The election of directors will be one of the most important issues during the upcoming annual meeting season.

Should our listed companies have more women directors? What is the appropriate mix of executive and non-executive directors? Should the chief executive be a director? Are New Zealand companies doing enough to find and develop new directors?

The Australian Council of Superannuation Investors (ACSI), whose members hold an average 10 per cent of the largest 200 ASX companies, launched a major initiative last week that “aims to lift the representation of women on the boards of ASX companies to at least 30 per cent of all directors by the end of 2017”.

The ACSI wrote to the chairperson of 32 ASX 200 companies that had no women directors and to a further 70 companies that have only one woman on the board.

The 30 per cent target is ambitious as only 19.8 per cent of ASX 100 company directors are women according to the the latest ACSI survey, which was published in November 2014, while just 12.2 per cent of directors of the 101-200 ranked companies were women.

Although the number of women board members remains low, huge progress has been made in recent years.

For example, the percentage of board seats held by women in ASX 100 companies has increased from just 8.3 per cent to 19.8 per cent since 2000.

The ACSI says that it is “seeking tangible commitments and evidence from these companies (ASX 200) that they have strategies for achieving gender diversity at board level in the near term, rather than the sometimes surprisingly vague statements often made to comply with ASX Corporate Governance Principles”.

The ACSI believes that “there is growing evidence of links between gender diversity and financial performance in companies, which suggests that, in more difficult climates, boards that do not have more diverse make-ups and skills to draw on may well suffer the most”.

Gender diversity has been a growing trend, particularly in Europe, where women now have 20.3 per cent of board seats compared with only 8 per cent 10 years ago.

The leading countries in terms of female board representation are Norway, where women have 38.9 per cent of board seats, Finland 32.1 per cent, France 28.5 and Sweden 27.3.

A study of the 16 largest NZX companies — the domestic companies with sharemarket values in excess of $2 billion — shows that 20.8 per cent of board seats are held by women. Two of the 16 companies, Port of Tauranga and TrustPower, have no women directors. Both of these companies are based in Tauranga.

A survey of the remaining 30 New Zealand registered companies included in the NZX50 Index shows that 21.6 per cent of directors are women. ANZ Bank, Coats, Diligent and Westpac are not included in this data – even though they are in the NZX50 Index – because they are registered offshore.

However, seven of these 30 companies – Argosy Property, Mainfreight, Metro Glass, Orion Health, Pacific Edge, Property for Industry and Precinct Property – do not have any women directors.

In other words, nine of the top 46 NZX companies, or 19.6 per cent, have no women directors compared with 32 companies, or 16 per cent, of the ASX 200.

A number of observations can be made about the 16 largest NZX companies including;

  • Twenty five of the 120 directors are women
  • These 25 are from a pool of 23 women directors as two of the women are on more than one board: Justine Smyth, who is on the Auckland International Airport and Spark boards; and Geraldine McBride, who is a director of Fisher & Paykel Healthcare and Sky TV
  • None of these 16 companies have a woman chief executive
  • Joan Withers, who chairs the Mighty River Power board, is the only woman chairperson.

One of the main arguments in support of women directors is that they have far wider educational and professional qualifications than in the past and a growing number have strong career orientations.

Another argument in support of gender diversity is that women directors are generally younger and bring a fresher perspective to the board table.

The latest ACSI survey showed that the average age of non-executive directors is 63.7 for men and 57.3 for women for ASX 100 companies and the average age for the 101-200 ranked companies is 63.7 for men and 56.4 for women. This is consistent with Northern Hemisphere studies.

In addition, male directors are generally more entrenched and unwilling to resign. The ACSI survey shows that the average tenure for ASX100 male non-executive directors is 6.5 years compared with 4.2 years for female non-executive directors. The Australian survey also points out that 26 non-executive directors have held office for more than 20 years, 25 of these are men with one woman.

The same trend is evident in New Zealand and most other countries — men are more resistant to change and are particularly reluctant to retire.

Another worldwide trend is the decline in the number of executive directors and this development is particularly pronounced in New Zealand.

The ACSI survey shows that executive directors now account for only 15.6 per cent of ASX 100 board seats compared with 22.6 per cent in 2002.

In New Zealand executive directors hold just 5.8 per cent of the board seats of the 16 largest NZX companies. This is mainly because nine of these companies have not appointed their chief executive to the board.

There is a widely held belief that a chief executive should not be appointed to the board because he or she is accountable to the board and the lines of authority can be blurred if the chief executive is a board member. Most major New Zealand companies adhere to this as only seven of the 16 largest NZX companies have given board representation to their chief executive.

In addition, Fonterra does not appoint its chief executive to the board.

Finally, one of the biggest issues facing New Zealand business is the recruitment and development of new directors.

The 16 companies in this survey have appointed only eight new directors in the past 12 months. This is a very low number, particularly as 72 new directors have been appointed to ASX 100 companies in the 12 months prior to the survey.

A number of observations can be made about these eight new NZX company directors including;

Five of the new appointees live overseas and only three in NZ

Two of the eight are women, Christine Spring (Auckland International Airport) and Claire Higgins (Ryman Healthcare)

Ms Spring is based in New Zealand as well as two of the new male appointments

Nine of the 16 companies have not appointed a new director since June 30, 2014, because Ryman Healthcare appointed two of eight new directors.

All valid reasons shareholders should use annual meetings to ask their directors why they haven’t appointed more women directors.

Brian Gaynor

Portfolio Manager

Disclosure of interest: Milford Funds Ltd. holds shares in all the companies mentioned on behalf of clients.