Key takeouts

• The report looks at progress towards improving board diversity on ASX 300 boards in the broad sense – 1) gender diversity; 2) cultural diversity; 3) skills diversity; 4) age diversity; and 5) tenure – over the past six years
• Less 'male': The report found that board gender diversity has seen the greatest improvement. Based on current trends, the report predicts that all-male ASX 300 boards will be extinct by 2026 and gender parity across ASX 300 boards will be achieved by 2030.
• Persistently 'pale': Consistent with last year's report, the 2021 report found that 90% of board members are from an Anglo-Celtic background. The report predicts that based on current trends it will take 18 years for the boardroom to be reflective of Australia’s cultural diversity.
• There has also been little change in the mix of skills/expertise represented on boards. Boards continue to value/prioritise financial/accounting skills. Human resources and technology skills remain rare.
• Stale? According to the report, 65.2% of directors and 72.5% of chairs have tenures of less than 10 years, the point at which the ASX Corporate Governance Council considers that it is 'healthy to ask questions about the value of directors'. As such, the report opines that 'these seem reasonably healthy numbers on the face of it'.

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 2016-2021 period.

Why is board diversity so important?

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 is not just fairer and more reflective of our broader society, but it is also better for business. Diverse boards will challenge proposals from more perspectives, groupthink decreases, and consequently better decisions are likely to be made'.

In addition, the report suggests that more diverse boards are likely to increase equality within the business.

The report emphasises that the pressure on boards to diversify is continuing to build and encourages boards to review and reassess their position in light of changed expectations. CEO Megan Motto states:

'We are seeing investors and other stakeholders increasing pressure on companies to be more reflective of the community within which they operate. Consumers are increasing the pressure, choosing to spend their dollars with diverse organisations which can demonstrate strong ethics and good culture. Internationally, we are seeing countries list diversity as a reportable benchmark for companies and firms are starting to link executive remuneration to diversity targets. Momentum is gathering and organisations really need to be on the ball'.

Key findings

Board gender diversity has shown the most improvement – 'change is afoot and it's swift'

The number of female directors has significantly increased over the past seven years with the 30% female board representation target having been reached (in aggregate terms) across the ASX 300: women account for 31% of ASX 300 board seats (up from 28% in 2020, and only 20% in 2016). The report points out that this puts Australia well ahead of other OECD countries on this measure

Larger companies are leading the way

• Consistent with the 2020 report (summarised) the 2021 report found that larger companies are more gender diverse than their smaller counterparts.
• Women account for 35% of board seats on ASX 100 boards (up from 32% in 2020) and 34% on ASX 50 boards (unchanged on 2020).
• ASX 201-300 boards are less gender diverse with only 27% of seats held by women.

All-male boards?

• The number of all-male ASX 300 boards continues to decrease. In 2020 there were 29 all male boards. In 2021, this had decreased to 14. 100% of this group are in the ASX 101-300.
• The report predicts that based on current trends, there will be no ASX 300 companies with zero female directors by 2026.

Indications that the pace of change continues to build momentum?

The report argues that there are no signs that the pace of change is slowing – rather the report considers there are signs that companies are continuing to push for increased gender diversity. For example:

• The number of boards with 30% or more female directors continues to trend upwards: In 2016 there were 54 boards with 30% or more women. This had increased 121 in 2020 and has further increased to 161 in 2021.
• The number of boards with 50% or more women directors also continues to trend upwards, and the number of women holding Chair roles is also increasing.
• Based on current trends, the report predicts that 50/50 board gender parity will be reached by 2030.

The pool of female directors is expanding?

The report found that though there is a 'significant concentration' of female directors holding multiple seats - approximately 29% of female directors hold 51% of female-occupied board seats – this appears to be shifting. In 2020, 19% of female directors held 47% of female occupied board seats.

Cultural (ethnic) diversity is 'modest at best'

• The report found that consistent with the 2020 report, most ASX 300 board members (90%) are from an Anglo-Celtic background.
• ASX 100 boards have the highest representation of directors from non-European backgrounds at 18%. This decreases to 3% on ASX 101-200 boards. Interestingly, the figure is slightly higher at 8% for ASX 201-300 boards.
• Looking forward, the report predicts that based on current trends it will take 18 years for the proportion of ASX 300 directors with non-Anglo/European backgrounds to increase to 20% across (which would be more consistent with Australia's general population).

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 surveys.
• Accounting, banking and finance skills continue to be the most strongly represented with 34.4% of directors holding these skills (down from 35% in 2020). The report predicts however, that based on current trends, this proportion will decrease over time to 30% by 2030.
• The proportion of directors with legal skills remained stable (as compared with last year) at 6.5%.
• The report highlights the steady increase in the number of board members with mining/energy/resources experience over the past seven years, as a reflection of the importance of the Resources sector to the Australian economy. The proportion of directors with these skills has increased from 9.1% in 2016 to 13.4% in 2020 to 14.3% in 2021.
• The proportion of directors with technology skills was up very slightly on 2020 at 6.6% (up from 5.8%).
• The proportion of directors with HR skills remained very low and in fact decreased from 0.8% in 2020 to 0.7% in 2021.
• Female directors tend to hold more qualifications than their male counterparts. For example: 8.4% of female board members hold a PhD (vs 5% of male directors); 22.1% of female board members hold an MBA (vs 16.9% of male directors) and 60.7% of female directors hold a governance qualification (vs 32.1% of male directors).

Tenure/board independence

• 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).
• Consistent with the previous report, most (45.4%) of ASX 300 directors have been on the board for four years (or less).
• Interestingly, the statistics appear to show that a number of directors in the 5-9 year tenure range in 2020 have stayed on in 2021, pushing up the proportion of directors now in the 10-14 year tenure range considerably: According to the report: 19.8% have been on the board 5-9 years (down from 36.9% in 2020) and 31.9% have been on the board 10-14 years (up from 11.5% in 2020).
• The proportion of directors who have been on the board more than 15 years decreased on last year: According to the report, 1.7% have been on the board 15-19 years (down from 3.3% in 2020) and 1.2% have been on the board for 20 years of more (down from 2.3% in 2020)

Chair tenure

• Most Chairs (42.6%) have held their role for between 5-9 years and 29.9% of Chairs have held their role for four years or less.
• The proportion of Chairs who maintain their position past the 9 year point is significantly lower. Based on current trends, the report predicts that directors who have been on the boards for more than 15 years will soon become 'an endangered species'. According to the report: 11.2% have held their role for 14 or more years (4.6% of Chairs have held their role for 14-19 years, 6.6% of Chairs have held their role for 20 or more years).

To put these figures into context, the report comments that overall, 65.2% of directors and 72.5% of chairs have tenures of less than 10 years, the point at which the ASX Corporate Governance Council considers that it is 'healthy to ask questions about the value of directors'. As such, the report opines that 'these seem reasonably healthy numbers on the face of it'.

Age diversity - little has changed

• The report found that the average age of directors has remained fairly constant over the past four 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 was similar across the board at between 19-20 years.