation on boards has been a failure.

    The 2007 McKinsey study titled Women Matter showed greater diversity in leadership correlated with better economic performance. These results were enhanced further where at least 30 per cent of women were in leadership roles, while below this threshold, no improvement was observed.

    In 2018, McKinsey updated and expanded the scope of this research in Delivering through Diversity (McKinsey Quarterly March 2018), which confirmed the 2007 conclusions. The study found there was also a penalty for lack of diversity, with those in the lower quartile for gender equality being less likely to outperform economically.

    The McKinsey research has been challenged by Klein (Does Gender Diversity on Boards Really Boost Company Performance?, 2017) and O’Reilly and Main (Women in the Boardroom: Symbol or Substance, 2012). Klein concludes meta-analysis of academic research data finds no business case for, or against, women on company boards or that women on boards actually cause a change a company performance. She acknowledges however, that women should be appointed to boards for reasons of gender equity.

    My personal experience on Australian boards across a number of sectors – financial, energy, health, hospitality and technology – corroborates the McKinsey research. The arrival of a critical mass of women directors to boards raises the quality of board deliberations as a result of the collective intelligence from different perspectives. Women directors have made other important contributions; in company performance they provide a role model in the sectors which have historically been under-represented in the promotion and retention of women. Their presence sends a powerful signal that the Board is committed to the removal of barriers in gender equality and a better relationship with a diverse workforce. The initiatives taken to encourage retention, give companies access to a wider talent pool, at a time of intense competition for talent. Women in leadership roles also provide a competitive advantage in securing business and maintaining customer relationships.

    For a board to appoint unqualified directors, whether they be a man or a woman, would be a breach of their directors’ duties to act in the best interest of the company. In my experience as Chair of Nomination Committees on both ASX 200 companies and smaller ones, this has not occurred. We have determined the skills required by the board. Where gender diversity is sought in an appointment, and no suitable women candidate is available, we have not been prepared to lower the standards required for the role and moved to select a male.

    Nor have I experienced a talent supply issue with female candidates; rather, that there is a pipeline of talented women available for boards with a broad range of skills. Chief Executive Officer or senior executive experience should not be the sole determinant of merit. In an era of disruption, other skills may be required by a board: knowledge of artificial intelligence, cyber security, manufacturing 4.0, (4th Industrial Revolution) and e-commerce, along with personal attributes of innovative thinking and curiosity.

    In conclusion, a recent editorial writer opined that gender equity advocacy implied women could not obtain board seats without targets. Advocacy was unnecessary because women of merit would be appointed over time.

    I note that in 2008, women on ASX 200 boards fell from 8.3% to 8%. A laissez-faire approach will not overcome bias, conscious or unconscious, nor the obstacles which prevent women from obtaining leadership roles in Australian institutions.

    Only after 10 years of effort from AICD, Chief Executive Women, MCC and the 30% Club, is Australia achieving significant female representation on ASX200 boards. The journey is not over, because the number of women in executive roles in Australian companies remains below world’s best practice and the Organisation of Economic Co-operation Development average.

    The movement for gender equality has historically been ‘a struggle for women by women’. Women’s efforts have been, and continue to be, largely responsible for progress. But now, gender inequality is an issue that affects all people – socially, economically and politically. Yet leaders, particularly in the private sector, government and civil society, who hold substantial power to accelerate change, are predominately men. Engaging influential men to step up beside women to take action on gender inequality continues to present an untapped opportunity.

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