Don’t be surprised if NZX takes a bold approach on diversity

POSTED BY Andrew Wallace
17 June 2012

posted in Company Law | NZX

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Should listed companies be required to have a quota of male and female directors? Submissions on the NZX's proposed diversity rule for listed companies have now closed. What was the general consensus in response, and what might the final rule look like? Many market participants including aspiring directors and senior managers will be interested to know.

Citing recent research which suggests that diversity in a variety of forms, and gender diversity in particular, contributes to improved performance at both board and senior management level, the NZX considers that diversity is an area deserving of its attention. The theory goes that diversity promotes diversity of thought, which stimulates more innovative problem solving. It may promote identification of risks, and better management of those risks.

The NZX considered a range of options, including setting mandatory quotas for board composition. It also explained that its preferred approach is to require listed companies to disclose in their annual reports the gender composition of their board, senior management team and any subsidiary board. The NZX adds that by way of a footnote to the rule, companies may also choose to disclose any general or wider diversity policy if they consider that information disclosure would be beneficial to security holders or stakeholders.

A sample of publicly-released submissions and general market commentary reveals widespread support for the NZX's proposal. Some groups, such as the New Zealand Shareholders' Association, the Institute of Directors and Springboard, think that the proposal doesn't go far enough and that the diversity rule shouldn't be limited to gender. It could also usefully include diversity in age, ethnicity and work background and experience, and it should instead be mandatory for listed companies to disclose and report on their diversity policy.

How does New Zealand compare with overseas markets? Discussion on diversity in the EU and UK also focuses on gender diversity. It seems that in the UK, many companies have been taking voluntary steps to address the gender imbalance off the back of publicly-commissioned reports on the issue. Things have been a little slower in the rest of Europe where regulators have also recently finished a round of consultation on gender diversity which some commentators believe could lead to more intrusive regulatory reforms (such as quotas).

In Australia, the ASX recommends that issuers annually disclose measurable objectives for assessing gender diversity and a description of progress against those objectives; if they don't comply, they need to explain why. A broader approach is taken in the United States; there public companies have been required to make diversity-related disclosures for the last two years, and "diversity” is not defined by reference to any particular kind of diversity. Rather, companies are free to conceptualise it in whatever form might be appropriate for their circumstances.

Setting the reporting frameworks to give greater exposure to the issue of diversity is one thing. Just as important is developing initiatives to match people from different backgrounds with opportunities that arise. There are several groups that are already looking to do this, such as the IoD and Springboard, and the more attention they're given by companies and aspiring directors and senior management, the better.

If the sample of submissions reviewed is a fair reflection of what all submitters have told the NZX, we shouldn't be surprised to see the NZX ultimately taking a bolder approach towards diversity. This won't mean quotas, but perhaps mandatory reporting which doesn't focus solely on gender diversity. The NZX is currently reviewing the submissions and we look forward to seeing a response.

This article was first published in the Your Law column in the Sunday Star Times on 17 June 2012.

POSTED BY Andrew Wallace
17 June 2012

posted in Company LawNZX

VIEWED 3041 TIMES

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