Earlier this year we reported1 on the Australian Securities Exchange’s (ASX) proposed changes to its Corporate Governance Principles and Recommendations (Recommendations) requiring disclosure of board and company-wide diversity initiatives.
On 30 June 2010, the final Recommendations were released. Their formal commencement date is 1 January 2011, although the ASX Corporate Governance Council (Council) considers that entities with a financial year beginning 30 June 2010, should be able to meet the new requirements for the coming financial year.
All employers, not only those listed on the ASX, should be cognisant of these new changes, which ‘set the bar’ for organisations trying to attract and retain the best staff.
The process so far
The Exposure Draft on the proposed Recommendations was released on 22 April this year.
The Recommendations apply to companies listed on the ASX. The emphasis of the Recommendations is on disclosure—a company is required to disclose what it has in place, and if not, provide an explanation why. Non-compliance with the Recommendations could result in a breach of the ASX Listing Rules.
Twenty three submissions were received on the Exposure Draft, from companies, industry groups, law firms, individuals, government and non-government organisations. The majority of submissions expressed strong support for the proposed changes, particularly the gender diversity initiatives.
The final Recommendations, as they relate to diversity, do not differ significantly from the Exposure Draft. However some key amendments were made as a result of submissions to the Council. These included:
- giving greater flexibility to boards to determine their own processes for setting and measuring diversity objectives
- suggesting that boards consider whether the achievement of diversity objectives should be tied to Key Performance Indicators for the board, the CEO and senior executives, and
- responsibility to review and report to the board remuneration by gender.
The Diversity Recommendations
‘Diversity’ is defined broadly in the Recommendations, to include gender, age, ethnicity and cultural background. Despite this, the Recommendations heavily lean toward the issue of gender diversity.
The new diversity requirements of the Recommendations require listed companies to:
- provide greater transparency on the processes which the board adopts in board member selection and succession planning, including the steps it takes to ensure that a diverse range of candidates, and the appropriate mix on boards, is considered
- establish a diversity policy which ‘include[s] requirements for the board to establish measurable objectives for achieving gender diversity’. The ASX Recommendations list some suggestions as to the content of this policy (see below)
- establish appropriate procedures to ensure that the diversity policy is implemented properly, including an internal review mechanism
- assess annually the company’s achievement of, or progress towards the objectives
- consider remuneration by gender in the remuneration committee’s regular review and recommendations to the board, and
- disclose in its annual report the measurable objectives for achieving gender diversity, together with the diversity policy or a summary of that policy and the proportion of women employees in the whole organisation, women in senior executive positions and women on the board.
What a diversity policy might consider
The Recommendations set out some suggestions for the content to be included in a diversity policy. With the exception of the last dot point, these suggestions have not changed from the Exposure Draft:
- commitment to diversity and articulation of the corporate benefits arising from employee and board diversity (eg the needs of the company may point to the need for directors will particular skills and experience)
- commitment to and identification of ways to promote a corporate culture which embraces diversity (eg recruitment of employees and directors from a diverse pool of qualified candidates)
- identification of factors that should be taken into account in the selection processes and whether professional intermediaries should be used to identify or assess candidates
- identification of programs that assist in the development of a broader pool of skilled and experienced board candidates (eg initiatives focused on skills development such as executive mentoring programs or more targeted practices relating to career advancement)
- articulation of a corporate culture which not only supports workplace diversity but also recognises that employees at all levels of the company may have domestic responsibilities
- transparency of board processes, review and appointments, and
- tie the achievement of measurable objectives to Key Performance Indicators for the board, the CEO and senior executives.
What next?
ASX listed employers should now put in place a ‘diversity policy’ for their Board and begin steps to implement a diversity strategy to support the policy, ready for the next round of reporting.
In addition, all employers should consider reviewing existing diversity policies, or putting these policies and procedures in place where nothing currently exists. Not only do the Recommendations set a new standard for employers seeking to attract the best staff, but recent changes to Victoria’s equal opportunity laws (set to begin from 1 August next year) mean that employers must now take proactive steps to manage diversity issues in their organisation.
This article was written by Lisa Croxford, Special Counsel and Kate Jenkins, Partner.
Endnotes
- Freehills article, ‘Proposed board diversity requirements’
More information
For information regarding possible implications for your business, contact a member of our Equal Opportunity and Diversity Team.