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Lack of board diversity short-changes investors

This article written by Damon Kitney was originally featured on The Australian website on the 20th July 2017. Click here to access the original article.

Australian investors are being short-changed by the refusal of top company boards to increase cultural diversity in the boardroom and broaden the skills of directors beyond the traditional legal and accounting professions, according to a study.

The Watermark Board Diversity Index for 2017, to be released today by Watermark Search International, part of the ASX-listed Ambition Group, found that 96 per cent of ASX 300 directors were still of Anglo-Celtic/European background.

The survey found a year-on-year increase in the number of board members with a non-Australian background to 32.4 per cent of the ASX 300 this year, up from 18.8 per cent a year ago.

But of those 658 directors, 578 of them were from Europe, North America or New Zealand.

Only 80 were from Asia, South America or elsewhere.

Graham Willis, managing partner Watermark Executive Search, said that while more than 30 per cent of the Australian population had a non-Anglo- Celtic background, this was “nowhere near reflected’’ in the country’s boardrooms.

He also pointed to a 2015 McKinsey report on 366 public companies that found those in the top quartile for ethnic and racial diversity in management were 35 per cent more likely to have financial returns above their ­industry mean. “The shareholders in these companies are people who should be saying to their directors, ‘What are you doing — you are potentially costing me money here’,” he said.

“The cultural diversity needs to start much earlier in companies to provide a flow-through of senior executives that can go on to boards. If you look across the executive ranks of listed companies, there are three in the top 100 from a non-Anglo background. It has to start earlier in the process to provide a broader funnel for the future.’’

Vicinity Centres and JB Hi-Fi director Wai Tang, a former Just Group chief operating officer, said last year that Australian firms wanting to expand into Asia needed directors who understood Asia and had deep perspectives on how to do business in the region.

The issue has also been targeted by the Australian Institute of Company Directors, which has urged local firms to better embrace cultural diversity among their leadership teams to help improve the pipeline of future directors from non-Anglo-Celtic/European backgrounds.

The AICD has also warned that a drop in female appointments to ASX 200 boards over the past year meant its target of achieving 30 per cent female representation on ASX 200 boards by the end of 2018 may be slipping out of reach.

Its latest Quarterly Gender Diversity report showed the monthly rate of female appointments to ASX 200 boards fell from 44 per cent last year to just 30 per cent this year. In the first five months of 2017 there were only 17 female appointments compared to 40 males.

But the latest Watermark report found that in the ASX 300 there had been a rise in the number of female board members appointed since last year, from a 26:74 per cent female-male split in 2016 to a 30:70 per cent split in 2017.

Of greater concern, Graham Willis said, was the lack of technology and human resources experienced directors boasting transformational skills.

While directors with financial or accounting industry experience accounted for 37 per cent of all ASX 300 roles last year, down from almost 40 per cent a year earlier, it was still the largest experience pool.

2017 Board Diversity Index

We are pleased to launch our third Board Diversity Index. This latest Index demonstrates that the majority of ASX300 listed companies are yet to fully embrace diverse boards, despite evidence showing that superior business results are produced with this approach.