Out-Law Analysis | 29 Jul 2020 | 10:43 am | 5 min. read
The imperative for board action comes from the fact that it is not only the right thing to do at a broad societal level, and the potential benefits it can deliver to the organisation, but the underlying regulatory and legislative compliance regimes that continue to be strengthened in recognition of the importance of the equal treatment of everyone in the workforce, regardless of their different backgrounds, beliefs and traits.
In Australia, listed companies have corporate governance responsibilities designed to promote diversity and inclusion, and the legislative regime applicable to all employers provides for civil penalties and even personal liability of directors in cases of discrimination.
Although the words 'diversity' and 'inclusion' tend to be conflated into the single term 'D&I', they are different concepts and the distinction between them is important. Diversity is both the visible and invisible differences that make each of us wonderfully unique. By contrast, inclusion is about creating an environment where these differences are valued, not just accepted but positively embraced to create a culture where people feel connected, respected and heard.
Head of APAC, Brook Graham
Diversity is about the differences between all of us; inclusion is behavioural and a choice that each of us can make.
So diversity is about the differences between all of us; inclusion is behavioural and a choice that each of us can make. For business leaders, it is important to reflect on why this choice is important to them, and how they can articulate this to inspire others, both from a commercial perspective where diversity and inclusion should be viewed as a business opportunity, and from a personal perspective as a leader.
In the context of directors' duties, diversity and inclusion are becoming increasingly significant for corporate governance. Diversity and inclusion are also relevant to the understanding of risk of liability in the context of compliance with workplace legislation, both for the corporate entity and for the director personally.
Diversity is relevant to any situation of workplace discrimination. Taking adverse action against someone or treating them less favourably because of a protected characteristic such as race, gender, religion or disability is prohibited by the Fair Work Act 2009 in Australia and by federal and state equal opportunities legislation. Unlawful acts can result in the imposition of civil penalties as well as liability to pay compensation to the claimant.
Directors should be aware of the risks not only for the corporate entity, but also for personal liability. Under the Fair Work Act, directors can be held personally liable for the payment of penalties and compensation in respect of breaches of the Act. In addition, personal liability can be imposed to the extent that the director has been 'involved' in discriminatory adverse action, either through actual knowledge or some element of complicity.
There is also the possibility in the future that positive duties will be imposed on corporate entities and their management to stop harassment occurring in the workplace. In its report into sexual harassment in Australian workplaces, the Australian Human Rights Commission recommended that an employer's responsibilities should go beyond investigating and responding to complaints, to ensuring that measures are taken to prevent sexual harassment, with a focus on the cultural and systematic drivers of sexual harassment, and preventative action through leadership, risk assessment, transparency, culture and training.
At present, under the federal Sex Discrimination Act 1984, it remains possible that a director could have personal liability for sexual harassment which occurs in the workplace if the director "causes, instructs, induces, aids or permits" another person to commit sexual harassment.
Corporate governance obligations applicable to companies listed on the Australian Securities Exchange (ASX) also reflect the importance of diversity and inclusion.
The first principle of the fourth edition of the ASX Corporate Governance Principles and Recommendations, which applies to listed entities from financial years commencing on or after 1 January 2020, requires the entity to "lay solid foundations for management and oversight". This includes the recommendation that the board sets "measurable objectives for achieving gender diversity in the composition of the board, senior executives and workforce generally". For S&P/ASX 300 entities, this objective should be not less than 30% of directors of each gender.
Over and above these recommendations for gender diversity, the fourth edition signals a shift towards recognising the responsibilities at a board level with respect to the culture of an organisation. Principle three requires a listed entity to "instil and continually reinforce a culture across the organisation of acting lawfully, ethically and responsibly". At the heart of this is the recommendation that the entity articulates and discloses its values. These values should be approved by the board, and senior executives should be expected to embed them by constant reinforcement in their interactions with staff
Diversity and inclusion are becoming increasingly significant for corporate governance. They are also relevant to the understanding of risk of liability in the context of compliance with workplace legislation.
This development in the ASX Corporate Governance Principles and Recommendations is consistent with the findings from the Banking Royal Commission. One of the five key recommended levers identified in the Australian Prudential Regulation Authority's 110-page report on the Commonwealth Bank of Australia's conduct was cultural change that moves the dial from reactive and complacent to empowered and challenging.
Cultural change requires more than an articulation of the values. Publishing a set of values on the intranet page does not change behaviour. Further concrete action is needed.
Diversity and inclusion needs to be mainstreamed as a business priority in the same way that we consider safety, for example, and seen as an asset not an HR agenda. Assess the data, develop a strategy with a plan and set measurable targets around both inputs and outputs, which are regularly reviewed and discussed. A governance structure should also be established outlining accountabilities and responsibilities throughout the organisation.
We have lots of conversations with leaders on how to 'do' diversity and inclusion, and again there is an important distinction here. Investing in building leadership capability will pay dividend; in the skills of understanding how unconscious bias can adversely impact in the workplace, and in developing skills and practices that actively include everyone's contributions and foster diversity of thought
Action is also needed at individual level. Employees should be encouraged to get active in their own learning: there is a wealth of resources already out there, and it is an area that is constantly evolving. Employers should also encourage staff to be open minded and share their learning: reflecting on our own biases can be tough, but acknowledging this and seeking out people who have different perspectives and who come from different backgrounds will help
As long as diversity and inclusion is considered to be a stand-alone function, well-intended programs and celebrations will be developed which do not affect cultural change.
Businesses must go beyond merely articulating values and bring them to life:
Co-written by Justine Cooper, Head of APAC at Brook Graham, the diversity and inclusion consultancy owned by Pinsent Masons. Brook Graham has a 'maturity' model to help organisations self-assess, and also shape where to focus efforts on building sustainably diverse and inclusive cultures.
26 Nov 2019