Boards of directors overwhelmingly self-selected and dominated by men

Men hold more than 80 per cent of all directorships, with only slight increases in the number of female directors in the last eight years, according to a recent study.

Risk management, corporate governance and financial research group Riskmetrics undertook a review of the board composition of the top 20 S&P/ASX companies as at December 31, 2000, and December 31, 2008, for the Conference of Major Superannuation Funds (CMSF), with 13 entities common to both time periods.

Riskmetric's co-head of Asia-Pacific Research, Martin Lawrence, presented the findings in a session on corporate governance at CMSF, which is being held on the Gold Coast.

The review reported little change in the size and executive/non-executive split of the top 20 listed entities in the period between 2000 and 2008.

Lawrence noted an increase in "professionalisation" of non-executive directors since 2000, with 88 per cent of non-executive directors not having a 'day job' in 2008.

In a summary of the review, Riskmetrics said boards are "dominated by former executives, with almost 20 per cent of all no-executive directorships now held by former banking, funds management and insurance executives".

"Boards in 2000 and 2008 were overwhelmingly male, although the average number of women on sample boards increased slightly between 2000 and 2008," the review said.

Riskmetric's study also considered the board selection process, with Lawrence pointing to figures which demonstrate that in Australia, boards are overwhelmingly self-selected.

The report also commented on the lack of transparency in the selection process for shareholders, noting however that "some companies disclose information on how board candidates are selected, including the use of external search firms".

"The results of that process are however transparent to shareholders in terms of the directors who are endorsed by the board," the review stated, adding that the board's endorsement "has historically almost guaranteed election".

Riskmetrics said the study supplements previous research undertaken by the Australian Council of Super Investors (ACSI) on board composition. Among ACSI's findings was a trend since 2005 of boards appointing "from within a pre-existing pool of directors".

Riskmetrics said the purpose of the study was to "provide investors with more information about the skills and backgrounds of individuals responsible for overseeing listed entities".

"To date in Australia, boards have effectively been self-selected with shareholders ratifying the board's choices," the review said.

"It is an open question whether or not this is an effective use of the voting rights held by shareholders in Australia."

While acknowledging the relevance of a board's evaluation, Riskmetrics said shareholders should not be considered incapable of evaluating "the effectiveness of boards and individual directors".

"If shareholders do not use their right to remove underperforming boards, little will fundamentally change in terms of how boards function," the review said.