Impact of Board Diversity on Productivity and Competitiveness

| March 18, 2008
Ruth Medd

Ruth MeddIf companies are serious about remaining competitive, they need to start at the board level, explains Ruth Medd.

There are two major arguments for increased diversity and more women on the boards of Australian companies. Firstly the civil society argument that boards, like other institutions, should be reflective of the society in which they operate. And secondly there's the business case.

There is ample evidence that board diversity is good for productivity and competitiveness, and that injecting diversity into boards and senior management improves overall performance.

Take recruitment and retention as a case in point.

One of the greatest challenges for business in Australia today is the attraction and retention of talent in their organisations.  In a tightening labour market, retention of female talent, in particular, is a challenge that business is now more interested in addressing. 

Ruth MeddIf companies are serious about remaining competitive, they need to start at the board level, explains Ruth Medd.

There are two major arguments for increased diversity and more women on the boards of Australian companies. Firstly the civil society argument that boards, like other institutions, should be reflective of the society in which they operate. And secondly there's the business case.

There is ample evidence that board diversity is good for productivity and competitiveness, and that injecting diversity into boards and senior management improves overall performance.

Take recruitment and retention as a case in point.

One of the greatest challenges for business in Australia today is the attraction and retention of talent in their organisations.  In a tightening labour market, retention of female talent, in particular, is a challenge that business is now more interested in addressing. 

Women comprise more than fifty percent of university graduates and often more than fifty percent of recruitments.  But overall only 10 percent of senior executives are female and 8 percent of top 200 company directors are female.

Of the top 200 ASX 200 companies fifty percent do not have even one female board member!

Attrition of women is a serious issue in a country like Australia, where women's participation in upper management falls seriously short of many of our OECD counterparts.

On both a macro and micro economic level, this attrition is very costly to the economy.

Forwarding thinking companies spend a lot of time designing their workplace arrangements to encourage women (and men) to remain. 

There have been a number of studies looking at the business case for increased female participation in leadership roles. An article from Jane Allen of Egon Zehnder International finds there is considerable evidence that the presence of a woman on a board is more likely to result in retention of female senior executives. 

And here's why:

We have known for a long time (see http://nfaw.org/media/2007/07-08-13.html) that in remuneration terms women generally fair poorly in comparison to males.

A recent study from EOWA (Gender Income Distribution of top earners in ASX200 Companies Report) exposes the issue systematically at the senior executive level.

The study built on the work of EOWA and its research partners that produced the 2006 EOWA Census of Women in leadership. This latest research shows business, government and women that there is structural discrimination as far as women in senior roles is concerned.

The EOWA study found that overall females make up 11.1 percent of executives in companies which declare top earners.

Women represent only 7 percent of the total top earners in ASX 200 companies.  However, if you look more closely women in companies where there are at least two or more women on the board, women represent 13 percent of the top earners.

Given these odds smart women will naturally gravitate towards those companies which will offer them not only better pay standards, but also provide leadership when it comes to appointing women to high-level managerial roles.

Senior female executives are the most likely source of female directors for ASX 200 companies. So once the ball starts rolling, all the excuses regarding not being able to find women with relevant experience all falls away.

Smart companies and smart boards know the value of women's contribution at the senior management level and are actively looking to recruit women to their boards.

Are you a smart company?

Ruth Medd is the executive director of Women on Boards, Chair of Australian Ethical Superannuation Ltd, a director of the National Foundation for Australian Women and The Infants Home Ashfield and is a past member of the NSW Casino Control Authority.  

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