What's the point of performing well at work if it doesn't actually matter?
That’s one of the questions posed by a new report that scrutinises who’s been sitting on the board of directors of Australia’s top 300 companies since 2005.
Compiled and analysed by Ownership Matters, an advisory firm to institutional investors, the report found that corporate board turnover at Australian companies in the last 15 years were “largely independent of company performance”.
Also read: ASIC exec resigns over $70k expense scandal
Yahoo Finance breaks down some of the key take-outs from the report:
1. Spot the difference
ASX300 companies that performed badly didn’t overhaul their corporate boards substantially faster than companies that performed best.
“A slight increase in board turnover was observed only for companies in the bottom two deciles of ASX 300 performance – these underperforming companies could expect approximately one additional director retirement every 3 years when compared against companies that performed better,” the report said.
The worst-performing ASX300 company of any given year between 2005 and 2020 turned over an average of 19 per cent of its board in the following year, while all other companies recorded yearly turnover rates of 12.6 per cent.
2. ASX directors tended to appoint people they knew
At least a third of the time, ASX directors were hired from a pretty small pool.
“Since 2005, 38.2 per cent of all vacancies were filled from directors with an existing ASX 300 board seat.”
Directors of public boards “clearly” tended to pick candidates that they knew from serving on other company boards, the report said.
The good news is, though, that this is an improvement on what used to be the case: the ‘in-pool appointments’ have fallen from 43.4 per cent in 2006 to 31.8 per cent in 2016.
On 30 June this year, this was at 36 per cent.
When you put together the experience of two ASX300 board directors in particular, Robert Millner and Gary Weiss, you get more than 100 years put together across multiple company boards.
3. Women representation has improved – somewhat
There are definitely more female directors than there used to be (less than 10 per cent in 2005 to 33.1 per cent at the end of June this year).
But board members who were also women executive directors (CEOs or CFOs) haven’t changed – this has remained largely at 6 per cent in the last 15 years.
Regardless of that, the number of male directors still far outstrips that of women.
And yes, there are still more men named Michael or Mark than all women in executive director roles at ASX300 companies.
4. We should rethink our hiring process
Companies should have a good, hard look at their process for selecting ASX300 board directors, the report revealed.
“Investors should question whether the current systems used to select boards preference incumbent ASX 300 directors, irrespective of gender, at the expense of other merit-based candidates,” the report said.
“Our analysis presents evidence that non-executive director tenure is lengthy and that board turnover in the last 15 years is largely independent of company performance.
“If a high performance culture does not exist in the board, investors should ask how one can prosper within the company’s workforce?”
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