Regulators are enforcing workplace diversity and inclusivity

Regulators and investors are beginning to scrutinise board diversity and inclusion through both investment and risk management lenses. 

When asked about diversity and inclusion in the energy and resources sector, Woodside CEO Meg O’Neill GAICD is clear: “Times have changed. Many energy and resources companies have increased their focus on diversity and inclusion. Creating an environment and workforce that is diverse and inclusive is an important driver for Woodside.”

That’s just one of the reasons Woodside Energy publicly and extensively discloses its own board diversity including gender, First Nations, LGBTQI+, cultural background and racial diversity.

“The Woodside board is strongly committed to diversity and inclusion,” says O’Neill. “Reporting board diversity across a range of lenses demonstrates this.”

Woodside is one of only a few Australian listed companies to apply a diversity lens to its board. Most companies disclose very limited statistics on the composition of their boards (mainly gender, tenure and age). This is despite increasing attention to DEI (diversity, equity, inclusion) approaches and outcomes within organisations, and as the ASX currently carries out a review of its Corporate Governance Principles and Recommendations with a focus on diversity.

The study by the newly launched not-for-profit Australian LGBTQ+ Board and Executive Inclusion (ALBEI) Forum reveals that 67 companies in the ASX 200 have a fully inclusive definition of diversity for their workforce that does not apply to their own board. This suggests that some of these boards are not holding themselves to the same diversity standards they apply to their own staff.

At the same time, compelling global research shows that diverse boards and workplaces improve returns for shareholders. Regulators and investors are now looking at diversity at the board level from both an investment decision and risk management perspective.

While gender representation on ASX 200 boards has increased from 8.3 per cent in 2009 to 36 per cent in 2023, the representation of minority groups remains stubbornly low. The 2023 Board Diversity Index compiled by executive recruitment firm Watermark Search International shows that more than 90 per cent of directors are from Anglo- Celtic backgrounds, compared to 54 per cent of the population. No directors on ASX-listed boards appear to openly identify as people with disability, despite making up 20 per cent of the population. Less than one per cent of directors identify as being part of the LGBTQ+ community as compared to around 11 per cent of the population. And just four First Nations directors sit on ASX 300 boards.

This lack of board diversity means Australian companies run the risk of being increasingly out of step with international trends. The US and UK (see breakout) are moving beyond gender in the public disclosure of diversity statistics and targets for boards, and are looking at how other under- represented groups can and should be represented.

O’Neill points out that Woodside also meets the high expectations established in the UK and US for listed companies that are striving for, and achieving, positive board diversity.

More diversity and inclusion reduces groupthink and supports more effective decision- making and risk management, according to the UK Prudential Regulation Authority (PRA).

“Groupthink and lack of inclusion can lead to firms missing, underestimating, or even ignoring risks that could threaten firm safety and soundness and/or policyholder protection,” says the PRA. “A wider range of perspectives is likely to lead to a better understanding of the risks facing a firm, and more effective and prudent decision-making.”

Casting a wider net

The need to cast the net more widely for directors in Australia is slowly gathering pace. The Australian Council of Superannuation Investors (ACSI) has actively advocated for gender diversity on boards and has now established a working group looking at diversity beyond gender.

Moves to broaden board diversity also hinge on chairs, nominations committees and board search advisers considering an expanded pool of candidates — and the networks to draw them from. That can be the difficult part, says Michael Ebeid AM MAICD, former CEO of SBS and now a non-executive director of Screen Australia, Sydney Opera House and BAI Communications. “Expanding your networks is one of the real challenges for many in diverse communities, as most NED roles come from your own networks,” says Ebeid. “Even when you formally apply for a NED role, if people on the board know you, it can make all the difference.”

The major barrier for LGBTQ+ board candidates is the lack of being part of the right networks, according to US research by the Association of LGBTQ+ Corporate Directors. In many instances in Australia, members of LGBTQ+, disability, First Nations and culturally different communities are not necessarily in the same networks or have the same backgrounds as the existing director community.

“First and foremost, I bring my broad executive experience over 35 years to a board — far more than my gay lived experience,” says Ebeid. “However, my lived experience is invaluable when the board is talking about employee issues, company culture or D&I policy. Getting those things right can play a major role in a company’s success.” 

Many LGBTQ+ directors ALBEI spoke to did not want their membership of the LGBTQ+ community overshadowing their deep business experience. However, they all believed that, in many respects, their lived experience brought something different and valuable to the boards they serve on. These boards should be actively seeking “difference” rather than “fit”, which helps to avoid groupthink. A current board-renewal policy for a major financial services firm, for example, has as one of its criteria: “The culture fit with existing board members”.