Australian firms are at the bottom when it comes to female representation

WHY are there so few women on Australian company boards?

Graham Bradley, Peter Wilson, Catriona Noble, Jack Percy, Katie Lahey, Michael Rose, Tim Ebbeck, Matthew Quinn and Robert Milliner get behind a Business Council of Australia plan to boost the number of women CEOs and CFOs at ASX top 200 companies. Picture: Stephen Cooper

A QUARTER of a century ago, it was not really surprising that there was only a handful of female directors.

But fast forward those 25 years, the participation of women in the Australian labour force has surged -- with the participation rate of women increasing by nearly 13 percentage points while the participation rate of men fell. And the educational attainment of women has outpaced that of men.

Yet, today, less than 10 per cent of directors of Australia's listed companies are women. And, if anything, it appears that the proportion has actually fallen: from 8.7 per cent in 2006 to 8.3 per cent in 2008.

In international terms, Australian companies are towards the bottom of the ladder when it comes to female representation.

Some are lower -- Japan, for example -- but many have much higher proportions of women on boards, including the US.

Heading the list is Norway, with its mandated quota of 40 per cent of women on listed company boards.

What explains this outcome in Australia? And what should be done to remedy what most people would agree is an anomalous situation?

By the early 1990s, a number of directors in Australia had come to the conclusion that females should be represented on their boards. A number of high-profile female appointments were made, including to some of Australia's largest companies.

Arguably, something of a "women's club" emerged, with a small number of experienced women occupying several board seats, rather than the positions being spread across a larger number of women. Of course, this outcome was simply mirroring the pattern of representation among male directors.

Over time, it was anticipated that the numbers and proportion of women on boards would rise, as more companies appointed a woman to their boards and more companies appointed additional female directors. As events panned out, this expectation has not been met. One of the changes that occurred in relation to board appointments -- dating from about the late 1990s -- was the establishment of nomination committees.

Rather than comprising the entire board, a smaller number of directors made up the nomination committee (almost always including the chairman of the company) and were assigned the specific task of seeking out new directors and dealing with succession planning, more generally.

Another important and related change, dating from around the same time, was the formal involvement of outside search firms and the specification of the essential and desirable characteristics required of new directors.

Up until that time, the process had been much more informal and worked on the basis of directors' networks and therefore personal recommendations. A phone call from the chairman, a meeting, perhaps a lunch and a question as to whether you were free for the next board meeting pretty much summed up the "selection process".

On the face of it, the professionalisation of the board selection process might have been expected to promote further board diversity, including more females. After all, there was no longer any need to rely on the personal networks of the current directors.

Ironically, the mere articulation of a "wish list" of essential and desirable characteristics can throw up indirect barriers to female directors. "Must have overseas experience, particularly in the Middle East". "Preferably, background in engineering or IT". "Industry experience". These are not uncommon phrases used, but they are unlikely to be neutral between male and female candidates. The reality is that most boards are looking for a set of characteristics such as: intelligent, well-informed, conversant, collegial and courageous.

But by specifying the requirements in another way, these descriptors become secondary considerations in many cases.

The expectation that at least some directors would have prior senior executive positions -- a perfectly reasonable expectation -- also begs the question of what has been happening to women occupying senior executive positions. If the figures on the female board representation are not depressing enough, take a look at those on female senior executives.

Although there are a number of statistics that can be quoted, depending on how "senior executive" is defined, 10 per cent is probably a high-side estimate, with the true figure probably closer to 6 per cent and falling.

Arguably, the low representation of females in senior executive positions is one of the areas that needs to be addressed if the proportion of females on boards is to rise significantly.

So where do we go to from here? Not surprisingly, there is talk of targets, even quotas. Many men, but also many women, are opposed to this sort of compulsion, not least because they hold strongly to the view that appointments should always be merit-based. But, of course, "merit" is not an unambiguous term.

Some of the recent initiatives -- for example, the mentoring program being pursued by the Australian Institute of Company Directors -- are welcome developments.

Its sensible recommendations include that companies adopt and report on their diversity policies and goals, and that there be greater transparency in board selection processes.

There is always a danger that appointing female directors can become a box-ticking exercise in compliance -- and arguably, why so many boards have only one female director, having ticked that box. So it important that the broader argument continue to be made: that overlooking a highly qualified and skilled tranche of the labour force makes no economic sense at all.

Professor Judith Sloan has been a director of a number of listed companies since 1994. She is also Honorary Professorial Fellow at the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne.