Diversity on Boards of Directors in Australia is a Concern to the Government - Case Study Example

RUNNIG HEAD: Diversity on Boards of Directors in Australia Diversity on Boards of Directors in Australia is a Concern to the Government Name: Instructor: Course Unit: Date: Introduction The board of directors is one of the various internal control systems that are anticipated to guarantee that the interest of the staffs is strongly associated, regardless of whether it is an individual and institutional investor of a private corporation, or else the country in the case of public boards (Kang, Cheng & Gray, 2007). The functions of the boards are mainly; enforcement of legal necessities, allocation of the general corporate policy, and guarantying of proficiency and resourceful organization (Billimoria & Piderit, 1994). Van der Walt et al (2006) point out that, board effectiveness relies upon numerous aspects for instance magnitude and composition, the leadership structure, and corporate governance evaluation mechanisms. Current Status of Diversity on Boards of Directors Diversity on boards of directors is among the most noteworthy governance subjects at present experienced by the contemporary corporations in Australia; such diversity issues include; gender, age, race, ethnicity, multiplicity of idea, age, occupation knowledge and sovereignty of directors. Despite efforts by the Australian government and other non-governmental entities of promoting diversity on boards of directors in various corporations, there has been slow advancement of women and other under-represented issues in both the public and private sector boards. “Observations made by commentators still have it that, corporate boards tend to be homogenous groups, largely composed of men of similar ages and with similar demographic, ethnic, educational professional backgrounds, as well as some evidence that correlates diversity at board level with enhanced corporate performance”1. 1. An excerpt from the Minister of Superannuation & Corporate Law, Senator Nick Sherry letter at the meeting of the ministerial council for corporations (MINCO) in March 2009, while his was lobbying for advice from the advisory committee on matters relating to board diversity. The under-representation of women in the boards of listed public companies has been the underlining issue of diversity on boards in Australia. According to the Equal Opportunity for Women at the Workplace Agency (2008), the Australian census of women in leadership signifies that the proportion of women on boards of the ASX top 200 public listed companies is currently 8.3%, down from 8.7% in 2006. It also indicates that 51% of ASX top 200 companies have no female directors. Further the census still reveals that the proportion of women in executive management positions in ASX top 200 companies is currently 10.7%, a decline from 12% in 2006 and 11.4% in 2004. The reasons for the relatively low representation of female directors in Australia include; reluctance of the public companies to realize the importance of gender diversity in the board, increase in the number of mining and energy industries, culture of works that do require longer hours in the places of work, exorbitant child care costs, and downsizing of the managers which could have been bias to women. Another diversity issue is the age2 and country of birth3 director’s representation. It is renowned that the average age of public companies directors is 53 years, with the average age of directors of larger ASX listed companies being 59 years. The age factor is chiefly contributed by the ageing population of Australia. The 2009 report on diversity on boards of directors still had outstanding gaps in the verification founded on diversity on boards, this include; other under-represented groups for instance people with disabilities, and the selection procedure of non-executive directors. 2. Korn & Ferry International 2008, Board of director’s study of Australia and New Zealand. 3. ASIC has it that, 67% of directors of companies were born in Australia, 10% in the United Kingdom, 3% in New Zealand, 2.8% in the U.S.A, 2.2% in South Africa & 15% in over 100 other countries. Importance of Diversity on Boards of Directors in Australia: The issue of diversity on boards has been with us for a long time, whereby various scholars and legislators have laboured to illustrate that superior diversity on board of directors is liable to guide to enhanced performing boards and corporations and specifically to augmented corporate social accountability (Miller & Triana, 2009). While Australia stirs in the direction of economic resurgence, it is of the essence that our public and private sector boards tap from the potential rich endowment collection. Diversity on boards of directors has the capability of appreciating better the requirements of their clients and the communities they serve. This inevitably results into utmost satisfaction their clients as well as the communities they serve. Further more; there will be a commitment to guarantee that there is well-built and efficient corporate governance. We do form time-bombs in the act of consenting to boards encompassed with individuals who have similar backgrounds, technical know-how and partialities. The Federal government of Australia and other non-governmental agencies has a mutual revelation of a reasonable employment market for both men and women, but purely this cannot be accomplished if women, who engage in the greater part of family household tasks, are barred from the uppermost echelons of management. To wrap it all, there is a remarkable under- representation of women and other groups4 on boards; nevertheless they embody a large section of the Australian population. There is no deficiency of ambition, education, and the technical know-how amongst the women and the other groups. 4. Other groups refers for instance to People with Disabilities, Homosexuals, People Living with HIV/AIDS, apart from the feminine aspect. Therefore we and our government are obliged to do each and every thing we can to eliminate the barriers to their succession. Whilst most discussions dealing with board diversity is paying attention on women, several social groups remain evidently under-represented in decision-making in common and on boards of directors specifically, and this is also a breach in the text (Konrad et al, 2006). The lack of feminine exemplars in the top-cream company boards of Australia is a problem in Australia, in that it enacts a developmental barricade for women employees in the several sectors, this is due to the fact that it deteriorates their ambitions to reach to the top (Liff & Ward, 2001). This in-turn affects the socio-economic status of the country in that it fails to tap from the potential rich pool of females and other under-represented social groups, it further inhibits; innovativeness, creativity and other key developments at the workplaces, which are very vital in socio-economic and human capital developments of our country. Singh et al (2008) point out that recent state of affairs, transversely a great deal of countries, is that females who are on private boards of directors are more vastly competent than men5. This indication implies that it is as a result of a persistent incapability of recruiters to recognize innovative apposite under-represented applicants. This is very suicidal to a country like Australia which is endeavouring to recover from the recent ‘peculiar economy’, this is due to the fact that a result-oriented board has diversification in it so that it can tap and maximally utilize from the potential rich ideas. This also increases the aptitude to form associations to secure way in to significant resources, for instance, capital, customers, suppliers, or cooperative partners (Burt, 1998). 5. Singh et al (2008), points out that, “Newly appointed female directors of FTSE 100 firms are more likely to; have multiple sector experience (public, private, voluntary, governmental); hold MBA degrees; have international experience; & greater variety of previous board experience.” The above significances of diversity on boards of directors and the current status of diversity on boards in Australia draw attention to the government to take punitive measures for the regulation of diversity on boards of directors in both the public and private boards. Insider Trading Laws: The legal description of insider trading is when corporate insiders (directors and employees) purchase and vend stock in their own companies, while the illegal description of insider trading by and large refers to the trading of a security, in breach of a fiduciary duty or other affiliations of trust and confidence, while in custody of material, non-public information about the security (Du Plessis & Lyon, 2005)6. The basic initiative of laws is about setting principles; this has an implication that Insider trading laws are about a level playground, a method of evenhandedness that each one should obtain the same set out in the market. It is with this regard that I confer that insider trading laws are a necessary facet of proficient market theories to facilitate the share price to reveal all accessible information, thus it gives self-assurance in the market. The truth of the matter is that, insider trading laws; need only to be redeployed to the current laws, predominantly these pertaining to executives’ responsibilities. For instance, Germany had no insider trading laws; attributable to a European decree, inevitably they established it, but earlier to that they depended on a private bond theory (Ibid). The implication of the Germany example is that the information still be for the company, hence rather than a one and the same access argument, we should center on what's is referred to as the fiduciary rapport, or the exceptional liaison an insider has to his/her company, so that at 6. Professor Du Plessis, J. & Lyon, G., provide a comprehensive and practical analysis of Australian Insider Trading Laws. the end of the day the information will still belong to the company and evidently it shouldn't be mistreated. Per se, if an executive, or an equivalent individual mishandles the information, then the company itself can pass on an act to recuperate any injuries caused, noticeably any profits made, and can have the authority to sack the personality. Obviously this sets back their long-term objectives, but on the other hand is very quick and cheaper, than a tedious inquiry by a supervisory body, then a tribunal, and certainly all the tribulations with a panel of judges’ fervor. Therefore Insider trading laws are necessary, but they should only be refocused to concur with current laws. References: Bilimoria, D. and Piderit, S. K. (1994), “Board Committee Membership: Effects of Sex-Based Bias”, Academy of Management Journal, 37(6), 1453-1477. Burt, R. S. (1998), “Gender and Social Capital”, Rationality and Society, 10(1), 5-46. EOWA (2008) “Australian Census of Women in Leadership”, in Diversity on Boards of Directors, Corporations & Markets Advisory Committee- Australian Government Report, March 2009. Retrieved April 19, 2010 from Corporations & Markets Advisory Committee website: http://www.camac.gov.ac/reports. Kang, H., Gray, S. J. & Cheng, M. (2007), “Corporate governance and board composition: Diversity and independence of Australian boards”, Corporate Governance: an International Review, 15(2), 194-207. Konrad, A. M., Prasad, P. & Pringle, J. K. (eds.) (2006), Handbook of Workplace Diversity, Thousand Oaks CA, SAGE Publications Ltd. Liff, S. and Ward, K. (2001), “Distorted views through the glass ceiling: The construction of women’s understandings of promotion and senior management positions”, Gender, Work and Organization, 8(1), 19-36. Lyon, G. & Professor Du Plessis, J., (2005). The Law of Insider Training in Australia. Annandale NSW, the federations press. Chapters 1-3. Miller, T. & Del Carmen Triana, M. (2009),“Demographic Diversity in the Boardroom: Mediators of the Board Diversity-Firm Performance Relationship”, Journal of Management Studies, 46(5), 755-786. Singh, V., Terjesen, S. & Vinnicombe, S. (2008), “Newly appointed directors in the boardroom:: How do women and men differ?”, European Management Journal, 26(1), 48-58. Van Der Walt, N., Townsend, A., Shergill, G. S. & Ingley, C. (2006), “Board configuration: are diverse boards better boards?” Corporate Governance, 6(2), 129. Read More