We’ve been going on about Board diversity for a long time in Australia. Around 20 years. The premise is simple. Diversity avoids groupthink and brings broader perspectives to decision-making.
Some studies show a positive correlation between company performance and Board diversity. Others don’t show any correlation. The few that show a negative correlation allude to fractious Board relationships, possibly attributable to diversity. Although in the latter we may need to look at the individuals’ tolerance for diversity, not diversity per se.
Intuitively, it probably feels for most people that diversity on Boards would be a good thing. If not for the purposes of financial KPIs, funkier dress sense or more interesting group photos, then at least for the reasonable morality of it.
A couple of demographic parities
The Australian Securities and Investment Commission (ASIC) has been encouraging gender diversity for nearly ten of those years. How is it going?
The Australian population is made up, unsurprisingly, of 50% females. Of the ASX 200 (the largest 200 listed companies’) board members, 19.5% are female. (https://www.wgea.gov.au/sites/default/files/gender-equality-asx-200.pdf). Not great.
Let’s look at some other demographics.
The Australian population is made up of around 3% of people who identify as Aboriginal or Torres Strait Islander. Statistics of Aboriginal or Torres Strait islander Board members in ASX 200 companies are hard to find. In seven years of interacting with Australian listed companies, I have only seen two Board members who have self-identified as indigenous, which is about 0.1%. And I do look; see my previous post http://www.corporatejujitsu.com/indigenous-professionals/.
According to the Australian Bureau of Statistics, the Australian population is made up of around 14% of people who are not of Anglo-Celtic extraction. I was unable to find statistics relating to the ethnic diversity of ASX 200 Board members. But the November 2016 Parker Review of UK Boards (https://www.gov.uk/government/speeches/the-ethnic-diversity-of-uk-boards-launch-of-the-parker-review) is helpful. It notes that while a similar 14% of British citizens are “persons of colour”, there are only 1.5% of such persons on UK Boards. Acknowledging that it is imperfect, and only approximate in an Australian context, I’ll use that data as a surrogate.
The following graph shows where these population segments are represented in 2017. A ratio of 1.0 reflects “perfect parity”. This is where the percentage representation on Boards of that attribute reflects the percentage occurrence in society. Women are well short of the ideal. People of indigenous and other cultural diversities are barely in the game.
The reasons for homogeneity
So why are older white males continually so over-represented in our bastions of commerce? Are they really that good?
There are two quietly mumbled excuses – I mean reasons – for this overwhelming inertia.
- The SPE, or Shareholder Preference Excuse, goes like this. Shareholders would rather have Board members that have an excellent track record than unknown people. The majority of existing Board members available with any kind of track records happen to be older white males. Left to its own devices, or the imagined preferences of shareholders, the SPE naturally re-stocks Boards with older white males.
As a shareholder, I can promise that I care a lot more about collective strategy and governance in Boards than I do about every individual’s track record as an executive and director.
- The PPE, or Poor Pipeline Excuse, focuses on up-and-comers. Boards complain about the lack of diverse talent that are able to make the leap from executive positions to Board positions. Take a look at the executive ranks, and you will hear the same complaint. Apparently we can’t find enough diverse talent in middle management to make the leap into executive management.
Raise your hand if that sounds a bit like yesterday’s Olympic hurdlers raising the height of the hurdles in today’s Olympic events.
Inertia anchors itself stubbornly between the SPE and the PPE.
Don’t get me wrong. The SPE and PPE are not fabricated by a sinister group of grey-haired, melanin-deficient men lurking in a creepy basement. They are real, if somewhat over-dramatised, phenomena. But they can be overcome.
If, that is, we get over the BS factor. The Board Self-selection factor.
Boards hire (by agreement, with the Chair) new Board members. The assessment process is intensive and there is a lot of emphasis on “the fit”. But our starting point is that existing Board members are often male, white, aged 45-70. Look at their backgrounds, and you see a lot of law and finance. Look further into their backgrounds and see top private schools. Look laterally and see “old school” connections.
So if you institute a wordy policy of Board diversity to this lopsided origin, leave optimistically to simmer, and come back in 20 years, the outcome risks looking awfully like our starting point. It’s human nature to congregate with, and select, people like ourselves.
Feel free to blame it on either conscious bias or unconscious bias. The terrain is structurally tilted in a certain pale, stale, male direction. A few generational cycles of life and death will probably normalise the tilt somewhat, but that does seem an unreasonably sluggish process, no?
What if the BS factor was removed for, say, 50% of Board memberships? What if ASIC, with a more impartial view to enriching the field with gender and cultural diversity, proposed candidates? Would that make a difference to diversity on Boards? Possibly. Would Boards, as unspoken fears suggest, be woefully bereft of governance and be stocked with inept candidates? Probably not, unless you genuinely feel that women and people of different cultures are dopey and/or dodgy.
The reality is, there are many excellent candidates out there. Women, indigenous people and folks of other cultural backgrounds . There are knowledgeable and talented candidates, young and old, of diverse socio-economic standings. Together, they bring a tapestry of diverse insights to our Boards that can only be good.
But they can’t get on the bus, because the bus is full, and the existing passengers are moonlighting as the conductors.
Image: Reservoir Dogs