Boardroom Gender Diversity Summit

October 4th, 2012 at 12:00 pm by David Farrar

I was on a panel at the recent Miro Summit on gender diversity in the boardroom. My speaking notes are here.

As I said, I am not a fan of any sort of quota system, but I do think that companies do better with diversity (in all its forms) on their board.

Anyway for those interested in this area, Women on Boards have a Gender Diversity Summit on the 1st of November. Their keynote speaker is Dr Sharon Lord, who in her 30s was a Deputy Assistant Secretary of Defense for Ronald Reagan. Lord lives in NZ for five years.

Low ball share offers

September 25th, 2012 at 11:00 am by David Farrar

The Herald reports:

The boss of New Zealand’s investment watchdog says he doesn’t like “low-ball” share offers but won’t be telling the Government to ban them because that would be going too far.

Several top executives including Vector chairman Michael Stiassny and Tower managing director Rob Flannagan have said the offers should be stopped after shareholders received offers to buy shares at a significant discount to what they trade at on the sharemarket.

But Sean Hughes, chief executive of the Financial Markets Authority, said there had to be some element of buyer beware.

“We can’t stand over shareholders and say ‘don’t sell’. It’s not the place of the regulator. That would be giving investment advice.”

Absolutely. If you are so stupid you accept an offer for well below what you can get on the NZX, you’re probably too stupid to be buying shares in the first place.

The rules should ensure offers are not deceptive etc. But going beyond that to ban low ball offers would be wrong.

Should gender diversity be mandated for women on boards?

September 20th, 2012 at 3:12 pm by David Farrar

I just took part in a panel and debate/discussion on gender diversity on NZX listed boards. This was at the NZ Initiative’s Miro Summit. Was a very interesting discussion with contributions from some very experienced board directors – both male and female.

It is Chatham House rules, so can’t quote people directly but I can quote my own remarks, which are below:

New Zealand has a reasonably good track record of achievement for women.

Yesterday was the 119th anniversary of the day women in NZ got the vote, after Governor Lord Glasgow signed the new Electoral Act into law – making NZ the first independent country to do so.

 Some of the arguments against suffrage included “Would the home-loving New Zealand wife be ‘unsexed’ by participation in politics, her grace and softness lost? Would her husband be less than a man to allow her to participate? Would the reform lead to unthinkable role reversals where wives made the speeches and husbands fried the chops?”

Personally I quite like frying chops, and thinks we can agree we have come a long way in 119 years.

 As many of us know we recently had a female Prime Minister (as was her predecessor) a female Governor-General, Speaker, Chief Justice, and CEO of the then largest private sector company.

However that does not mean all is rosy for women of course. We have research showing women get paid less than men on average. I won’t fall into the trap of Alasdair Thompson and repeat his suggestion as to the cause. There are in fact a number of factors behind the average pay difference. One of the most interesting is that there is a pay differential even very early on in a professional career – long before factors should as time off for children comes into play. It seems the reason might be that young men are more aggressive pay negotiators – they will push for more pay, while young women tend to accept whatever the employer offers.

 But to put things in context, the gender pay gap in NZ is the 2nd lowest in the OECD.

 NZX has just 9% of directors who are women on their top 100 board. The ASX is up to 13% or their top 200. The NZX numbers may improve with their new disclosure rule, but frankly both 9% and 13% are embarrassingly low numbers. To be fair to Australia I understand 25% of new appointments are women following a voluntary gender disclosure rule. NZX of course is implementing a mandatory one. In the US the Fortune 500 companies have 16% female directors.

Now one can take a view, so what. Does it matter if boards are all men, as 57% of NZX100 boards are? Should we be gender-blind when it comes to board members? Personally I think diversity is important on boards – not just gender diversity, but skills diversity and personality diversity also. A board of seven insurance actuaries would be as unbalanced as a board comprised of seven entrepreneurs such as Rod Drury.

But does gender matter? Well there is an old book called men are from Mars and women are from Venus and while that is about relationships, I think it reflects that men and women do often think differently. There are some advertisements that men love and women loathe, and vice-versa.

There is also some empirical research. A study of Fortune 500 companies in the US from the 25% of companies that had the most female board members had 53% higher return on equity than those companies in the bottom 25% in terms of female board members. This is a correlation, not necessarily causative, but still powerful research. It would be very interesting to see someone apply the same research methodology to NZ, and see if the results are the same. Maybe Oliver can add it to his work list!

Some say there are not enough women who have the commercial experience to be directors of NZX companies. Putting aside the fact this can be a self-fulfilling prophecy, I don’t accept this.

For many years now more women than men graduate from university. In 2010 55% of commerce and business graduates were women. 59% of law graduates are women. And overall 64% of all graduates are women. On a separate issue, we need to do something about male education in this country.

I’ve been on a couple of company boards as a non-executive director. All four of my boards chairs have been women, and while these were small organisations, I certainly rate their ability to serve on boards of larger companies if they had the opportunity. One of them in fact has served on almost a dozen central and local government owned company boards with distinction, including major SOEs. She’s a fellow of the Institute of Directors yet until last year I believe she had never been on the board of a NZX listed company. 

 23% of IOD members are women, which means there are roughly 1,300 female directors in New Zealand of whom only 45 are on an NZX100 board. In the state sector 41% of directors are women. So again I don’t accept that the 9% figure is simply because there are not enough suitable women. I note two of our largest law firms are now chaired by women – Russel McVeagh and Minters.

But despite the fact we do have a clear problem, I do not favour mandated quotas for board members, for six reasons. 

  1. Philosophical – not the role of the state to tell shareholders who to put on their boards. Companies are entitled to make bad decisions. We already see too much effort from the Government in trying to tell both people and businesses what to do.
  2. Slippery Slope – why stop at mandated gender diversity. Race and age could well have arguments made for them as we have few Maori and few young directors. I think age is arguably just as important in terms of having diversity of thought around the board table.
  3. If we single out gender as a proxy for diversity, then we may give a false confidence and weaken efforts to improve diversity in other areas.
  4. One size doesn’t fit all. While it is unwise for most companies to have all male boards, companies which specialise in, for example, men’s clothing might be fine. Mind you, in my experience most men have women choose their clothes for them, so maybe not the best example.
  5. A quota may not lead to more women on boards – just lead to Roseanne Meo being on 20 boards instead of 10!
  6. With a quota system, there will be a suspicion that some appointments will be tokenistic, and some female directors will be judged as having succeeded in getting board appointments only because of their gender. That’s unfair to them.

So having identified the problem, and also rejected quotas as a solution, what would I do.

Well I think the problem is the method of recruitment for Directors amongst large NZX100 companies. Most recruitment seems to be done informally amongst those who are known to current Directors, which makes it hard for new Directors to break through.

NGOs and smaller companies often formally advertise for directors, as does the Crown and Local bodies. It is rare you see an NZX company advertise.

Why on earth do large companies still hand pick directors? Imagine if your CEO told you that they are not going to advertise for a COO, but instead appoint someone he or she knows to be well qualified. You’d tell the CEO to pull their head in, and advertise the role. What is good for the goose is good for the gander.

I think the solution, or a partial solution, is not quotas, but instead just persuading NZX companies to operate open recruitment processes for directors. The new disclosure policy should identify the companies that have all male boards, and it will be very interesting to compare how many of them do open recruitment of directors, compared to those who use the shoulder tapping method.

So in summary I do believe that companies should be allowed to make mistakes, and they should be allowed to have all male boards, but believe the combination of the initiatives by NZX, the IOD, the Govt and more generally the business community will see NZX boards become move diverse over the next five to ten years. But even if they do not, then the Government has no more of a role mandating gender quotas on private company boards, than they do regulating the maximum pressure of shower nozzles.

I should point out that one Director pointed out most NZX companies do do searches for new Directors, rather than just approach someone they know – however they tend not to advertise – rather use specialist recruitment agencies.

NZX and women

August 24th, 2011 at 2:00 pm by David Farrar

Ruth Laugesen at The Listener writes:

Publicly listed companies will come under new pressure to promote women to boards and management under proposed new stock exchange rules. NZX chief executive Mark Weldon told the Listener that the stock exchange will be proposing new rules that will require all publicly listed companies to declare how many women and minorities they have in senior roles and as directors.

“What we would intend to consult on and would seek feedback on is a proposal that would see companies required to report on or disclose on the gender and other diversity makeup of board and management.” The change is to be part of NZX’s biannual rules review process, and could take force from June 2012.

I’m firmly against any sort of quota system for publicly listed companies. A quota would demand existing female directors, who might then be seen as token appointments.

However transparency in reporting is another issue.

NZX’s moves follow a rule change by the Australian Stock Exchange  has led to a 50% jump in representation of women on boards in the space of just 18 months. By the beginning of August, 12.7% of Australia’s top 200 listed companies had women directors, compared to 9.3% for the top 100 listed companies here. The Australian policy recommends publicly listed companies have a gender diversity policy, and that they report progress on meeting its goals on it regularly.

The wording Weldon is proposing goes further in several ways: it is mandatory rather than voluntary; it demands direct reporting of diversity numbers; and it goes beyond gender to include diversity generally, which includes ethnic diversity.

I’ve spent around a decade on a couple of company boards. By coincidence all four board chairs I have worked with have been women, and all have been excellent directors and chairs. There are many female directors who would add value to a top 100 listed company, and there is a bit of an old boys network because directors are inevitably always recommended by existing directors, so a lot of it is down to who knows who.

So I do not have a huge problem with reporting gender diversity, but I do get concerned over the wider diversity requirement. Will boards have to report Maori, PI, and Asians? And maybe how many of a particular religion or sexuality?

Diversity is good, but boards tend to be quite small – 10 or so directors. So while one can usefully look at gender diversity, I think it should not extend beyond that. Otherwise you may end up with boards seeking a stereotypical gay catholic asian for directorships!

UPDATE: The Institute of Directors announced last week:

The Institute of Directors (IoD) has given the go ahead to a new mentoring scheme aimed at increasing the number of women on NZX-listed boards. The IoD’s Chairmen Mentoring Programme will enlist up to 30 chairmen and senior directors of major companies to work with experienced and qualified women in a year-long programme.

That’s a really good idea.

Kerr on the shrinking sharemarket

May 25th, 2009 at 11:43 am by David Farrar

Roger Kerr writes:

Remember the claims about New Zealand’s “Wild West” sharemarket when the Labour Government came to office in 1999? It was languishing, so the story went, because of insufficient regulation.

New Zealanders lacked the confidence to invest in publicly listed companies. The story was always nonsense. …

Undeterred, the Labour-led Government brought in new, poor-quality regulation on takeovers, insider trading, information disclosure and much more. It was urged on by the Securities Commission, the NZX and others. The collapse of Enron and WorldCom gave a new impetus to regulation. In the United States, a key response was the Sarbanes-Oxley legislation.

This seems to be universally recognised as an over-reaction that damaged the New York market. Many of the proposals for new regulation in New Zealand were resisted by the business community and informed commentators. …

So did Labour’s policies of more regulation work?

In 1999, the total value of listed companies in New Zealand stood at around $55 billion. By 2008 it had shrunk in real terms (deflated by the CPI) to $31 billion.

As a percentage of GDP, it shrank from 51 per cent in 1999 to 22 per cent in 2008.

And the aim was to increase confidence in investing. But wait, did all countries have a decrease like this?

Although Australia’s market capitalisation has also fallen relative to GDP (from 105 per cent in 1999 to 82 per cent last year) with the recent decline in world sharemarkets (which of course also affected New Zealand), it has grown by 10 per cent in real terms since 1999. That compares with the 44 per cent decline of our market.

Guess not.

Cactus Kate on NZX

May 11th, 2009 at 3:00 pm by David Farrar

Cactus Kate has done a very lengthy and detailed post on the conflicts of interest around NZX as both a regulator and a commercial player. Her summary is:

  1. NZX is privy because of their Regulatory position to information that makes them a trusted source.
  2. NZX charges for dissemination of this information to the marketplace and generates 45% of its operating revenue in this fashion.
  3. NZX is spreading its Regulatory role of a trusted source collector and disseminator of this information into commercial publications it is planning to purchase.
  4. NZX has had no permanent Head of Supervision for a year and it is arguable that this person is truly independent anyway.
  5. NZX claims that its Supervisory and Commercial operations are “quarantined”.
  6. NZX Supervisory staff have been financed into an employee share scheme. The NZX CEO is according to the latest accounts, the third largest shareholder in the company and has a sole financial incentive to increase the earnings per share to receive more shareholding.
  7. The Securities Commission has previously raised issues of conflict with respect to NZX.
  8. The Securities Commission is over stretched and under resourced, more so due to recent finance company issues.
  9. The Securities Commission has called internationally for independent, strengthened, and well-funded regulators for implementation at the domestic leveldue to recent subprime crisis issues.
  10. The NZX CEO has a new politicised role and is seen by political advisors as having large influence on John Key.

I suspect we will see ongoing scrutiny.

Public ownership does not mean public accountability

September 5th, 2008 at 10:00 am by David Farrar

From the Dom Post:

A parliamentary report has given a damning assessment of the monitoring and valuation of state-owned enterprises, describing the lack of transparency as “indefensible”.

This has prompted NZX chief executive Mark Weldon to offer free listings for five per cent of SOE shares so the market can enforce a higher degree of transparency and accountability.

The transparency and discipline listings would bring are an excellent reasons to have some private ownership in the SOEs. The public would actually get more and better information on the billions locked up in the SOEs.

Every year Treasury and the CCMAU publish a statement of corporate intent providing information such as shareholder rates of returns. There were no statistics included in the statements in 2007 and 2008.

The committee said it had been told by officials “informally” that satisfactory portfolio performance data was not published because of a lack of resources.

The report said this implied that portfolio performance and public accountability were not considered relevant or important, respectively.

Again ownership does not translate to accountability.

The committee said it was concerned because Government documents, particularly the State-owned Enterprises Act, state the main aim of an SOE is to be as efficient and profitable as a comparable private company.

The committee said if Treasury or the CCMAU lacked the resources to do the analysis, they could put the work up for tender.

One funds research analyst said the private sector “couldn’t do a worse job even if we were drunk in charge”.

A possibility that can’t be ruled out 🙂

The most recent financial statements value the Crown’s interest in the 18 SOEs at $23.5 billion at June 30, 2007, the equivalent of 40 per cent of the $59 billion market capitalisation of the New Zealand sharemarket at June 2008.

Issues like this are not sexy but can be vitally important.