Pearls and Irritations

For generations, it has been the nation’s most exclusive club. Entry is strictly invitation only. And while acceptance is difficult, once you’re in, you’re in for the long haul.

Until recently, this was not an establishment for women. Over the decades, a few managed to breach the outer perimeter of this male bastion. But they rarely ever made it through to the inner sanctum.

Once a year, the various branches open themselves for a few hours to public scrutiny, each for a couple of hours over the course of a few weeks. Today marks this year’s official opening although, for obvious reasons, attendance mostly will be via video link.

Welcome to corporate Australia’s annual general meeting season, where you get to eyeball and perhaps even ask a question of those being paid a fortune to oversee your investment.

As company directors, they’ll be eager to spout opinions on the performance of the economy, the workforce and perhaps even the companies they oversee.

But what of their own performance? Do they earn the money shelled out by shareholders? Are they worth it? And how did they end up in such a privileged position?

Thanks to some timely research by superannuation fund advisers, Ownership Matters, we finally have some answers, some of which raise even more questions. It’s a study that examines the connections and performance of 5,400 directors who have served on our biggest 300 companies from 2005 until today.

And it makes fascinating reading.

Women on board

The boardroom has undergone dramatic changes in the past decade. And yet, in some ways, it has barely changed at all.

Fifteen years ago, women accounted for less than 10 per cent of directors on Australia’s top 300 companies. After a decade of agitation to redress that imbalance, this year sees women accounting for a little over one-third of board seats.

Intuitively, you’d think that sudden influx of new talent would revitalise boardrooms and shake up the establishment. Except that it hasn’t.

While the study — aptly entitled Many Are Called, Few Are Chosen — finds that over the past 15 years, companies with greater gender diversity perform slightly better, the turnover rate at the top of the tree is barely impacted by performance.

Directors of poorly performing companies tend to remain ensconced in the job for about the same amount of time as those in top-performing companies. So it doesn’t matter how you perform, how much wealth the company you oversee generates for investors, your job is relatively safe.

Not only that, the findings suggest one of the key longstanding criticisms of the cosy world of corporate Australia — that you’ve got to be in the know to get the nod, that it’s all about your connections — is now being applied to women.

The club of non-executive directors may have grown a little and there may be a few more females. But the rules really haven’t changed so much.

Jobs for the boys and girls

Like any exclusive club, there are levels of membership. And like all clubs, there are cliques where a small group of powerful individuals are surrounded by their supporters.

Those with just one board seat live and mingle in the outer reaches of the group. Even then, life’s not so bad. You make up the bulk of the club, 74 per cent of membership, but you get to pick up some pretty lucrative fees for just on six years.

If you can get to the next level, however, that’s when things start to get interesting. A director with two board seats — around 14 per cent of the membership — can hang on for an average of almost 10 years. And for every extra seat you get beyond two, your director career extends a further two years.

Then there’s the chairman. A chair extends your membership for at least four years. How good is that?

And let’s not forget the pay. The average fee for a director on a top 300 company is $146,000. Get into a top 200 outfit and you’re up for an average $180,000. Break into the big time with a top 100 board seat and you can expect to pull in $290,000.

Land a couple of seats and you’re starting to reel in some serious loot. But if you can snag a chairman’s role, the fees range from an average $220,00 at a top 300 company to well over half a million at a top 100 outfit.

All up, shareholders hand over more than $400 million a year in director fees.

So where do all these directors come from? How do you break in? Unfortunately, there’s a long queue. The Australian Institute of Company Directors has been raking in the cash running courses for director wannabes and has a huge waiting list.

But you need more than a piece of paper or a fancy qualification. What you need are connections. And the best connections come from within.

Since 2005, more than 38 per cent of all board seats have been filled by people from within the club. The trend peaked at 43 per cent in 2006, when men ruled the roost, and fell to 32 per cent in 2016 when the push was on to allow women in the door. But it’s now growing again, back to 36 per cent.

And here’s where it gets interesting. If you’re a chairman and you need a touch of gender balance in a hurry, you can rustle up someone pretty quickly from the existing pool, just like in the old days when it was all men.

During the past three years, 40 per cent of all female directors accepted an extra board seat. Only 17.5 per cent of men accepted an additional seat.

There still may be fewer women on boards but those that are there are more likely to have multiple directorships. Female directors average 1.45 seats. Men manage a measly 1.18.

The club rules, where the rules don’t apply

Compulsory superannuation has fundamentally altered Australia’s corporate landscape. These days, an industry super fund is more than likely a major shareholder in a top 300 company. In many cases, funds like Australian Super will hold more than 5 per cent, which legally makes them a “substantial shareholder”.

While the industry funds have begun to wield more power, particularly during recent banking scandals, they rarely push to have their own representatives on company boards and almost always vote in favour of whoever is selected by the chair, a strategy that ensconces the exclusive nature of the directors’ club.

Rarely is there any contest. In fact, the average vote for director appointments is about 96 per cent, the kind of result Robert Mugabe used to gloat about.

And once there, it takes an almighty scandal to crowbar you out. Ownership Matters principal, Dean Paatsch, and his team have compiled a performance measure of total shareholder returns of every director, a measure that riles many club members.

They object to the benchmarking of company performance to their own tenure as directors, arguing that outside factors are not taken into consideration. That may be true. But over the course of a decade or so, clear trends tend to emerge as to who has presided over wealth creation or destruction. And yet, those who don’t perform seem to sail on regardless.

It’s ironic, given the constant calls from the top end to eliminate penalty payments, link pay to performance with key performance indicators and the incessant argument for more flexibility (read less security) in the workplace.

Once you’re admitted to the club, those rules no longer apply.

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