Report overview

The Governance Institute, in partnership with Watermark Search International, have released their latest board diversity index.  The report looks at the progress that has been made toward improving five aspects of diversity on ASX 300 boards - 1) gender diversity; 2) cultural diversity; 3) skills diversity; 4) age diversity; and 5) tenure/independence - over the 2015-2021 period.  The data is current to 1 January 2022.

Diversity is not just 'nice to have' 

The report proceeds on the basis that more diverse boards in the broad sense – boards that are ethnically/ culturally, gender, skills and age diverse – make better decisions than less diverse boards, because they bring different viewpoints to the decision making process.  The report states:

'Greater diversity – of all types – boosts business opportunities and prompts better decision making.  It brings a richer diversity of thinking and immense potential for innovation and growth'.

With this in mind, announcing the release of the report, Governance Institute of Australia Chair emphasised the importance of leaders maintaining their focus on the issue stating:

'Diversity is not just a "nice to have" or a simple box ticking exercise…Creating a fair and even playing field – across all types of diversity – is an ongoing challenge and opportunity that needs to be proactively managed from the top down, whether at government or boardroom level'.

Some key findings

Board gender diversity continues to improve (though the rate of change has slowed over the last 12 months)

The report found that the number of female directors has significantly increased over the past seven years with women now accounting for 32% (in aggregate) of ASX 300 board seats.  

For context, this is only a 1% improvement on 2020, but still a significant increase on 2016 when women held just 20% of board seats. 

Larger companies continue to lead the way 

Consistent with previous reports, the 2022 report found that larger companies are more gender diverse than their smaller counterparts.

• Women account for 35% of board seats on ASX 100 boards (unchanged on 2020) and 35% on ASX 50 boards (up 1% on 2020) 
• ASX 201-300 boards are less gender diverse with only 28% of seats held by women (up from 27% in 2020)

All-male boards could be (still) be extinct by 2026?

The report found that the number of all-male ASX 300 boards or boards with only one woman is continuing to decrease.  As such the prediction made in the previous survey that there may be no ASX 300 companies with zero female directors by 2026 remains a possibility.

According to the report:

• 69 ASX 300 boards either included zero women or only included one women (down from 82 in 2020 and 170 in 2016).
• Looking at all-male boards only, the report found that there was actually one more all-male board than in the last report (in 2021 there were 16 all-male ASX 300 boards, up from 15 in 2020).  The report comments that many of these companies are 'repeat offenders' from previous surveys. 

Despite the expanding pool of female directors, fewer (more experienced) female directors are holding more board seats? 

• The previous report found that approximately 29% of female directors held 51% of female-occupied board seats, an improvement on 2020 when 19% of female directors held 47% of female occupied board seats.  
• The current report highlights that this improvement has not persisted.  According to the report, 19% of current female directors hold 48% of all female-held board seats, suggesting that boards continue to favour candidates with prior board experience.  

The report highlights that boards will need to broaden their perspective if this issue is to be addressed:

'The most experienced and prominent female directors are collecting a disproportionate number of board seats, and relegating many newcomers to single-board status.  This parallels the history of male board concentration in the past and is not a simple dilemma to solve in the short term.  It goes to reason that organisations want proven experience at the boardroom table, however, it has been through a concerted focus that corporate Australia has shifted to make this positive change in appointing more diverse candidates, who at one point had limited experience...

[the report suggests that addressing the issue will require] 'organisations to be open to where diverse candidates could be and to focus the
discussion on what diverse thinking or perspective they could bring to the board rather than solely focusing on the "exclusive club"'.

'No question about the persistence and strength of change' 

While the rate of progress slowed over the past 12 months (as flagged, there was only a 1% improvement on the number of female directors compared with the previous year) the report opines that 'there is no question about the persistence and strength of change particularly if measured over multiple years rather than 12 months'.  

For example:

• The number of boards with 30% or more female directors has tripled since 2016
• The number of companies with female Chairs has also increased from 30 to 37 over the past 12 months 
• Based on current trends, the report predicts that 50/50 board gender parity will be reached by 2030

Having said this, the report also points out that there is still room to improve on this (and other diversity fronts). 

For example that the 'typical' ASX 300 director is currently: male, of Anglo-Celtic background, aged 60, resident in Australia, degree qualified and with accounting/finance/banking experience/skills (though as flagged above, based on current trends, the 'typical' director may well be as likely to be male as female by the end of the decade).  

Cultural (ethnic) diversity is 'stagnating'

The report found that consistent with last year's report, most ASX 300 board members (90%) are from an Anglo-Celtic background (which does not reflect the cultural diversity of Australia's population).  Looking more closely, the report found that:

• just 7% of ASX 300 directors are from non-Anglo-Celtic backgrounds
• ASX 101-200 boards have the highest representation of directors from non-European backgrounds at 8%, decreasing to 7% for ASX 100 and ASX 201-300 boards.  

In light of these findings, the report calls for renewed focus on this issue. 

'There is evidence of stagnation in this metric.  Without vigorous, muscular advocacy on behalf of ethnic minorities, this situation is unlikely to change in the immediate future, despite the fact that the multicultural complexion of Australia’s population continues to evolve rapidly'.

In particular, the report urges boards to lead the way:

'Your board needs to look around the table and ask what action is required to ensure cultural diversity is strong at all levels of the organisation'.

Boards are continuing to prioritise accounting/finance skills

• The report found that there was little change in the skills/experience represented on boards as compared with previous years or with the qualifications held by directors. 
• In terms of qualifications, 80% of directors hold an undergraduate level degree and MBAs and/or finance degrees are held by a solid proportion of directors. 
• Female directors tend to hold more qualifications than their male counterparts.  For example: 9% of female board members hold a PhD (vs 5% of male directors); 20% of female board members hold an MBA (vs 19% of male directors) and 56% of female directors hold a governance qualification (vs 28% of male directors).  

Tenure/board independence

• 80% of directors have served in their role for less than 10 years and most (55.1%) ASX 300 directors have been in their role for four years (or less).
• At most, the report found that 20.1% of directors are regarded as non-independent.   
• Overall, the report found that the highest concentration of independent directors is in larger companies (though the overall concentration is fairly high across the board).  
• The proportion of directors who have been on the board more than 15 years increased on last year: According to the report, 4% have been on the board 15-19 years (up from 1.7% in 2020) and 4.3% have been on the board for 20 years or more (up from 1.2% in 2020).  
• Interestingly, the report found that for the first time there are female directors with 15 or more years tenure. 

Chair tenure

Most Chairs (40.2%) have held their role for between 5-9 years and 28.9% of Chairs have held their role for four years or less.
The proportion of Chairs who maintain their position past the 9 year point (the point at which the ASX Corporate Governance Council considers that it is healthy to ask questions about the value of directors) is significantly lower:

• 18.1% of Chairs have been in their role for 10-14 years.  
• 4.7% of Chairs have been in their role for between 15-19 years 
• 7.2% of Chairs have been in their role for 20 or more years.  

Age diversity - little has changed

• The report found that the average age of directors has remained fairly constant over the past five years at 60.1 years overall.  
• Female directors tend to be younger on average than their male counterparts: the average age for female directors is 57.1 years vs 61.5 for male directors.  
• The age range across ASX listed company boards is similar across the board at approximately 20 years.