Position Paper: Board Diversity

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Executive Summary

The boards of Australian companies are predominantly made up of directors who share the same gender, are of similar age, and cultural and professional backgrounds. Despite increasing evidence of a correlation between forms of diversity (including gender) and company performance, Australian companies have so far been slow to increase the diversity of their boards and executive teams. This paper contends that this slowness to act means companies are failing to fully benefit from their existing and potential human capital and consequently constraining financial performance, which should be of concern for all investors.

While acknowledging structural constraints exist, we call on business leaders to accelerate their efforts and to focus on the strategic, concrete steps likely to have the greatest impact on diversity – and we specify these herein. The real challenge continues to be overcoming unexamined assumptions about what constitutes a good leader, particularly within a board. This will require a strong commitment to more rigorous consideration of this question in the director search and selection process and targeted actions to remove barriers to underrepresented groups, including women.

Regnan is concerned that the debate around diversity is often narrowly framed around observable markers of diversity, such as gender and culture. We believe that for companies to create long term value for investors, it is pursuing a broader sense of diversity (functional diversity) that will generate the best returns. Regnan would argue that if companies genuinely prioritise cognitive and experiential diversity, higher representation of women and culturally diverse individuals will emerge as a by-product. Likewise, if companies take a tokenistic approach, they will likely fail to gain the business benefits of diversity.

This paper is addressed primarily to company boards and highlights actions that they can take to improve diversity in their own ranks and throughout the organisations they direct. This focus recognises that in addition to the benefit to the board itself from the enhanced oversight capacity and functional ability that diversity brings, the board is positioned to drive change from the top and elevate diversity to be a strategic imperative for a company. We recognise that to maximise the positive impacts diversity can achieve, it needs to be present among all of those who drive company value, not just at the top.