Diversity

Diversity

Diversity

Diversity on company boards has become an important corporate governance issue in recent years. In 2008, the then-Minister for Superannuation and Corporate Law in Australia stated that the focus on board diversity stemmed from observations by various commentators that “corporate boards tend to be homogenous groups, largely composed of men of similar ages, with similar demographic, ethnic, educational and professional backgrounds” (Senator Nick Sherry, September 2008).

Although the above comment relates to the potential for greater diversity across a broad range of factors, academic scholarship to date has focused predominantly, although not exclusively (see, for example, Masulis et al, 2018; Giannetti and Zhao, 2015), on gender diversity on boards of directors.

Many justifications have been given for the need for greater gender diversity on boards, including, controversially, that it enhances board decision-making and improves corporate performance. Other justifications are that gender diversity broadens the pool of qualified directors, and that it is also an important reflection of the values of justice and equality in society.

In recent years, jurisdictions around the world have adopted a variety of regulatory techniques to improve the gender balance on boards. Norway led the way in gender diversity when it introduced a mandatory requirement in 2008 that listed companies must allocate at least 40% of board seats to women or risk dissolution. Numerous countries have now introduced enforceable quotas of this kind. However, other countries, such as the Netherlands, have sought to increase gender diversity on boards via “soft quotas”, where, although a gender target is set, no sanctions will apply for failure to reach the target.

Diversity have become an important feature of corporate governance codes in a number of jurisdictions. The 2018 UK Corporate Governance Code, which operates on a “comply or explain” basis, adopts a broad approach to diversity. It states, for example, that board appointments and succession planning should be “based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths” (Principle J).

There is also an increasing focus gender diversity within the corporation in other roles, particularly those of senior management. Australia’s Corporate Governance Principles and Recommendations (4th edition, 2019), which like the UK Corporate Governance Code operate on a “comply or explain” (or “if not, why not”) basis, states, for example, that listed entities should set “measurable objectives for achieving gender diversity in the composition of its board, senior executives and workforce generally” and should, in relation to each reporting period, disclose the entity’s progress towards achieving those objectives (Recommendation 1.5). 

As the ECGI Working Papers below demonstrate, issues relating to diversity, including gender diversity, can arise in a wide range of different contexts – for example, the structure of boards (Adams, 2017; Adams and Kirchmaier, 2016); whether gender diversity affects firm value (Eckbo et al, 2016); reporting practices concerning diversity (Ahern and Clarke, 2013); the impact of gender diversity on governance and corporate decisions making (Evgeniou and Vermaelen, 2017; Chen et al, 2016; Adams and Ferreira, 2004); the impact of more women in senior management positions (Adams and Funk, 2010); and gender issues relating to executive pay (Kulich et al, 2010).

This page is intended as a resource for issues pertaining to diversity and corporate governance as examined through the disciplines of economics, business strategy, law and other areas.

Queries, suggested inclusions, and project funding proposals should be directed to Prof. Jennifer Hill (jennifer.hill@sydney.edu.au).

 

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Resources:

Academic Papers:

 

Policy papers, reports, viewpoints and speeches:

 

Blog posts: 

 

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Contact:

Prof. Jennifer Hill

jennifer.hill@sydney.edu.au

Listed Companies' Engagement with Diversity: A Multi-Jurisdictional Study of Annual Report Disclosures

The paper reports the findings of a multi-jurisdictional study on companies? reporting of diversity practices at board level and below. It involved a review of the 2009, 2010 and 2011 annual reports of listed companies in Australia, Belgium,...Read more

Blanaid Clarke
01 August 2013