Board Diversity and Productivity in the Asian Century

The much anticipated Australia in the Asian Century white paper lays out a host of lofty goals to lift Australia’s prosperity, with two areas of importance for business being Board diversity and wages growth.

Board Diversity: Asian skills gain importance

One white paper recommendation was new diversity goalposts for Australian Boards. The paper states that 30% of Board members for the ASX 200 should have “deep experience in and knowledge of Asia” by 2025. The Public Service will follow suit, aiming for the same goal for its senior leadership.

The white paper laid out steps to achieve this goal including:

  • Encouraging the Australian Institute of Company Directors to integrate Asian cultural competency training into its company directors course;
  • Encouraging business to report on progress with Asian Board diversity and the ASX Corporate Governance Council to incorporate this kind of reporting into its business practices and processes;
  • Encouraging the Australian Council of Trade Unions and the broader union movement to develop greater regional expertise and build partnerships in the region; and
  • Developing a strategy to strengthen the Australian Public Service’s capabilities for integrated policy analysis, problem solving and implementation across domestic and international matters and strengthening relationships through senior official exchanges.

There was scepticism about the whitepaper’s 30% target for Asia capable Directors. The Chairs of Wesfarmers, Boral, QBE and AMP all believed quotas were not the answer and risked compromising on other skills. Other concerns included that it would create a group of directors who were “responsible” for Asia, while other Directors remained in the dark, leaving decisions to a group of Directors who might not have the rounded skills to make informed decisions. Minter Ellison questioned whether the Asian skills would not be better deployed in the management team rather than the Board: Korn Ferry said that its databases listed 3000 Australian executives who had either lived in Asia or spoke an Asian language.

The AICD said it would “look at” the government’s recommendation to include an Asian-focused element in its company directors course, but questioned the one-third target.

The paper has laid the foundation for the necessary Asia expertise to future-proof Board targets, stating that its Asian push would start in the classroom. There will be a greater focus being laid on learning “priority” Asian languages — Mandarin, Hindi, Indonesian and Japanese — from an early age. Kevin Rudd said businesses should set a job quota for graduates who are fluent in Asian languages.

Shortly after the whitepaper was released, the government announced a new AsiaBound Grants Program that would provide $2000 to $5000 to Australian students undertaking study exchanges, $1000 for preparatory Asian language study and an expansion of eligibility for student loans.

Productivity in the Asian Century

Another goal of the white paper was raising the average income to make Australians the tenth most well paid in the world. However, these wage rises must be funded through improvements in productivity, which has slumped after record growth in the 1990s.

To achieve the income goal, Australia’s productivity must return to those record levels. The white paper advocates continued investment to achieve goals in the “five pillars of productivity”: skills and education, innovation, infrastructure, tax reform and regulatory reform. Objectives include:

  • The Australian school system should be among the top five in the world, and its universities in line with the world’s best. In terms of skills, work participation of groups underrepresented in the workforce should increase and a “workforce culture in which employees, employers and unions collaborate for continuous improvement and productivity growth” will be created through the Fair Work Act 2009.
  • Australia should have an innovation system counted within the top 10 of the world, supporting a creative problem solving culture and attracting top researchers, companies and global partnerships. This is to be achieved through creating an industry and innovation policy agenda, a framework for investment in Australia’s scientific capabilities, encouragement for entrepreneurs and business collaboration.
  • Long-term infrastructure strategies should result in prioritised and efficient investment to improve productivity and reduce congestion costs. The completion of the National Broadband Network will support the spread of ideas and commerce in the Asian region.
  • The tax system should be efficient and fair, encouraging investment and participation in the workforce. The tax-free threshold should be raised to $21,000 and inefficient taxes phased out.
  • Australia should become one of the top five efficiently regulated places in the world, pushing ahead with reform to reduce costs for business and improve competition and productivity, including states and territories. Reporting burdens on business will be eased, with expanded online reporting.

While the Australian Chamber of Commerce and Industry (ACCI), the Australian Industry Group (AIG) and the Business Council of Australia acknowledged that the white paper set out worthy goals and a broad roadmap to achieve them, they believed it would be a long path to implement detailed plans. ACCI and AIG also questioned the lack of focus on improving workplace relations to help Australia become more competitive, which they believed was critical to the realisation of productivity gains from other sources including education and training and innovation.

Re-examining workplace regulation was one of the points addressed when Productivity Commission Chairman Gary Banks released a productivity “to do” list on 1 November of unimplemented recommendations from past Productivity Commission reports he believed were still relevant and could play a role in increasing productivity. Other suggestions included abolishing tariffs and limiting provisions for anti-dumping action, terminating selective industry subsidies that can’t deliver demonstrable net social benefits, phasing out public sector procurement preferences, allowing pay for performance and differentiated pay in education, and conducting cost benefit analyses for infrastructure investments.

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