Ethical decision-making for directors

The movement towards greater racial, socioeconomic and gender diversity is gaining momentum – and directors and executives need to get on board.

Take the pledge

The Board Challenge is a movement to improve the representation of black directors in US boardrooms by challenging companies to take the pledge to appoint a black director within the next year. Macy’s has set an objective to “achieve 30 per cent ethnic diversity at senior director level and above by 2025”.

On top of the likes of the 30% Club, companies including Starbucks and Google have taken public pledges. By 2025, Google aims to have 30 per cent of its senior leadership team composed of underrepresented groups, and Starbucks has committed to have 30 per cent of its corporate workforce identify as BIPOC (black, Indigenous or people of colour) by 2025 — up from 15 per cent in 2019. Others, such as Qintess, one of Brazil’s top IT companies, are allocating seed capital to BIPOC-led startups.

Investor vote

State Street Corporation’s US$3.1 trillion investment arm, an investor in more than 10,000 public companies globally, requires companies to disclose the racial and ethnic composition of their boards and workforces. State Street Global Advisors chief investment officer Richard Lacaille said that starting in 2021, the company will also vote against the chairs of the nominating and governance committees of companies that do not have at least one minority board member. “As long-term investors, we are convinced that the lack of racial and ethnic diversity and inclusion poses risks to companies that senior management and boards should understand and manage,” he said. “Research demonstrates the tendency for groups composed of people from similar backgrounds to refrain from challenging prevailing views, as well as the positive impacts that diverse groups can have on improved decision-making, risk oversight and innovation.”

Nasdaq rules

The US Nasdaq securities exchange has introduced new listing rules that will require its companies to have at least one female and one person who identifies as either an underrepresented minority or LGBTQ+ on boards. In December 2020, some years behind Australia’s ASX Corporate Governance Council Corporate Governance Principles disclosure requirements, Nasdaq filed the proposal with the US Securities and Exchange Commission for new listing rules related to board diversity and disclosure. If approved by the SEC, the new listing rules would require all companies listed on the exchange to publicly disclose consistent, transparent diversity statistics regarding their board of directors.

Women in management

Germany approved legislation in January for a mandatory quota for the representation of women in senior management in the country’s listed companies. The law builds on a 30 per cent quota for women on company supervisory boards — introduced in 2015 — and will apply to listed companies with more than three management board members. Women currently only make up 12.8 per cent of Germany’s DAX 30 management boards, according to a recent AllBright Foundation survey, which noted that the share of women on executive boards declined during COVID-19. While the mandate for women on supervisory boards succeeded (currently 36.3 per cent), the government noted the voluntary commitment for companies to add women to their management had largely failed.

Women on boards

The AICD’s gender diversity report, released in November 2020, shows the proportion of women on ASX 200 boards has increased two percentage points in the past year to 32.1 per cent. While 113 ASX 200 companies have achieved 30 per cent women on their boards, 87 companies have not. Notably, 76 of those boards are one appointment away from the 30 per cent target. Two boards do not have any women as of 31 December — Kogan.com and Silver Lake Resources. Most of Asia-Pacific’s largest companies have at least one female board director, according to Corporate Women Directors International research — 74 per cent of 1573 companies in the study have women-held board seats, compared to 66 per cent in 2017. But women remain underrepresented in the top 20 publicly listed Asia-Pacific companies, holding just 15.1 per cent of board seats in those organisations.

In the house

According to UN Women statistics (January 2021), only 25 per cent of all national parliamentarians were women, up from 11 per cent in 1995. Only four countries have 50 per cent or more women in parliament — Rwanda (61 per cent), Cuba and Bolivia (53 per cent) and the United Arab Emirates (50 per cent).

Women remain under-represented in Australian federal parliament, making up only 23 per cent of Liberal party representation in both houses and 47 per cent of Labor. But women held 48.5 per cent of government board positions in the year to June 2020, according to the Gender Balance on Australian Government Boards report. Women account for 25.2 per cent of the US Congress, and 31 per cent of legislature representation in the OECD countries.