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The business case for diversity and inclusion at the top of our corporations has been soundly made, and many leaders have issued rallying cries to do better. The voices of investors have joined the chorus for change – including our industry superannuation funds. They have sent a clear message to corporate Australia that investment decisions will be influenced by performance on diversity, inclusion and broader environmental, social and corporate governance (ESG) issues.

MinterEllison’s Amanda Watt, Partner and Board Director, discusses the risks inherent in a lack of diversity and inclusion in our workplaces with CEO of the HESTA superannuation fund, Debby Blakey.

Diversity and inclusion as an ESG driver of shareholder value

ESG is a key performance measure for listed companies and within that framework, there are diversity and inclusion goalposts. Australia’s industry superannuation funds have been active in calling for companies to improve diversity and inclusion, particularly in the executive and board ranks which remain predominantly male, middle-aged and of Anglo-Saxon descent.

“Improving diversity and inclusion and improving financial performance are not mutually exclusive aims.”

Debby Blakey noted that as a superannuation fund, HESTA’s purpose and focus is on maximising returns for members: “It's very important to give that context to all of the work we do in terms of environmental and social factors. And as an investor, given that focus on the way that we invest, we do work constructively with boards and with management to protect and to enhance the long-term sustainable value of the companies we invest in.”

Because people have invested in superannuation for 20, 30, 40 years, superannuation funds’ investment strategy is long term, influencing the lens through which they view ESG. “Environmental social governance issues can play out very significantly over the long term, and I think that's why it gives us such a deep interest as an investor. The issues are very broad, and they evolve to some extent in terms of society's expectations with respect to social license to operate and to be really frank, there is an enormous body of evidence that these issues matter in terms of company performance,” said Blakey.

A lack of diversity and inclusion carries financial risk

There are several studies that cite that profitability, performance and productivity improve with diverse leadership. Blakey cited the report, Gender Equity Insights 2020: Delivering on Business Outcomes which found that an increase in the share of female ‘top-tier’ managers by 10 percentage points or more led to a 6.6 per cent increase in the market value of Australian ASX-listed companies, worth the equivalent of AUD$104.7 million.

“There are so many dimensions to the impact of a lack of diversity in leadership that expose a company to financial risk.”

There are so many dimensions to the impact of a lack of diversity in leadership that expose a company to financial risk. This goes to the core of culture and a lack of employee engagement, the inability to attract and retain amazing talent - in particular, the talent of the future – and, it also goes more broadly to societal expectations.” Blakey explained.

During Watt’s career as a workplace lawyer, she has observed how power imbalance at the top of an organisation contributes to how sexual harassment occurs: “It's how it's viewed and how it's managed. And I believe that if there was greater diversity at the top of our organisations, the extent of sexual harassment and our response to it would be different”.

Watt has also observed a shift in how workplace issues are acknowledged by big business: "There is momentum towards greater transparency in corporate Australia in how they lead workplaces. They are calling out problems and becoming more accountable."

Blakey agrees, and notes: “As an investor we rely so significantly on the disclosure of companies.

[graphic: "Profitability, performance and productivity increase under diverse leadership.]"

From barriers to opportunities

Debby Blakey believes the barriers to diversity are more mythical than actual, starting with a limited and restricted definition of leadership: “The thinking around the skills and attributes of good leaders is so limited and this really limits the pool of talent, the progress, and success of the company."

“The other myth, which has been shattered by working from home during COVID-19, is a general view that if you're in very senior leadership in organisations, you need to be in the office behind a desk 24/7. Some of the biggest, most successful global companies have been led by people working in their dining rooms. In this post-COVID world we are going to talk about the real barriers rather than these very mythical barriers,” she said.

Watt notes that leadership also involves creating safe workplaces: “We need inclusive leaders who can create psychological safety.”

Blakey believes this starts with self-awareness; “being aware of where we are supporting and contributing to an inclusive culture, but also -very importantly- where we are not.

Breaking through the barriers involves a change in those with a rigid mindset around capabilities, leadership, experience, how we work, and what we reward.

I think that a limited mindset is the biggest barrier and what's needed is a very expansive growth mindset about the future of the organisation and about the leadership we need for that future. We have an opportunity over the next decade to make the 2020s life-changing in terms of how we embrace diversity and inclusion and how we actually become one of the global leaders,” said Blakey.

This is Season 2, Episode 4 of our podcast series, Transforming Business with MinterEllison: ideas and challenges that are shaping our future.