Low director fees limit board diversity

Australian director fees are too low. This is contributing to the absence of board diversity.


At the very least, this is a view that will be put to the attendees by at least one highly regarded director at the Perth Forum (see HERE) on Monday 9 March.


And the argument is a good one:

1.    Older, white, male Australians currently dominate ASX 300 boards.

2.    There are few who fit the 40 to 50 years of age, female, non-white, non-Australian categories.

3.    The pool that boards fish in for new directors is too shallow, primarily because it is confined to those for whom the money does not matter, because they have accumulated their wealth in their business lives before becoming a NED.


But the money does matter. Experienced business people who are younger, working full time, technologically savvy, and knowledgeable of Asian markets and languages are in the process of accumulating their wealth. They have a decade more of making serious money. Work may be 24/7, but on an hourly rate basis in either corporations or their advisory firms they make twice as much as a NED.


This was not always the case. NED fees as a ratio of CEO fixed remuneration have declined over the past decade. Which makes it difficult for a high-earning, full-time executive or law, accounting or management consulting partner take a pay cut to be a full time professional director.


The result is to limit the pool of NED candidates to semi-retired former executives and professionals who made their money in the days when there were few women or minorities among their ranks.


The pool can only be made deeper and wider by expanding the pipe that feeds it.


To their credit, this has been recognised by at least two of the proxy firms. Both CGI Glass Lewis and ACSI/Ownership Matters now tolerate full-time executives taking on a NED role at the same time. This helps expand the pipe, as executives try out directorships in considering their own transition to retirement plans. And their up to date operational experience, market knowledge and technological aptitude is sorely needed.


But the proxy advisers can do more. They should be asking boards what they are doing to expand the candidate pipe by offering more competitive NED remuneration. In this regard, the proposed new equity taxation laws (see HERE) present an opportunity. That is, Australian boards will be able to provide equity to directors in a way that does not compromise governance. While fees can be sacrificed for equity, it would be better for new equity grants to be added to existing cash fees. However, this needs the support of institutional investors and their proxy advisers.


Listen to articulate panelists put their case at the Perth Forum next Monday 9 March, and wait for the proxy advisers attending to respond. We will be all ears.

© Guerdon Associates 2024
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