Scope
The Diversity Of The Board Plays a Key Role in the Decision Making of a Good Corporate to What Measure Does this Good Governance Enforce?
The board of directors are very important in making good corporate structure. They play a key role in making decision of the organisation. The board of directors are liable for taking main decisions such as decisions of merger and acquisitions, economic decisions, financial decision and decisions of capital structure. The directors may be different from each other in respect of family background, knowledge, gender, age, work experience, social status.
As per the ASX principles, the corporate governance refers to the structure of the relationships, rules, procedures and the systems in which the authority is exercised, directed and controlled in the corporations. The ASX principle 3 states that a listed entity is required to act ethically and with the responsibility. As per the ASX principle 5, a listed company should make balanced disclosure on the time. The ASX principle 6 describes that listed entities should respect the security holder’s rights and provide them information (Tricker & Tricker, 2012). In this essay how the board diversity is important in framing good corporate governance is discussed.
The scope of corporate board diversity is the base of future and growth of the organisation contains all the areas of the operating business. The corporate board diversity covers entire life journey of the employees of the organisation. It contains all the details of the organisation including all the business process and services to the current customers and the potential customers. So scope of board diversity is like something blank paper on which approaches, norms, pre-determined goals, strategies, business plans, process and terms and conditions are written (Bottomley, Hall, Spender & Nosworthy, 2017). It contains the some specific areas. It includes the management of different culture, international organisational growth, the cross culture statements, the approaches, theoretical issues, professional ethics and professional standards in the foreign trade.
Basically, the diversity is all about the similarities and dissimilarities between the members of any entity in term of culture, physical abilities and race. It is a condition of having different elements mainly in respect of different types of people. The theory of diversity comprises respect and the acceptance. It means it is about the understanding that every individual is exclusive. It identifies the individual differences. The Diversity refers to the dimension which differentiates the individual or group from another individual or group in respect of age, gender, status, culture and nationality. The diversity means more than recognising and accepting the differences. It is a set of practices that include understanding interdependence of civilization, cultures and the atmosphere. The diversity foretells the principals, selections, options, responses, ethics and morals of the individuals (Plessis, Hargovan & Bagaric, 2018).
What is diversity?
It includes the factors of a human being. The factors of diversity are age of the members, gender, identification of gender of human, status maintained by the members in the society, financial status of the members, nationality of the different members, the citizenship of the members, the different religions followed by the different members of the entity and the ability of members of entity.
There are various potential benefits of the board diversity. People of different background and different life style have different problems. Different members of the entity create creativity by the different sources. As it is difficult to find appropriate and capable directors because capable candidates are limited and the management wants to hire male candidates only. The corporate board diversity reduces the problem of the director’s shortage in the company. The directors should enlarge the pool of capable candidates by the more capabilities (Hussain, Rigoni & Orji, 2018).
By having the directors of different specifications, the firm gets the chances to access the different sources. For the examples, the directors from the legal stream help in advising and dealing legal cases. The directors from the finance stream help in approaching the specific investors. The main benefit of the board diversity is to solve the problem in the effective way because different directors give the different ideas and the solutions from the different sources. The board diversity helps in improving the employer-employee relations. It creates the healthy relationship between employers and employees. The board diversity also helps in improving the identity in public by following the expectations of the society.
Decision making is the most important part of the management of the company. The decisions play a key role to determine the structural and administrative decisions. The effective decision making is primary function of the management of the company. The decision refers to the course of action and selection of the beliefs chosen among the many alternative possibilities. The process of decision making results in the final choice which may be prompt action (McCahery, Sautner & Starks, 2016).
The decision making in the corporate governance has great effects on the social system and the economic system. The right decision helps in making the good corporate governance in the company. This helps in balancing the interest of the stakeholders of the company (Rao & Tilt, 2016). Lack of the diversity signifies less effective decision making. The diversity means effective hiring with the proper utilisation of money and the time. Thus the more effective decision making helps in accepting the changes faster. The organisation can take more business benefits from the diversity by hiring the different personnel in the corporation decisions at the entire level of the corporation (Handley, Ross & Wright, 2018).
Benefits of the board diversity
The diverse board is the symbol of the complete culture. The more diverse talent pool helps in the decisions related to hiring the personnel. The directors come in the company from different family background, industry knowledge, gender, age, work experience, social status. This diversity of board includes many business benefits. The different directors help in exploring new ideas and solving problems in different and innovative way (Shailor, 2018).
The independence of the board is associated with the board diversity. The importance of the board diversity is that diversity increases independence of the directors. The board independence means majority of the board directors from the outside of organisation. In present days, the company finds capable candidates for the position of the board directors who take new challenges and carry new perceptions to board of company.
The diversity helps in solving problems, in complex approaches to assessing risk factors. The board director structure helps in financial growth and the strategic planning (Bainbridge & Henderson, 2018).
It is well known that more diverse board is better for the business. As the status of the men and women is quite different in the society and the problem arise when they work together in a group in the same organisation. The Company in which women directors are appointed performs better in the comparison of the company without women directors. Thus the women help in the financial performance of the company (Francis, 2018).
The economic foundation for the board diversity points that the composition of the board marks the way by which the board of company carries the duties, responsibilities and the obligations. The strong composition of the board increases the productivity and the efficiency of the actions of board directors of the company. It also increases the financial performance of the company and value of the shareholders of the company. There are three relevant theories or approaches which create link between the financial performances of the company and the diverse board (Corkery & Taylor, 2018). These theories include the resources dependence theory, human capital theory and social psychological theory.
The number of female directors in the companies of the Australia has been increased to support the gender diversity in the organisation of the company (Aras & Aluchna, 2018). The Australian Institute of Company’s Directors gives the gender diversity report on the quarterly basis. According to this report it is found that in 2018, the ratio of females in the company is 52% of hiring to the ASX 200 boards. In 2017, it was 36% of hiring to the ASX 200 boards. In 2016, the females were 44% of hiring to the ASX 200 boards. The female’s ratio was 34% of hiring to the ASX 200 boards in 2015. It was 30% of hiring to the ASX 200 boards in 2014. In 2013, the females were 22% of hiring to the ASX 200 boards. In 2012, 22% of hiring to the ASX 200 boards were females. The ratio of female was 28% of hiring to the ASX 200 boards in 2011. It was 25% of hiring to the ASX 200 boards in 2010 and 5% of hiring to the ASX 200 boards in 2009. In 2008, the ratio was 8% of hiring to the ASX 200 boards.
More effective decision making
The Australian Institute of company’s Directors (ACID) refers to the non-profit membership organisation for the company’s directors. The Australian Institute of Company’s Directors has seven state divisions and a foreign business unit. It has four national directors, seven divisional representatives, managing director and chief executive officer.
The members of The Australian Institute of Company’s Directors (ACID) are required to make the professional network, the professional development and the events (Clarke, 2017). There are six types of membership such as Member Australian Institute of Company’s Directors (MACID), Affiliate Australian Institute of Company’s Directors (AACID), Graduate Member Australian Institute of Company’s Directors (GACID), International Australian Institute of Company’s Directors, Life fellow Australian Institute of Company’s Directors (FACID (Life)) and Fellow Australian Institute of Company’s Directors (FACID).
BCG finds twenty Australian biggest companies that are investing to have gender diversity on the basis of research. Notably, the top 200 Australian listed companies are giving the best example with giving report that they all have gender diversity policies in the workplace. On the other hand, small scale organisations do not have gender diversity policies in the workplace which indicate the size and the stage of the development (ASIC, 2017).
Conclusion
As per the above analysis, it is clear that the diverse board creates more production and generates more revenue in the comparison of non-diverse board because directors from different culture and state give better performance. The main benefit of the diversity is that working with others who belong from different backgrounds, status, work-criteria leads creative and effective point of view. The diverse board helps in making best decisions and in generating more effective ideas to expand business.
References
Aras, G., & Aluchna, M. (2018). Women on corporate board: An international perspective. Melbourne: Pearson Education Australia Pty Ltd.
ASIC. (2017). Corporate Governance. Retrieved from; https://asic.gov.au/regulatory-resources/corporate-governance.
Bainbridge, S. M., & Henderson, M. T. (2018). Outsourcing the board: how board service providers can improve corporate governance. Cambridge: The Cambridge University press.
Bottomley, S., Hall, K., Spender, P., & Nosworthy, B. (2017). Contemporary Australian corporate law. Cambridge: The Cambridge University press.
Clarke, T. (2017). International corporate governance: A comparative Approach. Australia. The Australia press.
Corkery, J. F., & Taylor, M. E. (2018). Gender balance in Australian boardrooms. Sydney: Bloomsbury Publishing.
Farrar, J. H. (2017). Corporate governance in Australia. Oxford: Oxford university press.
Francis, R. D. (2018). Ethics and corporate governance. Sydney: University of New South Wales.
Handley, K., Ross, A., & Wright, S. (2018). The same or different: how women have included in corporate leadership in Australia. Australia: The Australia University press.
Hussain, N., Rigoni, U., & Orji, R. P. (2018). Corporate governance and sustainability performance: analysis of triple bottom line performance, Journal of business ethics, 149(2), 411-432.
McCahery, J.A., Sautner, Z., & Starks, L. T. (2016). Behind the scenes: The corporate government preferences of institutional investors. The journal of finance, 71(6), 2905-2932.
Plessis, J. J., Hargovan, A., & Bagaric, M. (2018). Principles of contemporary corporate governance. Cambridge: The Cambridge University press.
Rao, K., & Tilt, C. (2016). Board composition and corporate social responsibility: the role of diversity, gender, strategy and decision making. Journal of business ethics, 138(2), 327-347.
Shailor, G. (2018). Introduction to Corporate Governance in Australia. Melbourne: Pearson Education Australia Pty Ltd.
Tricker, Bob., & Tricker, R. L. (2012). Corporate governance: principles, policies and practices. Oxford: Oxford university press.
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