We need to lift our game - diversity matters
As I sit here on Halloween evening, watching the Queensland state election result, I reflect on how much has changed in the years that I have called Australia home. For the first time in any Australian state, Queenslanders have seen both major political parties led to an election by women.
In some regards it’s surprising that it has taken this long, given 54 per cent of Australia’s 22 million people are women. And yet perhaps not, it has only been 50 years since Merle Thornton and Rosalie Bognor chained themselves to the foot rail of Brisbane’s Regatta Hotel to protest against women being prohibited from drinking in the ‘Public Bar’.
This year has been a year of continuous challenges for all of us in Australia, with bushfires, a global pandemic, lockdowns, and the ensuing economic disruption. And perhaps no more so than in the US, where social unrest triggered by the killing of George Floyd exacerbated already deep-rooted inequalities and a nation seemingly divided.
One glaring fact from 2020 is the ongoing presence of gender, race, ethnic and class-based disparities in our society and the need for urgent change. Addressing these inequalities in the workplace must be a priority for leaders, and if we have learned anything from recent high profile corporate failings (AMP, Crown Resorts, Westpac and of course the Banking Commission) is that we need to demand and take action.
Diversity matters more now than ever. It is the foundation for change.
Don’t just take my word for it, when you have Elizabeth Gaines, CEO of Fortescue Metals Group, one of Australia’s most esteemed business leaders calling for greater diversity, equity, and inclusion (DEI) we need to pay attention.
She recently highlighted the importance of greater diversity, particularly in gender, being a key to the success of her company. And yet, women and other groups continue to be underrepresented in the upper echelons of corporate Australia.
Ms Gaines said this diversity had been integral to Fortescue becoming the No.1 ranked performing stock on the ASX 100 index – with total shareholder returns of 266 per cent over the last three years. Today, women make up about 19 per cent of Fortescue's total workforce and occupy 26 per cent of senior leadership roles.
Her point is simple, greater diversity contributes to better performance.
As of today, one in four Australians were born overseas; 46 per cent have at least one parent who was born overseas, and nearly 20 per cent of Australians speak a language other than English at home. And for full disclosure, I am one of those 25 per cent, an Australian born overseas.
Australia is a vibrant, multicultural country. We are home to the world’s oldest continuous cultures, as well as Australians who identify with more than 270 ancestries. We are a culturally diverse nation, and so much more, it is one of our strengths, and yet when it comes to the workplace we really do need to lift our game.
It is important then that our “richness” in diversity is positively represented in all facets of life, and especially so in the workplace.
Additionally, according to data produced by the Australian Network of Disability, over 4.4 million people in Australia have some form of disability. That's 1 in 5 people. And yet, Australian’s aged between 15 and 64 years with disability have both lower labour force participation (53.4 per cent) and higher unemployment rates (10.3 per cent) than people without disability (84.1 per cent and 4.6 per cent respectively).
Recent research (HERE) from Bankwest Curtin Economics Centre and the Australian Government’s Workplace Gender Equality Agency (WGEA) of ASX 100 companies makes for interesting reading. It shows that diverse leadership increases the likelihood of better company performance.
Key findings on gender diversity and company performance:
An increase of 10 percentage points or more in female representation on the Boards of ASX-listed companies led to a 4.9 per cent increase in the company market value, worth the equivalent of AUD$78.5 million for the average company;
An increase of 10 percentage points or more in female representation on Boards led to a 6 per cent increase in the likelihood of outperforming their peers on three of more metrics;
The appointment of a female CEO led to a 13 per cent increase in the likelihood of outperforming the sector on three or more metrics;
An increase of 10 percentage points or more in the share of female key management personnel led to a 5.8 per cent increase in the likelihood of outperforming their sector on three or more metrics;
So there you have it, diversity at least in terms of gender contributes to better company performance.
And yet, in reviewing Australia’s top 100 listed companies, one-third of these companies have no female representation on their Board, and a similar proportion of companies have no women in their key management teams.
Women are found to be least likely to be the Chair of the Board, with only 14.1 per cent of women being Board Chairs and only 17 per cent company CEOs.
A similar study, this time on the ASX 200 companies also completed this year shows how little progress is being made.
The 2020 Chief Executive Women ASX 200 Senior Executive “Census” (HERE) released in September reveals the progress in the number of women reaching senior leadership positions in these companies has now flatlined over the past year.
CEW Census findings:
Out of 25 CEO appointments in the past year, only one female CEO was appointed to an ASX 200 company;
Only three of 50 CEO appointments within ASX 200 companies in the past two years were women;
The number of female CEOs leading ASX 200 companies has fallen in the past year to ten (or 5 per cent), down from 12 in 2019 and at the lowest level since the CEW Census began four years ago.
Just this last month, governance and proxy adviser group, Ownership Matters published their report. This time focusing on Director appointments in Australia’s top organisations, those which make up the ASX 300.
Their extensive study, of almost 6,000 directorships spanning 15 years, has uncovered a series of uncomfortable truths about Director appointments in Australia and how the system works.
The Ownership Matters report (HERE), titled "Many are called, few are chosen," said that there was a strong bias to appoint from the existing pool of directors, with almost 40 percent of board seats filled by an individual who was already serving on the board of a top 300 company.
At best, the picture painted is one of a “cosy directors club,” where the same directors are shared across “plum appointments.” And at worst, it suggests a system that pays scant “lip service” to DEI, whilst further promoting opportunity to those who are already benefiting from it. If the latter is the case, that is shameful and shareholder or regulatory action is well overdue.
Their report found:
There is a strong bias toward appointing existing ASX 300 directors to vacancies (‘in pool’ appointments):
Since 2005, 38.2 per cent of all vacancies were filled from directors with an existing ASX 300 board seat;
In pool appointments peaked at a high of 43.4 per cent in 2006 and fell to a low 31.8 per cent in 2016. The current level is 36 per cent;
In the last three years, 40 per cent of all serving women directors accepted an additional appointment compared to 17.5 per cent of all men;
The average number of seats per director for women has risen to 1.45 (from 1.3 in 2009) while for men the ratio has decreased to 1.18 (from 1.23 in 2009);
The tenure of NEDs in the ASX 300 pool lengthens with each position attained;
74 per cent of directors attain one board seat only and serve for an average of 71 months;
14 per cent of directors attain two board seats and serve for an average of 116 months;
Each additional seat extends a director’s service by at least two years;
Any director appointed as Chairperson extends their service by an average of four years; and
Boards of the worst-performing companies refresh themselves only marginally faster than companies that perform the best.
And when it comes to company performance, the study observed the performance of companies with boards comprised of more than 90 per cent of men was generally worse than more gender-diverse boards (since 2011 - the period when the number of women NEDs began to steadily increase).
Furthermore, the report found that ASX 300 boards are often filled with people with the same skills carved out of similar professions, networks, and university degrees.
“Real diversity will only be achieved when men and women of different experiences, skills, and backgrounds are added around boardroom tables.”
At Luminary, our partners understand better than many the importance of good governance, that board composition and diversity is indeed a complex issue; it requires clever planning, experience, and commitment if we are to bring new thinking and better decision making to the table.
Beyond Australia’s top companies, data continues to show that the pandemic has had a greater impact on women than men, leading to a so-called “pink recession”.
Women are more likely to be in part-time, casual, or insecure work, and to work in industries most affected by lockdowns or economic downturn, such as retail and hospitality, tourism, human services, creative arts, and the university sector.
Earlier this year, McKinsey & Company released their third follow up report on diversity, entitled Diversity Wins: How inclusion matters.
Now, anyone who knows me well will know that I’m an unashamed fan and promotor of McKinsey, as a highly reliable source for empirical DEI research and consulting.
Their 2015 report, demonstrated for the first time the clear linkages between greater organisational profitability and business sustainability and those organisations which had greater diversity and inclusion. This set us on the path for far greater debate about genuine diversity in the business world.
Five years later, their 2020 follow up report found:
Companies with greater gender diversity were 25 per cent more likely to experience above-average profitability compared to their counterparts; and
Companies with greater ethnic and cultural diversity were 36 per cent more likely to experience above-average profitability compared to their counterparts.
Of course, McKinsey conducted their research (HERE) before the pandemic, and then very cleverly built this into their (excellent) COVID-19 series of insights. The narrative now is one of diversity as a prerequisite on our pathway to the next normal; resolve, resilience, return, reimagination, and reform.
When looking at how companies are navigating their way through the pandemic, the report stated – companies that already see “DEI as a strength are likely to leverage it to bounce back quicker and they will use this time to seek new opportunities to boost representation and inclusion to strengthen performance and organisational health”.
Despite this and other glaring evidence that DEI should be a priority amidst the pandemic, the report notes “some” leaders have indicated they see DEI as a “luxury we cannot afford.”
It’s beyond staggering to comprehend why DEI would still be considered a “luxury” by “some”, in the face of such overwhelming evidence.
As leaders, we must understand the larger implications and impacts of deprioritising DEI initiatives – one of which being the widening of structural and systemic inequities for diverse talent.
As we plot our way to recovery, this is something we should all consider very seriously, for all parts of Australian society and not just for the workplace.
We should seek to encourage more debate on how DEI can be achieved across a wider-range of senior executive positions, especially those with profit and loss responsibilities and roles classified as knowledge-based, where ‘disability’ could be a benefit.
Microsoft, Deloitte, and Dell for example have programs to hire individuals on the autism spectrum. At JPMorgan Chase, it was recently reported that employees with autism achieve 48% to 140% more work than other colleagues.
Most, if not all recruitment processes we undertake include preferences that the selection processes for directors / executives should include more women candidates. It should not stop with gender diversity. At Luminary, we encourage a broader view in considering other merit-based candidates, including those with a disability.
In another significant step, Starbucks has announced in the last few weeks their plans to significantly boost ethnic diversity across its workforce - making that goal a factor in the pay of its senior executives.
By 2025, Starbucks “wants people of colour represented in at least 30 per cent of roles in corporate operations and 40 per cent of retail and manufacturing roles,“ CEO Kevin Johnson told staff and investors.
I can’t help but wonder how Australian executives would respond to such a goal? Perhaps executives at Australia Post will be required to hand back their Cartier watches if goals aren’t achieved…
As leaders, we all need to focus on practical actions that will result in a real change – perhaps, like Starbucks we need to consider how we hold our teams accountable for DEI targets, or like Microsoft we need to rethink our views on ‘talent’.
Our recommendations:
Led from the top-down – boards and executives should be on the hook equally;
Other leaders, managers, and teams to be accountable for DEI goals – and perhaps tying this to incentives;
Reduce and mitigate bias (age, gender, ethnicity, disability, etc) in the recruitment and succession processes – by using consistent and objective data when making appointments;
Communicate a clear succession planning pathway – especially for roles with profit and loss responsibility, and which are key feeder roles into senior executive positions for diverse groups;
Consider what you are doing to ensure pay parity – especially in terms of gender;
Evaluating your performance management for fairness;
Supporting managers with DEI training;
Look at your organisational systems as a whole – ensuring you can provide strong indications of the culture of inclusion (or exclusion) that your company is cultivating and reporting this to the Board;
Boards and management to work collaboratively to design DEI programs and initiative; and
Role model flexible, remote, and part-time working for ALL employees – encouraging men, especially those who are fathers to lead with this, even if they are the only ‘paid’ worker in the household.
The great news is where businesses have focused effort in this area, they see results.
Sustainable organisations understand the value of diversity in creating success over the long-term. Without prioritising DEI within your organisation you are unlikely to deliver long-term prosperity, let alone contribute to societal change.
We recognise that diversity, equity and inclusion are the foundations for change. It is at the very core of what we do.
We are passionate about building leadership capability for all organisations that promote a diverse and inclusive culture to support a high performing workforce.