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
• Still mostly male: Some progress has been made in terms of increasing gender diversity on ASX 300 boards, with the largest companies (ASX 50) leading the way. For example, 34% of ASX 50 board seats are now held by women and there are zero all-male boards in the ASX 50.
• ASX 300 boards remain overwhelmingly 'pale' – over 90% of board members are from an Anglo-Celtic background. The number of directors from non-European backgrounds has gone backwards since last year.
• There has been little change in the mix of skills/expertise represented on boards. Boards continue to value/prioritise financial/accounting skills. Human resources/change management skills remain rare.
• (Slightly) older: The average ages of directors has remained virtually static as compared with last year, at 60.6 years overall. Male directors are on average 61.5 (two months older than last year) and female directors are on average 57.9 (and six months older than last year).
• Stale? 28% of the ASX300’s Chairs have been in place for 10 years or more and 9% have been in place for 15+  years. The report suggests that this is an opportunity for boards to improve the composition of their boards to be more diverse.  

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 - over the past six years.   

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 suggests 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 e.g. in the context of managing through the COVID-19 pandemic and the recovery period.   

The report suggests that,

'…our ability to cope with radical shifts in any operating model is unlikely to be best met by continuing to do things the way in which we always have. Thinking about the potential responses to the impact of COVID-19 on your business is likely to be much more effective and much broader reaching if you have different perspectives working on the issue…We believe that boards with a broad range of views, skills, educations and backgrounds will be in a better position to cope with the ensuing uncertainty'.

Some key findings

Gender diversity: Gender balance on ASX 300 boards is improving

The number of female directors is increasing: Overall, 28% (561) of the 2004 board seats on the ASX 300 are now filled by women (up from 533 last year and up from 399 in 2016). 

Larger companies are leading the way:

• ASX 50 boards are the most gender diverse (34% of seats are filled by women)
• ASX 201-300 boards are less gender diverse than their larger counterparts, with only 22.8% of seats filled by women
• At companies who joined the ASX in 2019, the figure is 15%. The report comments that this lack of board diversity is interesting given the level of concern from institutional investors around the issue and suggests that 'companies joining the ASX need to be directly encouraged to do more'. 

The number of boards with 30% or more female directors continues to increase: In 2016 there were 54 boards with 30% or more women, this increased to 63 in 2017, 76 in 2018, 113 in 2019 and 121 in 2020

The number of boards with 50% or more female directors has also increased over the last twelve months from 15 last year to 20 in 2020. 

The number of all-male boards continues to decrease. Again, larger companies lead the way on the issue:

• There are no all-male boards in the ASX 50. 
• Only one company in the ASX 50-100 category has no female directors. 
• Of the 29 all male boards ASX 300 boards, most (18) were in the ASX 201-300 category, and ten were in the ASX 101-200 category. 

Increase in the number of female Chairs: 21 boards are currently chaired by women, up 24% on last year

Little evidence of 'overboarding' among female directors?  The report found that of the female directors holding multiple roles, 62% are sitting two ASX 300 boards, suggesting that directors are not being drawn from the same small pool of candidates. This figure is expected to decrease as more women are appointed to ASX boards. 

Barriers to increased gender diversity: One barrier to progress continues to be the desire for potential candidates to have experience on the board of a listed entity.  The report suggests that the broader adoption of board 'observer' programs may be one way to address the issue in addition to director candidates being appointed to the boards of smaller listed companies.  

Cultural (ethnic) diversity is slipping backwards…

• Most board members are from an Anglo-Celtic background: Over 90% of board members have an Anglo-Celtic background. ASX 100 boards have the highest representation of directors from non-European backgrounds at 6.3%. This decreases to 5% on ASX 200 and ASX 300 boards. 
• Backsliding? The report found that cultural (ethnic) diversity on ASX 300 boards has decreased since last year's survey.  In 2020 there were 99 directors from a Non-Anglo-Celtic background, down from 107 in 2019. The report comments that departing directors with an Asian cultural background appear to have been replaced with directors from the USA, Canada and New Zealand.
• No clear reason for the lack of progress except inaction? The report comments that that there 'several good reasons for board cultural diversity to increase and this is just not happening. We would offer, as we did in last year’s index, that; the same organisations that drove the initial recognition of the board gender imbalance…are well placed to continue their good work in cultural diversity…and we would ask them to do so'.

Skills diversity on boards is little changed

• Newer board directors are better qualified academically and have more formal governance training than those already in the boardroom. New female directors tend to hold more qualifications than their male counterparts.
• Accounting, finance and legal skills are the most strongly represented with 35% of directors holding these skills (2.4 per board).
• The report comments that very few directors (0.8%) have human resources and/or change management skills, despite the findings of the Hayne Commission around the need to strengthen culture, remuneration and governance practices and the shifting governance/business landscape . The report argues that the current health crisis, underlines the importance of these skills given the need for companies to make rapidly evolve their operations.  

Age Diversity – directors are getting (marginally) older

• The number of ASX 300 companies disclosing the age of their directors remained constant at 69% (though the proportion was higher at ASX 100 with 81% reporting).
• There appears to be little variation in director age across the ASX 300 with the average age of ASX 100 directors at 60.6 years: 61.5 (two months older than last year) for males and 57.9 (and six months older than last year) for women. 
• 119 directors disclosed themselves as being under 50 years of age (unchanged from last year)

Tenure/board independence: An opportunity to diversify?

Most ASX 300 directors have been on the board for four years (or less):

• 45% have been on the board 0-4 years
• 36.9% have been on the board 5-9 years
• 11.5% have been on the board 10-14 years
• 3.3% have been on the board 15-19 years
• 2.3% have been on the board for 20 years of more

The highest concentration of independent directors is in larger companies: At ASX 100 companies, 79% of directors are considered to be independent, dropping to 75.6% for companies in the ASX 201-300 category.

Room for improvement? 28% of the ASX 300’s Chairs have been in place for 10 years or more and 9% have been in place for 15+  years. The report suggests that companies with a 'higher degree of non-independence would benefit from reading the corporate and societal tea leaves and, in a structured way, look to change the composition of their boards to be more diverse. For a larger percentage of shareholders, it’s no longer just about profit…it’s about how companies go about attaining that profit and they are looking at a wide number of measures'.