Corporate Governance and Statecraft: The Gender Nexus of Policy
Companies are like nation states - self-governed organisms regulated by a larger ecosystem of law. When these organisms innovate and institute gender-conscious policies, they rewrite both their internal commitment to diversity and the wider standard of practice within their field. This “flow on” effect is made possible by the power of “soft” law in regulating international and corporate affairs. Whilst “hard” law defines precise legal obligations through instruments such as treaties or statutes, “soft” law can take the form of principles, and observed customs. One key difference between these types is that the latter is enforceable by the social concerns of legitimacy and peer pressure.
Foreign policy acts as a state’s instrument for codifying their international interests - defining the way they wish to be received, in image and action, by other states. Corporate policies function in a similar way.
John Chipman of the Harvard Business Review has made the case for companies instituting their own “corporate foreign policy.” He suggested that the most successful corporate policies will be two-fold: creating “effective corporate diplomacy,” and engaging in “careful geopolitical due diligence.” Whilst the 1990s saw corporate emphasis on Corporate Social Responsibility (CSR) and stakeholder engagement, the current globalised marketplace demands a certain foreign policy savviness.
For nation states, a foreign policy requires that a country define its interests, collect and analyze external intelligence, find regional and local allies, and cultivate an environment conducive to its success. A country must be mindful of the cultural conditions in which it operates, adapting its style of engagement as necessary while remaining true to its moral principles. Drawing on the proposed parallel between nation-states and companies, in what can be described as “privatizing” foreign policy, companies must internalize many of the elements traditionally employed in statecraft.
Governance of gender equality within private bodies is significantly bolstered by the efforts of their public counterparts. When state actors and corporate persons independently engage in the advancement of gender-conscious workplaces, their mutually reinforcing efforts begin to erode the barriers to equity. However, when there is an imbalance of action, the government can often place organisations under the necessary pressure to prove their accountability. This relational dynamic between public and private can also work in reverse - where the private sector makes popular gains in spite of a lagging legislative change. It follows that when it comes to gender, public and private consciousness are at once separate and dependent.
For instance, the Australian Governance Institute President, Trisha Mok, stated that “commitment to gender diversity is not in Australia’s corporate DNA.” Currently, only 29% of Australian and New Zealand companies have a clearly outlined strategy regarding the development of female directors. The lack of infrastructure to bolster and retain female leadership creates a flow on effect to gender diversity in the private sector. According to the theory of isomorphism, corporations facing similar external pressures will develop similar corporate governance practices. The quest for legitimacy often involves the adoption of policies that signals a commitment to normative values. This can lead to organisations resembling each other. Responding to similar external forces in a process reminiscent of “follow the leader,” DiMaggio and Powell coined this process as “mimetic isomorphism”.
These theories of corporate behaviour are relevant when thinking about foreign policy because, as Kate Stary has found, gender diversity is “just not happening without State intervention.”
Moreover, echoing Australian Foreign Minister Hon Julie Bishop in Australia's Gender Equality and Women’s Empowerment Strategy: “[p]romoting gender equality is smart economics, and the right thing to do - we cannot transform our world unless the place of women within it is transformed.” As a strategy that applies to the Department of Foreign Affairs and Trade, her statement reflects the intersections of foreign policy, gender equality, and economic performance.
Once a year, the World Economic Forum publishes the Global Gender Gap Report, which captures gender-based disparities and charts the progress in closing these gaps. National gender gaps are ranked by economic, educational, health-related and political criteria for effective comparison. On average, the 144 countries covered have closed 96% of the gap in health outcomes and more than 95% of the gap in education attainment. Economic participation and political empowerment remain serious chasms at 59% and 23% closure, respectively. The fact that the UK is ranked 20th, the US 45th and Australia ranked 46th on overall gender gaps means we would benefit from de-centering our policy focus from the Western example and learn from countries with better achievement records.
Corporate governance codes have become a popular method of regulating corporate behaviour - the “comply or explain” mechanism has been used to encourage adoption of practices. These codes have proliferated - from 24 countries in 1999 to 93 in 2015. These codes encourage disclosure regarding social issues such as corporate responsibility and gender diversity. The US, the UK and Australia all have a similar “comply or explain” soft policy with regards to board diversity regulations and implementation. However, Scandinavian counterparts offer something to be learned.
The number of women on Australian corporate boards increased from 8.4% of boards of companies on the Australian Stock Exchange (ASX) index in 2010 - when code recommendations were first introduced - to 22.7% in February 2016. The three main recommendations encouraging gender diversity were that: companies establish a policy concerning diversity and disclose the policy (policy recommendation); disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the policy (targets recommendation); and disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board (metrics recommendation).
According to Dr Alice Klettner, codes tend to fall into the category of soft regulation rather than hard law, comprising general principle rather than prescriptive rules. Analysing the corporate response to Australia’s code and its recommendations on gender diversity, Dr Klettner analyzed the data obtained in the 2011 annual reports of the 200 largest companies listed on the ASX. This data set represented the early response of these companies to the diversity recommendations. Performing content analysis to examine the change in corporate behaviour rather than just code compliance, Dr Klettner reaches some fascinating conclusions. Only 36% of companies had made an effort to describe in their annual reports why diversity can be valuable, beneficial and advantageous. She also uncovered a “particularly impressive” set of policies in Insurance Australia Group’s report which supported flexible working options including career breaks, working from home, compressed working weeks, job sharing and flexi-time. The insurance industry is one of the only Australian industries to be consistently in the top five industries for female representation at the board level. Dr Klettner’s findings are difficult to reconcile with the WGEA’s 2016 report that found the financial and insurance services industry to have the largest recorded pay gap, with women on average earning 35% less than their male counterparts. Dr Klettner also found that 30% of companies had created sub-committees or dedicated councils to accounting for diversity. This was not suggested in the code and represents the initiative of companies.
These regulations were put in place amidst debates that had seen European countries establish legislative quotas, whilst the Australian innovation was in favour of a voluntary approach implemented via the existing code of corporate governance. The code was bolstered by a parallel legislative reporting regime set up and monitored by the WGEA requiring companies with over 100 employees to report on various “gender equality indicators” including the gender composition of the workforce, gender pay equality and the availability and utility of flexible working conditions.
Norway was the first country to introduce gender quotas in boardrooms through the amended Public Limited Company Act (Norway) 1999. Boards of 9 or more members required a minimum 40% female representation, and companies that did not comply had their registration rejected or removed. Currently, Norway has 40.5% female representation on listed corporate boards.
Iceland currently requires companies with over 50 employees to enact a 40% quota. In France, larger companies were required 40% by 2017, resulting in the suspension of directors’ fees in the event of non-compliance. Over 80% of French boards now have three or more female directors. In support of mandatory quotas, the EU Justice Commissioner Viviane Reding proposed implementing a 40% threshold by 2020. Opposition from the UK and Germany diluted the quota into an objective - a form of soft law as opposed to hard law.
There has been a correlation established between female leadership and increased corporate governance functioning of a board: female directors have been found to be better able to test decisions and advocate differing viewpoints. Diverse boards have improved strategic decision-making power and risk management, and intra-board communication is enhanced. Importantly, the social phenomenon of groupthink, where consensus is unfairly reached on untested, poorly evidenced views, has been shown to be alleviated by female participation at the board level.
Whether it is a code or a legislated agenda, the infrastructure for supporting female leadership in the private sector has an interdependent relationship with public sector support of gender equity. Whilst the public/private dyad persists, it is clear that a conversation across the divide is imperative to the evolving body of knowledge that is feminist foreign policy. Assessing, celebrating and correlating national corporate policies with their public counterparts will lead to a richer, more robust definition of gender-conscious policy development.
Taylor Fox-Smith is a contributor at print publication Women in Pop and research analyst in Public and Corporate Affairs.