11 May 2011

Corporate governance changes focus on diversity

by Joe Catanzariti, Millen Lo

Having an existing equal opportunity policy may not necessarily be enough to comply with the ASX Diversity Recommendations

Diversity is emerging as a central issue in corporate governance.

On 30 June 2010, the ASX Corporate Governance Council introduced a number of changes to the Corporate Governance Principles and Recommendations – with a focus on diversity (Diversity Recommendations).

When do the changes come into effect?

The changes to the Principles and, therefore, the Diversity Recommendations, apply to all entities listed on the ASX from 1 January 2011. Compliance is not mandatory. However, entities that do not comply will have to explain in their annual report why they have not. Unlisted companies can also choose adopt the Diversity Recommendations.

Therefore, while there are no pecuniary consequences that follow from non-compliance, there are clear flow-on reputational issues for entities that will have to explain why diversity has not been incorporated into their overall corporate objectives.

A number of entities chose to adopt the Diversity Recommendations before the 1 January 2011 commencement date.

How do you comply?

To comply with the Diversity Recommendations, companies will need to:

  • Establish a diversity policy

Companies will need to establish a policy concerning diversity and disclose the policy or a summary of that policy. Diversity is defined to include, but is not limited to, gender, age, ethnicity and cultural background.

Specific to gender, the Diversity Recommendations also provide that the policy should include requirements for the board to establish measurable objectives for achieving gender diversity and for the board to assess annually both the objectives and the progress in achieving them. The measurable objectives should identify ways in which the achievement of gender diversity is measured.

  • Report on diversity in the annual report

Companies will need to disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and the progress towards achieving them.

In addition, companies will need to disclose the proportion of women employees in the whole organisation, women in senior executive positions and women on the board.

Any departure from the recommendations is to be included in the corporate governance statement in the company's annual report.

Companies must also make their diversity policy or a summary of that policy publicly available, ideally by posting it to the company's website in a clearly marked corporate governance section.

  • Incorporate greater transparency in the board selection processes

The Diversity Recommendations also amend the board selection process, with an increased focus on greater transparency of the processes which the board adopts in searching for and selecting new directors. The Recommendations say that companies should report to shareholders on their board selection procedure, including the steps taken to ensure that a diverse range of candidates is considered.

In addition, companies will be required to include in the corporate governance statement of the annual report a statement as to the mix of skills and diversity for which the board of directors is looking to achieve in membership of the board.

Beyond corporate compliance

To meet the Diversity Recommendations, companies will need to take proactive steps. Having an existing equal opportunity policy may not necessarily be enough.

Importantly, companies that choose to adopt the Diversity Recommendations will need to perform on the diversity issue, particularly where a company will be scrutinised (including by its own workforce) against any objectives and targets that are set and disclosed as part of the reporting requirements.

Companies serious about wishing to be diversity leaders will take at least the following steps:

  • review existing policies and procedures in relation to EEO and diversity and identify gaps;
  • determine what "diversity" will mean for the purposes of meeting the Diversity Recommendations (given diversity can be broader than gender);
  • assess the current gender work profile in order to determine achievable objectives for benchmarking;
  • analyse legal risk in relation to the implementation and dissemination of any diversity policy and related policies and of any contractual and other obligations to employees and prospective employees in relation to these policies (such as arising from trade practices legislation);
  • ensure there is comprehensive workforce training at all levels including the senior executive and managerial ranks, including specific leadership training;
  • establish appropriate processes for reporting and briefing the board, including risk reduction strategies; and
  • identify other programs and structural assistance which can assist in achieving a sustainable diverse workforce.

Thanks to Luke Hamblen for his help in writing this article

This article was written when Joe was a partner at Clayton Utz and does not necessarily reflect his views as Vice-President of the Fair Work Commission.


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