Globally, efforts to improve gender ratios on boards is regulatory driven. UK-listed companies (with some exemptions) were required from 1 April 2022 to report information and disclose against targets on the representation of women on their boards and executive management teams. In Europe, the new ‘Women on Boards’ directive is now in force, requiring that at least 40% of non-executive director posts (or 33% of all director posts) within large EU-listed companies be occupied by the under-represented sex by 30 June 2026.
In Australia, the momentum is being largely driven by advocacy groups and large funds.
Earlier this year, HESTA announced that its survey of investors representing more than $6.3 trillion in funds under management had found that more than 90 percent of respondents are engaging with the boards of companies they invest in on gender diversity. Three-quarters of respondents are using their voting power to drive diversity at board level, and two-thirds said they plan to increase company advocacy on the issue in the next 12 months.
The survey formed part of the 40:40 Vision initiative led by HESTA, with support from industry partners, to achieve a 40:40:20 ratio of people identifying as men and women in executive leadership across all ASX 300 companies by 2030 (allowing for 20 percent to identify as any gender).
In similar pursuit, a new Australian Council of Superannuation Investors (ACSI) voting policy aimed at promoting gender balance in Australia’s listed company boardrooms took effect from 1 July 2023. The policy recommends members vote against male director re-elections to the boards of ASX 300 companies with poor gender diversity (less than 30 percent of each gender), on a case-by-case basis.
In 2010 the ASX revised its Diversity Recommendations to make clear its expectations for quantitative reporting on diversity performance. These recommendations remained in the fourth edition of its Corporate Governance Principles and Recommendations, which came into effect 1 January 2020. Recommendation 1.5 requires entities to disclose measurable objectives for improving gender diversity on boards and progress towards achieving those objectives each reporting period.
The ASX 300 is the only grouping or index for which a measurable objective is actually prescribed, with that objective being one of ‘not less than 30% of directors of each gender within a specified period’.
So what for small caps?
With the emphasis in Australia on the ASX 300, companies outside of the ASX300 might mistakenly conclude that they are exempt from any expectations around board diversity. But that is not the case!
Gender diversity on Boards is a sustainability issue; it’s one of the signals to investors about your company culture and how you manage the ‘human capital’ that underpins the company’s performance.
The Sustainability Accounting Standards Board (SASB) Standards, which is the preferred ESG reporting methodology by investors, positions gender diversity at executive level as a key ESG topic for companies across all industry categories, no matter the company size. The Standards describe human capital as a major source of revenue generation for an entity, and links diversity at management level with an entity’s ability to attract and develop top talent.
The global move to legislate accounting-based sustainability reporting, like that of the SASB, for listed companies is only going to intensify the focus on metrics and targets for all companies, as investors become increasingly used to seeing such data. The SASB Standards also require companies to describe (not just disclose that they exist) their policies and programs for fostering equitable representation across the company.
To meet best practice for gender diversity on boards, we suggest that small caps:
- Review the ESG investing policies of your institutional investors to determine how diversity performance might be factored into decision-making;
- Consider how the gender diversity ratio at executive level within your company compares against a ‘not less than 30 percent’ rule, and, if the ratio is poor;
- Consider an appropriate and achievable target for improving gender diversity at board and executive level. Such targets typically depend on succession opportunities.
Remember, it’s important that your company can demonstrate that you’re aware of the value of workplace diversity, that you have set a target that moves you closer to an equal ratio, and that you can provide evidence of policies, programs or plans in practice to meet that target.
We can help you make sense of the ESG policies of your investors, and have the conversation about gender diversity on boards internally and with your stakeholders. Feel free to contact us to discuss.