Susan Oliver

Two-thirds of ASX 200 boards “always or sometimes” gravitate to candidates who are known to board members when they are selecting new directors, says the 30% Club.

Directors who responded to a survey ‘Shaping the Boards of the Future’ by the 30% Club and the Australian Institute of Company Directors say it is easier to imagine working with someone who is known by at least some on the board and who has an established reputation in the market.

The 30% Club was launched in Australia in 2015, with the primary objective of securing 30 per cent of the seats on ASX 200 company boards for women.

“Given the current small percentage of directors who are female, this leads to a Catch 22 situation, where fewer females are known to directors and this reduces the likelihood that females will be selected,” notes Susan Oliver, member of the 30% Club Steering Committee.

This problem is compounded by the sluggish turnover on some boards and also by the fact that only 6.5 per cent of boards seek outside advice, by using a search firm for succession planning.

The 30% Club says this is having a measurable negative impact on board diversity.

Only 77 per cent of respondents to the survey say they have been either very effective or mostly effective in securing female candidates.
“The challenge in achieving gender equity is not one of supply but continues to be one of demand, with insufficient numbers of boards perceiving gender diversity as a strategic imperative,” notes Ms Oliver.

“When chairs place too high a value on “collegiality and teamwork”, it can be used as a code for “being like us” and limit the opportunity for injecting innovative and diverse thinking.”
Peter Hay, Chair of Newcrest Mining and Vicinity Centres. Says: “Replacing like with like skills is common if the board is right in the first place, but you do need to keep reviewing the skills and the composition to make sure the board meets the requirements of a changing world.”

The 30% Club’s position is that good succession planning based on skills, diversity and planning for the future, rather than replacing like with like, is good for governance.

The survey highlights a number of other entrenched practices that may be hindering boards’ capacity to meet their diversity charters.

One of them is the adherence to a de-facto fixed term for directors, which limits boards’ ability to take opportunities to optimise board composition to meet strategic needs and enhance diversity.

According to the Corporate Governance Principles of the ASX Corporate Governance Council, boards should assess whether a director who has served on a board for more than 10 years has become too close to management to be considered independent.

As a consequence, a nine or 10-year term appears to have become the de facto limit for directors. Over 80 per cent of respondents acknowledged that most directors serve a full nine or 10 years.

Another concern in the context of identifying female director candidates is the tendency for boards to issue highly specific briefs, in terms of experience.

Seventy-four per cent of respondents noted that the charter of their nominations committee references diversity of the board’s members in terms of skills, experience and gender.

However, only 18.1 per cent cited changing business needs as the reason for such discussions and only 10.2 per cent cited the need for enhanced board diversity.

The 30% Club has made a number of recommendations for good practice in board succession planning. They include:

• The board should have regular, honest conversations about current board composition and diversity of skills, expertise, attributes and experience.
• A director other than the board chair should chair the nominations committee, to enhance the prospect of new perspectives influencing selections.
• Candidate briefs should not be so specific that they exclude an otherwise suitable candidate from being considered.
• The chair of the nominations committee should ensure that all board members contribute to a director brief.
• All directors should interview board candidates and meetings arranged with the CEO and leadership team.
• Collegiality should not be used as an excuse to only appoint directors the board knows and is comfortable with.
• An effective induction process should support every new director.

About the survey

Shaping the Boards of the Future is based on interviews with 10 ASX 200 company chairs and non-executive directors, which gave an insight into the evolution of board succession practices. In addition, the AICD’s ASX 200 director members were invited to participate in an online survey, and advice was provided by an experienced board evaluation consultant.

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