Australian Financial Review
September 26, 2016

It’s difficult to argue with the push for more diversity in top management and board ranks. Our top corporate structures should better reflect Australia’s population mix. More talented women should be encouraged into corporate life. Yes, merit should be the overriding principle. But, as The Australian Financial Review featured on page one a month or so ago, management and boards should question whether ingrained notions of “the best person for the job” begs the question of what the job is supposed to do.

That said, there is also a risk that Australia’s listed companies are being consumed by endless compliance and governance constraints and, in the world of 24/7 social media, being pushed to become agents of social change. Publicly listed companies exist to to maximise sustainable returns to shareholders. With their limited liability status, they exist to create wealth and return it to their owners through higher share prices and/or dividend payouts.

This is the true social role of companies. Along the way they pay taxes, employ people and engage in philanthropic endeavours, but their primary role must be to make returns for security holders, including millions of ordinary Australian superannuation members. Of course, companies should reflect the society in which they live and should absolutely have equality of opportunity employment policies. But it is a valid question, raised by proxy firms that advise superannuation funds and investors, whether boards risk incentivising management to pursue worthy non-financial causes rather than to concentrate on taking the right calculated risks to generate higher shareholder returns.

Commonwealth Bank of Australia last year failed to reach its shareholder return hurdle – and the big Australian banks’ healthy returns generally are likely to be squeezed from now. But its top executives may be able to make some of that up because 25 per cent of their bonus payments will now be determined by their performance on “diversity, inclusion, sustainability and culture”.

This may be a response to the overblown bank culture issues which CBA does need to deal with. But the push for gender diversity, while worthy in itself, may not generate genuine diversity of boardroom thought if directors still come from a similar background, concluded a study from executive search firm Blenheim Partners and Macquarie University’s Graduate School of Management last year.

It may be, as CBA replies, that rewarding executives for greater diversity and more inclusion will end up boosting the bottom line. But so, hopefully, would other attributes, such as diligence, honesty and plain-speaking. Perhaps the bottom line should just speak for itself.


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