Higher borrowing costs for companies not hitting gender targets

© AAP “Targets need to be set and targets need to have teeth,” says Diane Smith-Gander, who chairs the Committee for Economic Development of Australia and buy now, pay later group Zip.

In a year when sexual abuse and harassment scandals marred the very top of federal politics, corporate Australia quietly marked another milestone in gender equality in the workplace.

For the first time, every company in the ASX 200 index now has at least one woman director, with female representation on boards climbing to 33.7 per cent. While this is on par or slightly behind some European countries, Australia is ahead of the United States, where the percentage of female directors on S&P 500 boards is 29.9 per cent.

Boards have been under pressure for the past decade from investors, such as large superannuation funds, and multiple advocacy groups including the 30% Club, Women on Boards, Chief Executive Women, Champions of Change and the Australian Institute of Company Directors, to improve their gender diversity. The threat of quotas in 2009 was also a catalyst for action.

As progress has been made, attention is now turning to getting more women into senior management roles, such as chief executive and chief financial officer positions. As part of that push some banks and other financial institutions are linking a company’s borrowing costs to gender equality targets. It’s a trend that first emerged in the US, UK and more recently in Australia.

Last month, Coles announced it had refinanced $1.3 billion of its debt with loans linked to three key sustainability targets, which included the proportion of women in leadership roles. If Coles fails to achieve its targets, then it will pay more interest on its loan.

Board director Diane Smith-Gander, chair of the buy now, pay later group Zip and also the Committee for Economic Development of Australia, says Coles is to be applauded for such a step. “Targets need to be set and targets need to have teeth. And this is certainly one way to provide targets with teeth, so I’m very supportive of it.”

Terry Fitzsimmons, a senior lecturer at the University of Queensland’s Business School, who co-authored a report Towards Board Gender Parity, which was backed by the Australian Institute of Company Directors and the Australian Gender Equality Council, expects there will be more banks linking borrowings to sustainability goals. “Money talks,” he says bluntly.

Fitzsimmons says while the strong growth in the number of female board directors in the past decade has been impressive there remained a long way to go for increasing the number of women in senior management roles. He estimates it will take 65 years for women in Australia to reach parity with men in CEO roles at companies that have 100 or more employees. For women in senior roles that report to the CEO the wait is slight less at around four decades.

“The pipeline of women in senior leadership roles is a real problem in Australia, and the only way to tackle that is at the grassroots,” he says. “I’ve been arguing for a couple of years now that we need a national workplace gender equality strategy. One that looks at education systems and at the structural inequalities in the economy around wage setting. There’s a bunch of stuff we haven’t even begun to do as a country that we have to address, including stereotypes that are just going to keep perpetuating this cycle of women not going into operational roles or into industries where you tend to see CEOs emerge.” He is establishing a centre that will push for a national gender equality strategy.

Smith-Gander welcomed the acknowledgement in early September by Prime Minister Scott Morrison that more needed to be done across the country to improve gender equality. “As the Prime Minister said at the [women’s] safety summit, we have a culture in this country which allows us to turn a blind eye to gender inequality. Until we address that culture, we will never get to parity representation, which is the target that we need to have. So, I was very pleased that the Prime Minister said that it is on all of us, every single Australian, to address this culture. And that, of course, carved out a very substantial role for the Prime Minister, and for all of our Parliament to address this cultural problem too.”

Nicola Wakefield Evans, a director of Lend Lease and Macquarie and who also chairs the Australian chapter of the 30% Club, says it’s not until you get women onto company boards or in senior management that the conversations begin to change around gender equality. “It’s very hard to shout down 40 per cent of the board if 40 per cent are women. It’s much easier if there’s only one woman on the board to dismiss whatever she says.”

Societal movements such as #MeToo have also increased the pressure on companies to ensure there is greater diversity at the top of companies, while also shifting conversations about how companies deal with issues such as sexual harassment complaints. In the past, such complaints were often covered up with non-disclosure agreements and payments while the offender kept their job. “I have been so impressed by a lot of my male colleagues who’ve really stepped up and made sure that organisations have had appropriate processes in place and are talking to our CEOs and executive teams,” says Wakefield Evans on this issue.

Still, there’s more progress to be made. Last year, a sexual harassment scandal involving AMP senior executive Boe Pahari at AMP, led to the insurance group’s chair David Murray resigning after shareholders raised concerns about the board’s poor handling of the complaint. At fellow insurance group QBE, a complaint by a female employee led to that company’s board swiftly parting ways with its CEO Pat Regan, following the outcome of an external investigation into workplace communications.

AMP now has a female chief executive and chair, one of the few companies on the ASX 200 that does.

At its most basic, all-male boardrooms or top senior management ranks in Australia that are a male enclave do not reflect the make-up of society nor their customer base. However, the problems run deeper than that because when you have fewer women CEOs and CFOs at the top of Australia’s biggest companies, even fewer go on to assume the role of chair on boards. A company’s board often wants a person to become the chair, who has been a former chief executive or chief financial officer.

“A lot of boards like to have one or two ex-CEOs on the board, and we simply don’t have the pipeline of women in Australia who’ve had big CEO roles,” says Wakefield Evans, who is a former managing partner of the law firm now known as King & Wood Mallesons. “We’ve got to concentrate on getting the number of women in executive teams increased, and the number of women who have P&L (profit and loss financial statement) responsibility. At the moment we’re seeing more women appointed as CFOs, and that’s a good sign, and hopefully that will increase.”

Women accounted for 6 per cent of chief executives of ASX 300 companies as of June 30, the same as in 2017, according to Chief Executive Women (CEW). CEW said almost 80 per cent of CEOs appointed in the past year were from line roles with profit and loss accountability, with women comprising only 14 per cent of those line management roles across the broader ASX 300.

Both Fitzsimmons and Smith-Gander say business has led the way on gender equality because it has also recognised the economic cost in not having women in more senior leadership roles.

A report by the Bankwest Curtin Economics Centre released last year showed that more women on boards delivered greater company performance, profitability and productivity. It found that increasing women’s representation by 10 percentage points or more on the boards of ASX-listed companies led to a 4.9 per cent increase in the company market value.

“For the corporate sector, this is a talent and a cost issue,” says Smith-Gander. “When you have educated women come into your organisation and then leave because the settings create a poor value proposition for them, that is a way to increase the cost to your organisation. We also know that the population is ageing, and as a result, we are going to have to use all the talent we have at our disposal.”

This article is the second of a three-part series on company boards.

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