DIRECTOR INSTITUTE SAYS ASX BOARDS NEED OVERHAUL
Written on the 3 May 2016 by Jenna Rathbone
THE Director Institute assisted with more than 2500 board appointments last year and noticed there is one glaring problem facing hopeful executives.
Kylie Hammond, who assists people to find board positions, says the majority of ASX-listed companies are unaware of the importance of diversifying the skillsets of boards.
The founder of the Director Institute says the way board members are appointed hasn't changed for 40 years and is inadequate to deal with the complexity facing today's boards.
She says the old guard network that is driving many of Australia's boards means they don't have the necessary people on them to be effective.
"Essentially the hiring of people on boards happens through the top tier executive search firms and there are about four or five of these large global executive search firms and they have been involved in the majority of positions or the appointment of the positions," says Hammond.
"The pecking order of those top four or five firms hasn't changed at all in the last 40 years.
"The talent pool that they are using within those firms is the old guard - they are using the old school networks to source the talent for these appointments. The same people are being appointed again and again and the talent pool has not been refreshed."
The Director Institute is a private enterprise that provides current and aspiring board directors with the tools, resources and training needed to begin or expand their portfolio of positons and experience.
Hammond says today your typical board member is a senior, mature executive who has had an executive or corporate career.
"They predominantly come from three main disciplines either a chartered accountant background, a legal background or some form of professional services background," she says. "The challenge being we really do need to see a lot more diversity within the skills that are required to perform well on today's boards."
Hammond says boards need to look at the skills they currently have and identify the gaps where they could bring in different skills and capabilities to assist the company.
"They really need to tap into those skills that are required, it could be you need someone with HR experience or IT or marketing experience or sales - these are skills that haven't traditionally found their way to a board seat," she says.
The Australian Institute of Company Directors (AICD) says one obvious deficiency in board composition is the lack of female directors.
"At February 29, only 22.7 per cent of directors on ASX200 boards were women," says AICD.
"Research has shown diversity on boards, particularly gender diversity, is associated with better financial performance.
"A report by Credit Suisse released in August 2012, for example, demonstrates a positive link between female representation on boards and in senior management with improved financial and share market performance. A Catalyst report has also shown that US Fortune 500 companies with more women on their boards tend to be more profitable."
The ASX Corporate Governance Council's Corporate Governance Principles and Recommendations released in March 2014 represents globally-accepted standards of corporate governance.
It provides detailed guidelines for optimising board composition and in particular, states that boards should use a skills matrix.
The matrix identifies the expertise they require so any gaps in skills or experience can be addressed and the right mix can be maintained.
Author: Jenna Rathbone
About: Jenna Rathbone is a Queensland-based journalist who writes on a range of issues including business and property affairs and social issues.Connect via: Twitter