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Mandatory quotas may be needed on boards

Author: Elizabeth Broderick, Sex Discrimination Commissioner and Commissioner responsible for Age Discrimination  

Publication: Australian Financial Review, 8 April 2010, pg. 63.

Keeping talented women off boards of directors does not make economic sense, writes Elizabeth Broderick.

Why would the World Bank be interested in getting women onto boards? An abiding interest in sex discrimination perhaps? No - their focus was entirely on international competitiveness. That's why 30 regulators, ministers, policymakers, academics, funds managers and directors were invited to Washington late last week for the first Global Roundtable on Board Diversity.

Experts from France, Spain, Norway, Iceland, Germany, Macedonia, Africa, India, Canada, the Middle East, Britain and Australia came together to share strategies that could deliver greater gender equality in the leadership of corporations.

Getting more women onto boards and into senior management roles is not just about gender equity. It's also about our desire to remain internationally competitive. No country, industry or organisation can afford to waste the skills of more than half its population.

The research is clear - while it may be difficult to isolate a single causal link between more women in decision-making roles and increased corporate performance, there is definitely a strong correlation. If you think about it logically, it makes perfect sense; if a business can draw on 100 per cent of the nation's talent, rather than just 50 per cent, improved results seem bound to follow.

The Washington meeting showed that many other countries are thinking similarly and moving ahead at speed.

Audun Lysbakken, Norway's Minister for Women and Children, pointed out that the percentage of board positions held by females in his country had risen from 7 per cent in 2003 to 44 per cent in 2009. However, the journey had not been an easy one.

In early 2000, business was encouraged to commit to voluntary targets. No progress had been made by 2005. The government decided mandatory quotas were the only solution and introduced legislation that set a three-year transition period that required a minimum of 40 per cent of men and 40 per cent of women. Five years on, the quota reform is non-controversial. "Women are there because of their competence," Lysbakken said. "The quota makes sure their competence is seen."

Other countries have followed suit. France, Spain and Iceland have recently introduced quotas, and Switzerland is looking to do so in the near future. Interestingly, the Netherlands has just introduced a quota system, not just for boards, but also for senior management roles, stipulating that over a period of three years 30 per cent of these roles would be held by women. It is the first country to impose a mandatory quota for senior management roles - a development that other countries will watch with interest.

And then there were the less prescriptive initiatives.

The US recently created a new disclosure rule relating to diversity. Fifteen per cent of US Fortune 500 company directorships have been held by women for many years and, despite a variety of strategies, this number has not increased. The reform, introduced in December 2009, is the first systemic intervention. It is a soft-touch approach, a first step that the Securities Exchange Commission and others hope will deliver more board seats for talented women. The reform requires all listed companies to include information about their diversity policies in their reporting. Some of the large US pension funds, including the California Public Employees' Retirement System (CalPERS) and the Calvert Group, were also represented at the Roundtable, using their financial muscle to drive change.

Countries of the Middle East are now, for the first time, collecting the data that will allow them to measure progress in this area. The argument that gender diversity at senior levels correlates with increased corporate performance has piqued their interest. While they are starting from a low base, with only 1.5 per cent of board director ships held by women, there is movement nonetheless.

In Japan, women represent 5 per cent of board directors, which means it is falling behind Kuwait. Australia, at 8.3 per cent, is at the lower end of the Organisation for Economic Co-operation and Development countries.

Australia's anticipated changes to the Australian Securities Exchange's Corporate Governance Recommendations and Guidelines were received with much interest. However, there was a strong view from the Global Roundtable that if change was not forthcoming in the short to medium term, more significant intervention might be needed. The ASX Council's reform is a call to business to address our international competitiveness. No nation can afford to put aside half its talent, largely on the basis of their gender alone, and expect to continue to be internationally competitive.

We must move ahead with effective reform; stage one is setting voluntary targets and regular and transparent reporting on progress. But let's be clear - if this fails to deliver, we must move decisively to a second stage, one that recognises the international experience and embraces mandatory gender-neutral quotas.

Failure to change the picture of leadership in Australia doesn't just mean that the expectations of more than half the population are disregarded. It also puts us at a significant disadvantage on the international stage. These are not academic questions. They are integral to our future.

Elizabeth Broderick is the Commonwealth Sex Discrimination Commissioner