Some companies and their directors have been puzzled as to why some of their directors with stellar records have received less than fulsome support in this year’s AGM elections.

We have an answer and a solution. But a warning that you may not like the solution.

ISS’ 2024 SRI Proxy Voting Guidelines Policy on Director elections states that, for Australia, it will recommend investors “vote against or withhold from incumbent members of the nominating committee if:

• The board is not comprised of at least 40% underrepresented gender identities (who identify as women or non-binary); or
• The board is not comprised of at least 20% racially or ethnically diverse directors.”

See HERE.

In other words, if an ASX listed company has not specifically identified the gender and racial/ethnic make-up of the board expect nomination committee members to receive higher no votes at an AGM election.

Most ASX listed companies pass the gender disclosure test. Few pass the ethnicity or race disclosure test.

So, it begs the question, why are Australian listed entities not disclosing more details about their Board’s diversity, other than gender? There is a good reason why these details are not disclosed.

Can you recall your company’s privacy policy and training? Not only does it apply to customers, but also employee and director details.

The Australian Privacy Act 1988 provides that sensitive information is personal information and has a higher level of privacy protection than other personal information. This includes information about an individual’s:

• Racial or ethnic origin;
• Political opinions or associations;
• Religious or philosophical beliefs;
• Trade union membership or associations;
• Sexual orientation or practices; and
• Health or genetic information, among others.

Employers can only request this information on a ‘voluntary consent’ basis under privacy principles B.46 and B.47 (See HERE).

The data collected by the WGEA under the Workplace Gender Equality Act 2012 specifically relates to only women and men (excludes gender non-binary data). There are no legislative requirements, listing rules or other regulation in Australia to capture and disclose personal data that extends to age, ethnic origin and gender non-binary data. This can only be collected on a voluntary basis.

Our research indicates that most Australian listed companies have not provided any additional diversity indicators at board level. Any such details, if disclosed, are generally disclosed at the whole of workforce level.

What approach can boards take if caught in ISS’ headlights?

The latest draft of the 5^th edition of the ASX Corporate Governance Principles sidesteps the dilemma proposing, rather than specify types of diversity, that a listed entity disclose diversity characteristics (other than gender) that the board is considering in its membership. In doing so, it would reference the Governance Institute of Australia’s 2024 Board Diversity Index. This Index measures diversity across the ASX 300 in five key areas: gender, cultural background, age, skills/experience, tenure and independence.

To meet ISS’ requirements, directors would need to consent to the collection and disclosure of agreed sensitive information (racial or ethnic origin, sexual orientation, age) outside that listed in their biography on a uniform all in-basis. The provision of de-identified sensitive information would be near impossible given the average size of ASX 300 boards.

And while ISS’ 2024 guidelines state it “‘will evaluate gender diversity on boards in international markets when reviewing director elections, to the extent that disclosures and market practices permit”, clearly something has been lost in translation from the US HQ to our shores.

The message is, before ceding to ISS’ disclosure requirements, ensure that the directors have voluntarily consented. Privacy Principle B.46 specifies that consent is not voluntary where there is duress, coercion or pressure that could overpower the person’s will. Is the threat of ISS recommending against a nomination committee member’s election exerting duress, coercion, or pressure to enforce disclosure? Some entire boards may not think so, with all directors happy to disclose their race or ethnicity so that the company can comply. Others may want to re-think the degree that they want the nomination committee member to have the 98% to 99% support received in the past.

© Guerdon Associates 2024 Back to all articles