Regulating for Women on Corporate Boards: Polycentric Governance in Australia
| DOI | 10.22145/flr.39.2.3 |
| Author | Vijaya Nagarajan |
| Published date | 01 June 2011 |
| Date | 01 June 2011 |
| Subject Matter | Article |
POLYCENTRIC GOVERNANCE IN AUSTRALIA
Vijaya Nagarajan*
I
INTRODUCTION
With close to five million women in paid employment and constituting over 45 per
cent of the total workforce and 57 per cent of the Australian public service, holding 28
per cent of the seats in Senate and 25 per cent of the seats in the House of
Representatives,1 one could be forgiven for entertaining the thought that as a nation,
we are beginning to acknowledge the importance of gender equality. However we are
quickly reminded that this is far from the truth when it comes to corporate boards
which are important sites of decision making that affect us all. In Australia, although
women hold 27 per cent of senior positions in private companies, they only hold 10.9
per cent of the board positions in the top 200 listed companies on the Australian stock
exchange.2Addressing this issue has taken on utmost importance with many
governments threatening to introduce legislation to make it happen. Perhaps unlike
some of the enormous challenges of climate change and the Global Financial Crisis,
this area is one where nation states see that they can make a difference.
Tackling the gender gap on the boards of publicly listed companies provides us
with an accessible and fascinating site to reconsider the effectiveness of the variety of
regulatory tools and to reflect on the role of the various participants in the regulatory
game in Australia. Whereas a small number of governments have elected to rely on
hard laws to action this systemic shift, many other nations, including Australia, have
outsourced this task to non-state regulators who have relied on soft laws to do the job.
Often a hard law, once made, gives rise to the development of a range of soft laws that
support and enforce it. Sometimes soft laws can solidify into hard laws, for example by
being codified into legislation. At other times soft laws can become more like a hard
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*
BEc/LLB, LLM, PhD; Macquarie Law School, Macquarie University. I would like to thank
John Braithwaite, Cameron Holley, Ian Ramsay, Colin Scott, Archana Parashar, Chris
Robson and the anonymous referees for their comments.
1
Department of Foreign Affairs and Trade, Women —Towards Equality (January 2011)
2
Women on Boards, Boardroom Diversity Index 2011,
in Senior Management Falls to 2004 Levels (2011) Grant Thornton
256
Federal Law Review
Volume 39
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law, for example moving from a standard to become a listing rule.3 In any of these
cases, epistemic communities have developed and many participants have been
enrolled to undertake the continuous and laborious tasks of publishing, influencing,
training, facilitating, coordinating and assessing progress. The participants are
primarily non-state actors, consisting of both for-profit and not-for-profit
organisations, while most government bodies remain in the background.
This article focuses on the Australian Stock Exchange's proposals on diversity in the
Corporate Governance Principles and Recommendations which took effect on 1
January 2011. It argues that the manner in which Australia is regulating for more
women on corporate boards of publicly listed companies is an example of polycentric
governance. Polycentric is defined as many centers of decision making that are
formally independent of each other.4 Polycentric governance has three distinctive
dimensions which make it a perfect fit for analysing this space: 'organisational,
conceptual and strategic' dimensions.5 Firstly at the organisational level, this site is not
dominated by one specific body such as a government funded regulator. Rather than
the government taking control to implement and enforce quotas, it is multiple non-
state actors that are facilitating this, sometimes with the same objective in mind and
sometimes for other ends. Secondly at the functional level, this site is a lucid example
of hybrid regulatory strategies involving both hard law and soft law. These laws are
multi-faceted (using different strategies), involving multiple actors (both state and
non-state actors) and both direct and indirect. Thirdly at a conceptual level, it is an
example of a changing conception of regulation, where the notion of the state being at
the centre of regulation has given way to a polycentred notion of governance where a
range of actors are involved in different facets of the regulatory regime.
This article is divided into five main sections. The first section examines the
prominent reasons for increasing the number of women on corporate boards, all of
which are contested. This contestation makes a centralized regulatory response, such
as the imposition of legislative mandates, unlikely in Australia. The second section
considers the manner in which this gender deficit can be addressed and the tools
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3
For example in South Africa from March 2010, all companies listed on the Johannesburg
Stock Exchange were required to produce an integrated report on 'social, environmental
and economic performance alongside financial performance' information. This report is
expected to provide users with a more 'holistic' overview of a company see Sustainability
South Africa (Press Release, 4 June 2010)
4
See Vincent Ostrom, Charles Tiebout and Robert Warren, The Organization of Government
in Metropolitan Areas: A Theoretical Inquiry' (1961) 55 American Political Science Review 831.
See also: Elinor Ostrom, 'Beyond Markets and States: Polycentric Governance of Complex
Economic Systems' (2010) 100(3) American Economic Review 200.
5
These three dimensions have been used by Julia Black, see Julia Black, 'Legitimacy and the
Competition for Regulatory Share' (Working Paper No 14/2009, London School of
Economics, 2009) 3. It is acknowledged decentered governance can also apply here.
However as discussed by Black, decentering seeks to draw attention away from the state as
having a central role whereas polycentric governance draws attention to the multiple sites
in which regulation can occur (see discussion at 4). On decentred regulation see: Dimity
Kingsford Smith, 'Beyond the Rule of Law? Decentred Regulation in Online Investment'
(2004) 26 Law and Policy 439; Julia Black, 'Decentring Regulation: Understanding the Role of
Regulation and Self Regulation in a "Post-Regulatory" World' (2001) 54 Current Legal
Problems, 103.
2011
Regulating for Women on Corporate Boards
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available to do so, namely through hybrid regulation in the form of hard law and soft
law. In order to do so the national differences to soft law regulatory approaches in
comparable countries are examined. The third section closely examines the polycentric
nature of Australian regulation by scrutinizing the parties involved in regulation in
Australia and their communicative interactions. These parties are cooperating in trying
to change corporate behavior and create new interpretative communities. The fourth
section tackles the main criticism of the polycentric approach — that the stakeholders
of medium and smaller listed companies either do not, or cannot, have an influence on
the policies of these companies. It argues that there is an important role here for an
institution to act as a fulcrum point to nudge these companies towards compliance
making polycentric governance work. Although there could be a variety of institutions
that could undertake this role, it is argued that in this site, that fulcrum position is best
occupied by the state in Australia. A brief conclusion follows.
II
WHY HAVE MORE WOMEN ON THE BOARD?
There are four main reasons that are advanced in support of increasing the number of
women on corporate boards: moving the corporate board to a more democratic
representation of societies' diversity; improved decision-making by increasing the
range of views, values and experiences represented; better corporate profitability; and
finally an enhanced corporate image for shareholders, employees and consumers. Each
of these arguments, that are heavily contested and are at times inter-related, is
addressed below. The purpose of this discussion is to explain the reason why the
Australian government has not acted and is unlikely to introduce legislation to
increase women's representation on boards.
The first argument is that democracies should strive to cater for gender equality
and this should be carried through to the boardroom of the corporation. Democratic
societies, based on the principle of equality, should ensure that its institutions
represent the community. It is by doing so that these institutions gain the public's
confidence and hence legitimacy. This argument has been widely adopted by public
institutions such as government businesses and political office where gender equality
is actively pursued.6 It can be argued that in our
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