Regulators are enforcing workplace diversity and inclusivity

Monday, 01 April 2024

Catherine Fox AM and Mark Baxter MAICD photo
Catherine Fox AM and Mark Baxter MAICD

    Regulators and investors are beginning to scrutinise board diversity and inclusion through both investment and risk management lenses. 

    When asked about diversity and inclusion in the energy and resources sector, Woodside CEO Meg O’Neill GAICD is clear: “Times have changed. Many energy and resources companies have increased their focus on diversity and inclusion. Creating an environment and workforce that is diverse and inclusive is an important driver for Woodside.”

    That’s just one of the reasons Woodside Energy publicly and extensively discloses its own board diversity including gender, First Nations, LGBTQI+, cultural background and racial diversity.

    “The Woodside board is strongly committed to diversity and inclusion,” says O’Neill. “Reporting board diversity across a range of lenses demonstrates this.”

    Woodside is one of only a few Australian listed companies to apply a diversity lens to its board. Most companies disclose very limited statistics on the composition of their boards (mainly gender, tenure and age). This is despite increasing attention to DEI (diversity, equity, inclusion) approaches and outcomes within organisations, and as the ASX currently carries out a review of its Corporate Governance Principles and Recommendations with a focus on diversity.

    The study by the newly launched not-for-profit Australian LGBTQ+ Board and Executive Inclusion (ALBEI) Forum reveals that 67 companies in the ASX 200 have a fully inclusive definition of diversity for their workforce that does not apply to their own board. This suggests that some of these boards are not holding themselves to the same diversity standards they apply to their own staff.

    At the same time, compelling global research shows that diverse boards and workplaces improve returns for shareholders. Regulators and investors are now looking at diversity at the board level from both an investment decision and risk management perspective.

    While gender representation on ASX 200 boards has increased from 8.3 per cent in 2009 to 36 per cent in 2023, the representation of minority groups remains stubbornly low. The 2023 Board Diversity Index compiled by executive recruitment firm Watermark Search International and the Governance Institute of Australia shows that more than 90 per cent of directors are from Anglo- Celtic backgrounds, compared to 54 per cent of the population. No directors on ASX-listed boards appear to openly identify as people with disability, despite making up 20 per cent of the population. Less than one per cent of directors identify as being part of the LGBTQ+ community as compared to around 11 per cent of the population. And just four First Nations directors sit on ASX 300 boards.

    This lack of board diversity means Australian companies run the risk of being increasingly out of step with international trends. The US and UK (see breakout) are moving beyond gender in the public disclosure of diversity statistics and targets for boards, and are looking at how other under- represented groups can and should be represented.

    O’Neill points out that Woodside also meets the high expectations established in the UK and US for listed companies that are striving for, and achieving, positive board diversity.

    More diversity and inclusion reduces groupthink and supports more effective decision- making and risk management, according to the UK Prudential Regulation Authority (PRA).

    “Groupthink and lack of inclusion can lead to firms missing, underestimating, or even ignoring risks that could threaten firm safety and soundness and/or policyholder protection,” says the PRA. “A wider range of perspectives is likely to lead to a better understanding of the risks facing a firm, and more effective and prudent decision-making.”

    Casting a wider net

    The need to cast the net more widely for directors in Australia is slowly gathering pace. The Australian Council of Superannuation Investors (ACSI) has actively advocated for gender diversity on boards and has now established a working group looking at diversity beyond gender.

    Moves to broaden board diversity also hinge on chairs, nominations committees and board search advisers considering an expanded pool of candidates — and the networks to draw them from. That can be the difficult part, says Michael Ebeid AM MAICD, former CEO of SBS and now a non-executive director of Screen Australia, Sydney Opera House and BAI Communications. “Expanding your networks is one of the real challenges for many in diverse communities, as most NED roles come from your own networks,” says Ebeid. “Even when you formally apply for a NED role, if people on the board know you, it can make all the difference.”

    The major barrier for LGBTQ+ board candidates is the lack of being part of the right networks, according to US research by the Association of LGBTQ+ Corporate Directors. In many instances in Australia, members of LGBTQ+, disability, First Nations and culturally different communities are not necessarily in the same networks or have the same backgrounds as the existing director community.

    “First and foremost, I bring my broad executive experience over 35 years to a board — far more than my gay lived experience,” says Ebeid. “However, my lived experience is invaluable when the board is talking about employee issues, company culture or D&I policy. Getting those things right can play a major role in a company’s success.” 

    Many LGBTQ+ directors ALBEI spoke to did not want their membership of the LGBTQ+ community overshadowing their deep business experience. However, they all believed that, in many respects, their lived experience brought something different and valuable to the boards they serve on. These boards should be actively seeking “difference” rather than “fit”, which helps to avoid groupthink. A current board-renewal policy for a major financial services firm, for example, has as one of its criteria: “The culture fit with existing board members”.

    Inclusivity index


    Gender representation on ASX 200 boards in 2023 


    Of directors are from Anglo-Celtic backgrounds


    Directors on ASX-listed boards appear to openly identify as people with disability 


    Of directors identify as being part of the LGBTQ+ community 


    First Nations directors sit on ASX 300 boards 

    Source: 2023 Board Diversity Index, Watermark Search International and the Governance Institute of Australia


    Progress will also rely on collecting more detailed data. According to the ALBEI research, the vast majority of Australian listed boards have policies that require boards to establish “measurable targets” in relation to diversity at board and workforce level. However, most current data collection focuses on gender as the only “measurable target” rather than a broader set of criteria. The collection of diversity data is extremely limited. Often, even the suggestion of collecting more detailed data is resisted, citing “privacy concerns”.

    This reticence to collect data assumes people will not want to disclose their sexuality, cultural background or any other attributes. Yet Woodside Energy, an exception to the rule, shows a different board diversity disclosure regime is possible.

    Data collection elsewhere

    In the UK, extensive data collection at all levels (including the board) of an organisation is currently being proposed by the regulators — and introduced by organisations. According to Sheldon Mills, executive director consumers and competition at the Financial Conduct Authority (FCA), collecting and appropriately using diversity and inclusion data “lifts the fog of uncertainty”.

    “Good data allows firms to identify where they are doing well and areas where intervention might be needed,” he says. “It also allows firms to measure and hold themselves accountable for progress they’re making.”

    Even before this type of data collection becomes mandatory in the UK, a number of companies have already decided to collect extensive diversity data. 

    The board of UK-listed wealth manager Quilter plc explained in its corporate governance report that it had decided to role-model data collection, supporting the gathering of its demographic data — including age, gender identity, sexual orientation, ethnicity, religion, disability and socio-economic background. The aim is to provide clear base metrics to measure and hold management and the board to account on progress achieved.

    Collecting data from only one aspect of diversity could have unintended consequences. For example, the UK Financial Reporting Council found that as gender representation on boards improved, the representation of directors from lower socio-economic backgrounds reduced.

    “This could suggest that the increasing number of women is being achieved by appointing high SES women in place of low SES men,” the 2021 Board Diversity and Effectiveness in FTSE 350 Companies report stated. 

    Moving forward

    It is inevitable that broad diversity at the board level will come under increasing scrutiny by investment managers, regulators and consumers, with a review of existing diversity policies and, more importantly, outcomes overdue.

    The implications of ignoring board diversity are far-reaching. The 67 listed companies in the ASX 200 identified by ALBEI have diversity and inclusion policies that broadly apply to the board. But there was limited or no discussion in their corporate governance statements of how those policies were applied beyond gender diversity at the board level.

    Boards that actively and intentionally include under-represented groups will prevent the system from unintentionally excluding them. As O’Neill says, “Reporting at the board level provides clear direction to our senior leaders on the importance we are placing on diversity and inclusion — and it also holds us to account.” 

    Board compliance

    Research by the ALBEI forum raises the basic question of whether boards are complying with their own policies. ALBEI is seeking legal opinions on directors’ duties and board diversity generally, which will be available in the next few months.

    The research also found that diversity and inclusion policies, board and nomination committee charters, and corporate governance statements were often inconsistent with each other and sometimes lacked clarity.

    There are a number of relatively simple actions that can move the dial on board diversity:

    • Find your gaps — review board skills matrix and diversity needs beyond gender

    • Expand the networks you approached — many talented people who would provide constructive difference are not members of the same clubs, did not go to the same schools and do not live in the same suburbs

    • An equitable interview and selection process is needed

    • Onboard intentionally and actively seek difference to avoid groupthink. 

    ALBEI statement

    ALBEI has recently been established to carry out research, develop a pipeline of LGBTQ+ board-ready executives and advocate for more diversity on Australian listed boards. There are associated groups in both the US and Canada (LGBTQ+ Corporate Directors). ALBEI is collaborating with other advocates representing other minority groups and has engaged a number of senior barristers to provide an opinion on directors’ duties and board diversity and inclusion in Australia. With the assistance of Deloitte, ALBEI has carried out a review of governance arrangements for the ASX 200 in relation to diversity of boards, which has been referred to in this article. 

    Catherine Fox AM is a journalist, author and presenter, a gender equality adviser to the Australian Defence Force, co-founder of the Sydney Women’s Fund Giving Circle and sits on the Australians Investing in Women board.

    ALBEI co-founder Mark Baxter MAICD has been on financial services boards and C-suites in the UK, Europe, South Africa and Australia. He sits on the NSW Labor State Executive Board and chairs its audit and risk committee. 

    This article first appeared under the headline 'Spotlight on Diversity’ in the April 2024 issue of Company Director magazine.  

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