Context

The Governance Institute of Australia and Watermark International Recruitment released the 2020 Board Diversity Index in May of this year. The report tracks the progress of ASX 300 boards towards improving board diversity in the broad sense – 1) gender diversity; 2) cultural diversity; 3) skills diversity; 4) age diversity; and 5) tenure – over the past six years.

The report proceeds on the basis that decision making within organisations is enhanced where there is a diversity of decision makers who bring a range of viewpoints, skills and experiences to the process. The report argues that this is of particular relevance in the context of responding to the cultural, remuneration and governance issues identified by the Hayne Commission as well as in the context of meeting the challenges/uncertainty of a continually changing business and governance landscape eg in the context of managing through the COVID-19 pandemic and the recovery period.

The full text of the report is here. Our summary of some of the key takeaways in the report is here.

Panel discussion: Expert insights into the issues arising out of the index

Key findings from the 2020 Board Diversity Index, the barriers to progress and insights into possible pathways forward were explored by an expert panel (speaker information is here), Chaired by Governance Institute CEO Megan Motto in July 2020. A high level summary of some of the key discussion points is below.

There is broad consensus that diversity is valuable (but boards are not always proactive on the issue)

The 2020 Board Diversity Index indicated, and the panellists agreed, that overall boards accept the value of diversity in the broad sense – diversity of skills, cultural background, gender, age, tenure – in principle, and also accept that progress needs to be made on the issue. It was also agreed that to date, gender diversity has tended to receive more attention/more progress has been made on the issue, relative to other aspects of diversity.

A poll of webinar participants seemed to confirm that boards are at least thinking about diversity with most participants indicating that some aspects of diversity are on their own boards' radar. For example, 83% of participants said that skills diversity is a discussion point for their own board, 63% said that their board discusses gender diversity and 27% said that their board discusses cultural diversity.

Business consultant Warwick Cramer commented that it is increasingly accepted, and research increasingly supports the view that diversity, beyond gender diversity, adds value to organisations 'beyond optics'. That is, that diverse teams tend to perform better, in a financial sense, than their less diverse counterparts. Innovation and disruption, he said, are underpinned by diversity in thinking and decision making and as such, should be front of mind for companies.

Why hasn't there been more progress on the issue? Barriers to diversity

The barriers to progress on the issue was a key theme of the discussion. Issues raised by the panellists included the following.

Unconscious bias: One barrier to increased levels of diversity on boards was agreed to be unconscious bias in various forms eg bias against female candidates and/or culturally diverse candidates. Non-executive director Caroline Waldron commented that the statistics on the issue speak for themselves. She added that it is important to think about diversity holistically and to acknowledge that some people are facing multiple levels of unconscious bias. 'Bamboo ceilings exist but don't get as much attention as the glass ceiling', Ms Waldron said. 'I don't like having two ceilings above my head and other will have more'.

Diversity (in the broad sense) is not integrated automatically into board recruitment processes: Watermark International's David Evans said that boards rarely specify that they want to see a diverse slate of candidates when recruiting for a new board member, though they are open to the idea when prompted. In response to a question from a webinar participant concerning requests to include candidates with a disability, he said that the same is true. Boards don't ask, but are often open when prompted.

Asked to comment on barriers to appointing Indigenous directors, Director Kate Russell observed that it is rare for organisations without an explicitly Indigenous focus/remit to think about including Indigenous candidates, despite the strong candidate pool. In addition, because so many candidates are younger, she observed, organisations may need to adapt their approach – for example, organisations may need to focus on building an internal pipeline to foster talent from within rather than seeking to appoint a new director immediately to the board.

Lack of flexibility in setting 'mandatory requirements': On a related point, Ms Russell observed that when recruiting new board candidates, boards tend to be fairly rigid in setting mandatory requirements that are premised on the way they have always recruited, and that this tends to place value on particular skills/formal qualifications and to discount/devalue others, reinforcing the status quo. In order to get the right organisational 'fit' and to make room for a diverse range of voices, she suggested it might be necessary for boards to adopt a more flexible approach. For example, boards could think about fostering talent from within, and building a pipeline of prospective leaders. Boards could open up to enable younger prospective leaders to act as observers, to shadow directors, and to build familiarity and experience in dealing with boards over time.

The need for boards to adopt a more flexible and open approach to recruiting prospective members was echoed by Business Consultant Warrick Cramer who observed that Australian boards also tend to be fairly closed to the idea of including a director with international, rather than domestic experience. Likewise, mandatory requirements often do not take into account the networks of experienced and knowledgeable people/organisations that directors bring with them.

Push back: Another issue identified by the panel was potential push back from potential candidates. From a recruitment standpoint, diverse candidates could sometimes be wary of being perceived as having been included on a list of potential candidates to fulfil a diversity requirement/quota, rather than on their merits. Concern about being perceived differently/labelled was also observed to present difficulties in the context of measuring/monitoring progress towards diversity (beyond gender diversity). Though gender diversity is fairly visually apparent, other forms of diversity are less so, especially diversity in a cultural sense and therefore often requires people to self-identify.

Organisational culture, and a lack of inclusivity was also highlighted as an issue. The panel agreed that it inclusive culture, a culture that values and listens to diverse voices is key not only to recruiting but to retaining and reaping the benefits of having diverse voices on boards/within organisations. Ms Motto cited one example where a younger director had eventually ceased contributing to board discussion because of the way in which older members of the board tended to dismiss them – in this instance, the lack of inclusive culture/willingness to listen was, Ms Motto said, probably unconscious, but nevertheless indicated a lack of space for diverse voices to be heard.

Suggested ways to help tackle these issues

The panel talked through number of ways that boards can begin to tackle the various barriers to diversity, though there was agreement that the path forward is not straightforward.

'Culture is everything'

A key theme to emerge from the discussion was the importance of inclusive culture within organisations and on boards, that genuinely value and listen to diverse voices. In this context, the role of the leaders, and in particular the role of the Chair was agreed to be key.

Building diversity and inclusion into thinking on recruitment: There was consensus that building diversity into recruitment policies, procedures and processes and shifting the focus to include broader skills sets requires the backing of leaders.

Commenting on the recruitment process, and the way to ensure that boards place value on a broader range of skills, for example HR skills and change management skills (in addition to the necessary financial/accounting skills), Ms Waldron said that leaders have a key and a very practical role to play. They set the tone from the top and they are the ones who are able to ensure that recruitment and retention processes/policies value diversity.

Ms Russell listed a number of practical steps boards could consider implementing including among others, introducing a version of the Rooney Rule (including at least one applicant from a diverse background for every other candidate).

Building diversity and inclusion into thinking on boards more generally: Again, in the context of ensuring diverse voices are heard in the boardroom, the tone set by the Chair was identified to be key. The Panel agreed that Chair sets the tone and drives a speak up culture, in which diverse voices are encouraged, not dismissed. In addition, it was suggested that diverse board members have a role to play in ensuring that they take the opportunity to speak, when it's there, and to provide their perspective.

Thinking about the customer can be a helpful check: Mr Cramer suggested that thinking about the customer is also helpful in this context. Thinking about how they are connecting with their team and with their customer base provides broader context for decisions, he said. One way to monitor progress towards diversity/inclusivity might be to photograph management teams – this could provide an instant snapshot of the diversity within the organisation as compared with the customer base.

Candidates also have a role to play:Ms Waldron spoke about the active role that aspiring board candidates can take to increase their chances of appointment, referencing her own path to the board. Ms Waldron said that in order to be appointed, board members needed to be well-rounded and have a good mix of skills – that is, board members need to have core accounting and commercial skills as well as bringing other knowledge and experience. In this context, she suggested, experience with/familiarity with boards and board processes, qualifications in governance and building commercial skills all have a role to play.

Pathway to the board – the role of candidates in preparing for a board position

In response to a question from webinar participants, Ms Waldron spoke at some length about her own journey to becoming a director and the way in which she 'mapped' this journey. Ms Waldron said that she started by thinking about the skills and experience that a director would need to bring value to a board, compared this against her own skills, qualifications and experience, and then proactively targeted roles over a period of years, in which she could acquire missing skills/knowledge and experience.

Ms Waldron spoke in particular, about the importance of being familiar with the way in which boards function. In her own case, she built up experience in this area through a mixture of taking on professional roles – company secretary, general counsel and leading the risk and audit function – that would give her exposure/experience, and through undertaking formal governance qualifications.

At the same time, Ms Waldron emphasised the importance of networking and being open about your board ambitions.

What does best practice look like?

In light of recent media reports on the handling of sexual harassment, the black lives matter protests, and reports of COVID-19 related racism, Ms Motto asked NED Ms Waldron to comment on how boards can ensure that they are taking a 'best practice' approach to diversity within their own organisations Ms Waldron said that accepting the need for diversity to be broader than gender, and then monitoring and honestly assessing progress is key.

Boards should she suggested, should undertake their own diversity audit; set realistic targets and then report (honestly) against them.

However, monitoring, measuring and fostering diversity was acknowledged by the panel not to be straightforward.

[Source: This article is based on notes from the Governance Institute and Watermark Recruitment Panel Discussion: 'The pathway beyond gender diversity: Board diversity in all its forms' 30/07/2020]