Issuers may have to disclose the gender composition of their Boards and senior management teams under a change NZX is proposing to its Main Board Listing Rules.

Submissions close on 30 May 2012.

Diversity to be disclosed in annual reports

The proposal would require an issuer to include in its annual report:

  • a breakdown of the gender composition of each of the board, the senior management team and any subsidiary board, and
  • a statement from the board evaluating the issuer’s performance with respect to its diversity policy.  

Issuers may choose to also disclose any general or wider diversity policies or practices they have in place.  This might include such matters as the age composition of boards and senior management teams – another ‘hot’ diversity topic (see here).

Diversity information is a key value indicator

NZX justifies the move on the basis that the evidence shows a correlation between gender diversity and improved performance at higher management levels.

According to the Human Rights Commission’s 2010 ‘Women’s Participation’ Census, among the NZSX 100 companies, women hold only 9.3% of board directorships and 21% of management positions reporting directly to the CEO.

Chapman Tripp comments

Diversity at higher management levels is a good thing.  But it is revealing that the NZX has chosen diversity disclosure over other performance enhancing measures, like EVA (economic value added). 

The proposal sends the message that the leading way of improving issuer performance is by increasing gender diversity.  Which is controversial – and arguably a decision better left to a regulator than a market operator.  (Chalkie expresses similar views).

The focus on subsidiary boards is a little odd – the current NZX proposal does not contain any materiality threshold, and in practice subsidiary boards are often served by senior management, which NZX also propose issuers report on.

The Australian Securities Exchange (ASX) also recommends issuers annually disclose measurable objectives for assessing gender diversity, and a description on progress against those objectives.  NZX’s draft has preferred a quantitative focus over more qualitative assessments.

Within 18 months of ASX’s rule changes, there was a 50% increase in the number of women directors.  This dramatic rise may be explained in part by the federal government’s threat to impose quotas unless gender diversity on Australian boards improved. 

Helpfully, ASX released guidance notes on how to comply with its diversity guidelines.  The NZX should consider doing the same here.

Mandatory gender quotas are being signalled for the EU.  But we think the risk of unsuitable candidates being appointed to boards to fill quota obligations outweighs any benefit in guaranteeing a certain proportion of women on Boards and senior management teams.