Earlier this year, the ASX Corporate Governance Council proposed plans to expand its reporting on diversity beyond gender. Under the proposed update to its corporate governance principles and recommendations, company directors may be asked to disclose their sexuality, age, any Indigenous heritage, disabilities and cultural background.
The proposals follow similar guidelines in the UK, where companies are required to hire at least one board member from a cultural minority group. Meanwhile in the US, the NASDAQ exchange announced plans to introduce new board diversity rules which require companies to have a woman, “underrepresented minority” (“Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or More Races or Ethnicities”) or LGBTQI+ board member.
The ASX Corporate Governance Council is seeking to expand diversity reporting for Australia’s largest 300 listed companies, arguing “an entity’s board benefits from a diversity of thinking and perspectives”. In particular, having directors of different ages, race, backgrounds and personal circumstances can help bring a range of perspectives and experiences to bear and avoid ‘groupthink’.”
What is the response to the proposed guidelines?
So far, it has received mixed feedback from board members and investors. Some individuals warn the proposed guidelines are misguided, while others are strong supporters.
Earlier this month, the Australian Council of Superannuation Investors released a statement strongly support the changes, saying that “appropriate disclosure of director skills and experience is crucial for investor insight into the board’s ability to govern the entity effectively.”
“The proposed changes would give investors further insight into how directors’ skills and experience are assessed and indicate whether the board is satisfied it has the right composition,” ACSI said. “Such disclosures would also support investor confidence in the nomination process.”
“ACSI’s view is that in selecting directors, the board should consider a range of diversity factors that could add value to board decision-making through varied perspectives, including but not limited to gender, age, LGBTQI+ identity, education and professional experience, socio-economic background, religion, ethnicity, and/or experience living with disability.”
Last month, KPMG released a statement welcoming the ASX Corporate Governance Council’s Consultation Draft.
“KPMG considers the changes set out in the Consultation Draft’s valuable in driving contemporary best practice governance aligned to the dynamic nature of the environment in which Australian listed entities operate within,” the statement read.
“The proposed changes will lead to greater transparency and thus, a higher level of trust in corporations. In addition, the changes are aligned with the goal of reducing compliance costs, increasing productivity, and promoting transparency and diversity in corporate governance.”
The company boasted its advocacy for “considering cultural diversity to achieve true diversity of thought in the boardroom and decision making which considers key stakeholders. KPMG also supports disclosing the effectiveness of diversity and inclusion practices.”
Other organisations however, including the Governance Institute of Australia, tech company Zip and the Australian Institute of Company Directors are less enthusiastic about the proposed changes.
The Governance Institute of Australia Chair Pauline Vamos said that disclosure is not the right method, noting it could have unintended consequences.
“For [disclosure] to apply to a whole industry or to apply to the Top 300 listed companies means it has to be a standard and then you get boilerplate examples and that is not necessarily what shareholders need,” she told the ABC.
“Boards are seen as a collective. In terms of the workplace, it’s a different set of statistics. When you’re sitting on a board, you bring a collection of skills and a collection of lenses and how relevant they are really depends on where that business is at the time, the type of business it is and its maturity. And one of our concerns is that if there’s a specific issue that is aligned to a specific board member around a specific skill or experience based there maybe an increase in liability.”
“We’ve always got to look at unintended consequences of any change,” she added.
In its submission, the Governance Institute questioned whether the Council “has considered how companies would practically make [the] disclosure”.
“The proposed recommendation is likely to put pressure on boards to tick diversity boxes,” its submission read, warning that “diversity characteristics, other than age and gender and in some cases ethnicity, are generally the subject of voluntary disclosure so may not necessarily represent a true picture”.
Zip Co chair Diane Smith-Gander is also weary of the new proposals, telling The AFR: “I don’t support the extension of the guidelines to include rules about the personal characteristics of directors.”
“I don’t think anyone should be compelled to make disclosures about their personal information, if they don’t want to,” she said.
In their submission to the ASX Corporate Governance Council, cited by The AFR, The Australian Institute of Company Directors said it had received mixed feedback from its members.
“Some members have expressed concern about the benefit of prospective disclosure to the market and perceived complexities,” the submission read.
“Members have also observed that it is unclear what this disclosure is seeking to achieve, relative to disclosures in other jurisdictions which focus more directly on current board representation.”
The proposed changes can lead to “the risk [of] individual directors being targeted in the event of a governance failure (e.g. cybersecurity incident) where those individuals are assessed to hold a high level of skill in a nominated category”.
Meanwhile, the ASX Corporate Governance Council’s proposed update also includes calls for the current gender target of 30 per cent women on boards to raised to 40 per cent.
The council chair Elizabeth Johnstone said the amendments will assess “developments in public policy and regulation, and evolving community expectations”.