Keeping you up to date with topical business news and views.
Keeping you up to date with topical business news and views.
When it comes to increasing diversity on boards, we often hear that the best person for the job should be chosen. Habits and familiarity meant that the best candidate may not even be considered. For the future of many businesses, there are good reasons to promote gender diversity on boards, and to acknowledge that there are recognised obstacles as to why more women are not considered for board roles.
The key to success for any company is the ability to attract, develop and retain the best people. At a board level, there is a significant body of recent research to support the argument that businesses with board members from diverse backgrounds perform better than businesses with a homogenous board.
Credit Suisse research undertaken in 2012 shows that “companies with one or more women on the board have delivered higher average returns on equity, lower gearing, better average growth and higher price/book value multiples” over the six years considered in the study.
How does that greater diversity make a difference? Mixed groups are more likely to consider a wider range of issues and influences when making decisions, and as a consequence may generate more innovative solutions. As a general statement, women tend to be more risk averse than men, so businesses with female board members experienced less volatility in earnings.
A significant proportion of consumers responsible for making household purchasing decisions are women, so understanding how to market and sell to women is vital for consumer businesses. Boards practicing good governance should reflect stakeholder interests in how and who they recruit into their ranks as a given.
Failing to include female candidates reduces the pool of available talent for consideration when making board appointments. Given New Zealand’s already limited resources, this should be a significant motivator for boards to look beyond the usual networks. Further, it will become increasingly important with New Zealand’s aging population, and taking into account that around two-thirds of recent university graduates are female.
What’s the current situation in New Zealand?
Every company listed on the NZX’s main platform is required to include a gender breakdown of its directors and officers in the annual report, with the percentage of female directors reported at 14% for the 2014 calendar year. According to the Ministry for Women, that figure increases to 41% for state sector boards and committees.
New Zealand’s ranking out of 142 countries in the Global Gender Gap Report 2014 is 13th, with a score of 0.7772 (where the highest possible score is 1, representing equal representation). Whilst that is a respectable result, our placing has fallen from 7th in 2013 and 5th in 2010. The good news for gender equality is that our educational attainment score is excellent and political empowerment is also good, as a reflection of our relatively high number of women in ministerial positions and having had a female prime minister.
However we don’t rank as highly on economic participation, with a position of 33rd in the world for wage equality for similar work and 40th for labour force participation. With an ageing workforce, increasing women’s labour force participation becomes increasingly important. The New Zealand labour force participation rate for women is currently at 63.7% and nearly 75% for men. However, women in New Zealand are doing far more unpaid work than men, with about 63% of women’s work unpaid compared to 35% of men’s work.
What can we do to address the lack of diversity?
The key obstacles to achieving greater gender diversity start at an individual level, with regard to educational and sector choices. Educational choices can be influenced by teaching science, technology, engineering and maths subjects in a practical manner that suits female learning styles, encouraging more female graduates into those sectors.
In addition, women in the workplace may be subject to cultural bias, with the perception that women are less committed, double standards in how ambitious men and women are viewed, spousal role and support. They may also encounter workplace-related bias, in the form of gender pay gaps, flexibility, and promotion rates. Regulation for disclosure of diversity targets (and progress), gender pay gaps and diversity initiatives may encourage boards and CEO’s to tackle the workplace related issues.
On a national level, there are structural issues including childcare assistance and shared parental leave. These barriers may be overcome through legislation, such as the introduction of longer term shared parental leave and further provision of childcare assistance.
There are also initiatives such as the Institute of Directors Mentoring for Diversity Programme, which aims to reflect New Zealand’s diverse population at board level, addressing gender, age and ethnic gaps.
Many New Zealand businesses have very small boards, so achieving diversity can be challenging. However, with an increasing proportion of women moving through the ranks in accounting and legal firms, it makes sense to find ways to improve the representation of women at partner level.
If you are interest in improving the gender leadership balance in your organisation, what can you do? Next time you are making an appointment, whether at board level or for a senior leadership position, look outside your usual networks. Consider sponsoring women by making them visible to leaders within and outside the organisation and connecting them with concrete opportunities. Think about women you have come across during your career who might be suitable, chat to your contacts about candidates in their radar, or check out websites such as www.appointbetterboards.co.nz.
There is clear empirical evidence to support that a board with gender balance should make more informed decisions, reduce volatility in earnings and improve performance in your organisation. If you are interested in further guidance and advice on good governance, please contact Tracy Hickman from our Auckland Corporate Advisory team, or your usual adviser.