Marcus Dawe Joins SWOOP Board

Marcus and Cai Image

Marcus Dawe with SWOOP Co-Founder Cai Kjaer

We are thrilled to announce that Marcus Dawe has joined our SWOOP board. Here we have an exclusive interview with Marcus exploring areas including what attracted him to SWOOP and how he balances it all as a serial tech entrepreneur.

  • Marcus, great to connect. Firstly congratulations on joining the SWOOP board. As a serial tech entrepreneur who’s been successful with many ventures, what attracted you to SWOOP?

Thanks. Well I’m a data scientist at heart and have always got some data projects going on. I’ve developed and have worked on some of the largest data systems in Australia. We are now firmly in the age of data, where new products, service insights, market advantages, productivity advancements can all be derived from the way we manage information. SWOOP has an awesome team with the two co-founders whom I worked with at CSC, so it was a really easy decision to join them.  I had been mentoring them through the startup phase and their passion and enthusiasm is the essential ingredient to this great venture.

  • Why is SWOOP different to other tech start-ups?

SWOOP is the best example of how a startup can be formed within a year, a product developed and major customers such as banks using it within 12 months to improve their collaboration and productivity.  It was able to achieve this through strong focus, a great technical capability and most importantly 20 years of deep domain knowledge that has been coded into the product.  I’m convinced that SWOOP now is the leader in the field of social collaboration analytics – deep insights into organisations.

  • You and SWOOP Co-founder Cai Kjaer recently met Scott Farquhar, the co-founder of Atlassian recently, has was that?

Scott was very generous with his time.  We met him at his office and he opened with “What can I do for you?” What followed was a strategy session to help us with SWOOP and our go-to-market model, pricing and lessons from his experience in cloud software sales. We also identified that we could help Atlassian as well with SWOOP. Scott is a great asset to the global software scene.

  • On the subject of inspiring leaders, SWOOP recently published a three part blog series interviewing David Thodey about his time at Telstra and use of entreprise social network Yammer. What can we learn from David’s approach?

David is a real leader. Recognised globally as a top leader and able to drive results by building teams and empowering them. David identified that he needed to improve communications in his organisation and implemented Yammer to achieve this. For us it is the logical next step that the analysis and feedback of that data is what drives insights and helps rapid change by informing from the employees up and the CEO down.

If I were a CEO of a multi-national I would be managing multiple businesses/projects. I however choose to run multiple startups as a kind of Group CEO. I’ve always managed multiple projects by having great teams and co-founders and my best talent is strategy.

  • Anything else you’d like to share?

Our roadmap is looking good for SWOOP. We’ve established our credentials in Yammer and are moving to all the other social channels within enterprises. Watch out for us.

Thanks for your time Marcus and all the best with your ventures.

More about Marcus Dawe:

Marcus is a serial tech entrepreneur and has had success with his many of his ventures. Most notably eDIME Internet Agency which he founded and sold to Computer Sciences Corp (CSC) in 2000. At which time was the largest provider of Internet strategy and sites to Federal Government with 25 departments and agencies outsourced including Prime Minister, AEC, Defence, ASIO, ATSIC, DVA and many others.

He is the CEO of a carbon storage and utilisation company Mineral Carbonation International which is proving the viability of large scale, safe and permanent storage of CO2 in carbonates. Those carbonates can be used in building products such as cements, bricks and plasterboards. This is funded by NSW Govt, Commonwealth and Orica Ltd for 4 years.

Marcus is the co-founder and CEO of Health Horizon, a global showcase for health innovation launched in 2015 and is now the largest database of heath innovation globally.

His board experience is balanced – sitting on government committees, business boards of startups, scientific & non-for profit public and private organisation boards & committees. He is a graduate of the Australian Institute of Company Directors (AICD).

Contact him at:


A View from the Top – David Thodey Interview Part 3 – Reflections, On-going Challenges and Lessons Learned.

Thodey blog part 3 image

We are sharing the experiences of David Thodey, the former CEO of Australia’s largest Telecommunication company and strong Enterprise Social Networking advocate. In part 1 we looked at the key business issues Thodey faced in his six year tenure as CEO, and how he came to discover the ESN solution Yammer. In part 2 we traced his challenges, experiences and activities in formally adopting the platform as a key communication vehicle for the organisation. In this final part we bring it all together to provide reflections, challenges and lessons learned to those embarking on a similar path to Thodey’s.

For the major part, these reflections come from Thodey directly. However, at SWOOP we have had the opportunity to apply our online social networking analytics to several organisations around the world, including Telstra. We think there is much to be learnt from each others’ experiences. The analytics can provide a sharp focus to areas of need. We therefore take the liberty of weaving in additional insights gained from these comparative analyses, to provide you the reader, with as greater insights and support for your ESN implementation use as possible.

About using Yammer Thodey reflects: “It changed me personally. Conversations with people were real and authentic. I learned things“.  Often in the corporate world we find ourselves playing the ‘role’, rather than who we really are. Harking back to Thodey’s initial statement about ineffective communications, one could now appreciate this. Crafted messages from the CEO’s office. Equally crafted messages back up to the CEO’s office. Often the only authentic conversations happen in localised horizontal layers in lunchrooms and cafes. ESN’s and Yammer have the potential to change all of this. Authentic conversations across the whole organisation? We think it’s entirely possible, based on Thodey’s experiences.

On managing change Thodey is just as forthcoming. “The nature of work has changed. Collaboration is a necessity, not a nice-to-have. We had to change….and Yammer is a tool for facilitating significant change” .  Thodey is not alone here. A recent article from McKinsey entitled “Changing Change Management” identifies how traditional organisational change management must be disrupted by applying digital toolsets. Introducing change through stage-managed line management pronouncements and a plethora of focus group discussions does not scale and lacks an effective feedback loop. When you apply ESNs, discussions can be had in real-time and are accessible to all. Miscommunications or misunderstandings can be addressed and nipped in the bud. As Thodey enthused “Things that staff really cared about didn’t have to wait until the annual staff engagement survey to be aired”. As with all other digital disruption case studies, the traditional time honored way of doing things has been “blown out of the water”. Organisational change is always hardest in long established heritage style organisations like Telstra. But as time moves on the reports of a new way of working are now becoming commonplace. Author, futurist and commentator Jacob Morgan in his most recent book  “The Future of Work”, cleverly articulates what the (near) future world of work will look like. He provides many examples of organisations working more as a network, some with no managers and all largely digitally enabled. Typically, today’s examples are for smaller organisations of less than 10,000 employees. Morgan acknowledges that the majority of today’s larger organisations have grown up still under the influence of Henry Ford’s automotive empire. We explored some unfulfilled challenges with Thodey.

As much as Thodey was enthused at what an ESN and Yammer could do for him, he acknowledges that for large, established enterprises like Telstra, the journey has just begun. The experience with the response to the missed KPI discussion brought home the fact that the organisation was still not thinking as one. His desire to have customers and partners involved in their Yammer conversations was also still work in progress when Thodey left. The mean score for active users in our benchmarking group was 20%, with a best score of 31%. The results suggest that the 90% readers, 9% responders, 1% creators rule of thumb no longer applies.   But what is a good score? How much should people really be interacting on the ESN? The jury is still out on this one. Those that see the platform as a simple Q and A forum might be quite happy with infrequent usage. Others, which includes Telstra, have ambitions to drive usage right down to the team level. We asked Thodey what he thought would be a good target and he suggested that perhaps up to a 60% score for active and interacting staff should be achievable.

Other areas he reflected on included the use of the ESN to enable staff to manage their own profiles, with their competencies assessed by peers; “we shouldn’t have to run to HR every time we need to find out something about someone”.  As well as being a fan of open communication, Thodey is also a big fan of open data; “we can’t control information any more…we just have to go with it”. We have seen examples of this with the government Open Data initiatives. It is however a risk/reward decision, as we have found when personal privacy information violations have occurred. Analytics also got a mention in his reflections “analytics are very important, and we would have benefitted from better analytics”.  On the topic of tools, Thodey was careful not to oversell the tool over the human aspects. He did however comment that “Where I think people need help is in understanding what to use when. There is a time for email, or for writing a document. But if you want open and authentic conversations at scale then email is not it.” [1]

Finally we closed our session with a question on what advice he could offer to other CEO’s and Leaders like himself. Succinctly he responded with “You [emphasis on ‘you’] need to decide what you want from a tool like Yammer. For me personally, it was an imperative to have authentic and real conversations with my staff”. We think he is not alone with this aspiration!

[1] We have analysed the use of multiple channels of communications including Yammer, Email, Instant Messaging, Personal contact

Gender Diversity – a Need for Some Radical New Thinking

NY1In the past 12 months we have been mining ASX data for trends and insights. The gender diversity movement has been generous in their support in promulgating the new trends and insights we have discovered that support a strong business case for greater diversity in mainstream business leadership. In our blog posts we have regularly argued for a ‘Social Capital’ solution to the clear gender imbalance on ASX and world wide, boards of management . As we release our end of year 2012 results we have to admit some disquiet in the results. Improved gender diversity results are only largely identifiable at the very top of the ASX, and even then, continued growth in women on boards is far from guaranteed. Of the 3,096 new faces on ASX boards for 2012 only 7.74% were woman. The Mining & Metals dominated the ASX and produced 40% of those new faces of which only 4% were women. The 40% female participation target regularly promoted to achieve a satisfactory level of gender equity appears a distant pipe dream.

No doubt a radical step change is required to even approach gender equality objectives in any reasonable time frame, if at all. The call for quotas has been seen as the only mechanism for achieving a radical change toward gender equality. We beg to differ. For many mainstream business owners, gender quotas are considered restrictive, rather than expansionary. Radical change, facilitated by changing regulations, can happen with unbelievable speed, if they are seen as removing, rather than installing, restrictive practices. For example, the rapid adoption of the Internet came about through the removal of US military restrictions on the use of the underlying networking infrastructure that underpins it. The fall of communism also happened at an astounding rate once key restrictions were removed. The same can be said for apartheid in South Africa, so significant change can occur at astounding speed if the conditions are right. Restrictive regulation associated with gender quotas would regrettably be seen as a business overhead and therefore is unlikely to achieve the radical changes sought.

Radical market place change can also occur at astounding speed when the ‘right’ conditions are met. These right conditions typically call for a dormant ‘pent up demand’ for which the right product just happens to come along at the right time. The ‘smart phone’ is the most recent example of this. Steve Jobs and Apple did not invent the first smart phone, there had been many less successful attempts before hand. What Apple did better than any others is to understand the technological ecosystem that needed to be harnessed to successfully meet the pent up demand for the device we now know as the smart phone. Successfully bridging the different digital media sector players for music, video, social networking and mainstream news was arguably as important, as the underlying technology in the ultimate success of the iphone/ipad. The radical change to the way we communicate using smart phone technology is every much a radical change as is being sought for gender equality on boards of management.

 So the big question is: What are the ‘right’ conditions required for gender equality to go viral?

 Being a Tipping Point

NY2There is a common perception that the %women on boards would increase linearly over time until the percentage reached a ‘magic’ point where the percentage would accelerate past this ‘tipping point’. We don’t see any evidence of this pattern playing out in reality. That is not to say that a tipping point cannot be achieved at some time in the future though, given the ‘right’ conditions. A good source for identifying the ‘right’ conditions is Malcolm Gladwell’s book “The Tipping Point”. In this book Gladwell looked to identify what the ‘right’ conditions were for indicating a tipping point for the adoption of something radically new. We summarise his findings and offer an assessment of the current status quo for board gender equality:

The Law of a Few – meaning that the bulk of the influence is in the hands of just a few i.e. the existence of Mavens, Connectors and Salespeople for the cause. The Mavens are the respected opinion leaders, the powerful advocates. There are many powerful advocates for gender equality, so we can probably tick this one off. The connectors are those well-connected individuals who can successfully bridge the stakeholder islands in the same way that Steve Jobs did for Apple. For the gender equality cause this is partially met. No doubt there are still several stakeholder islands that have yet to be breached on gender equality on boards. In terms of a focused and skilled salesforce, we might count on professional groups like Women on Boards (WOB) to fill this role, but perhaps WOB is more of a rallying community of advocates, than a skilled sales force? This is a gap that can be filled over time.

 Verdict: Potential

 Stickiness – is the degree to which the change becomes memorable and able to influence future behaviour. This can be easy to judge in hindsight e.g. the Internet, the Smart Phone, Democracy etc.. How will a world where boards of management are staffed equally by men and women become memorable? Has the compelling story been written or told yet? We don’t think so. We think there is an opportunity for the advocates to ‘paint the memorable picture’; something that skilled sales people do exceptionally well e.g. Steve Jobs, Richard Branson, Jack Welch.

 Verdict: Not Yet

 The Power of Context – is about socialisation and plays to our prior promotion of the impact of social capital. “Going Viral” requires a social context where behaviour is influenced by your social peers, being the people you take most notice of. The speed of the contagion is directly related to the strength of the social network that it targets. To date, gender equality on boards has not achieved sufficient social capital to go viral. Advocates are still in tightly clustered cliques with limited penetration into the mainstream islands of opinion that constitutes ‘big business’. The Norway case study for regulatory intervention is now over-used and insufficiently compelling as a business case. We wouldn’t be doing this post if the power of context was being met.

 Verdict: Not Yet

 Meeting ‘Pent-up Demand’

NY3Implicit in reaching the ‘Tipping Point’ is an unmet demand. For the Iphone/Smart Phone, this was a device that could successfully integrate the different media themes of music, video, news, social networking and personal computing that had stubbornly required the juggling of multiple devices. The rapid fall of Communism was driven by the sudden appreciation of communist country residents that western standards of living substantially exceeded their own. The removal of apartheid laws in South Africa was the trigger for radical changes virtually demanded by the western world. The removal on restrictions on Internet protocols in the 1990s opened the floodgates for global markets and global connectivity.

 So what ‘pent up’ demand in business will be met by gender equalisation on boards of management?

We took advantage of recently published new year predictions to scan what others felt were the biggest challenges and/or trends for business in 2013. As best we could, we looked to build some themes from these predictions to try and articulate what a ‘Pent-up demand’ might look like for solutions that might resolve these frustrations. The commentators ranged from respected business schools like Wharton, the National (USA) Federation of Independent Business, through to independent business columnists. We then were bold enough to assess to what degree gender equalisation might be considered to provide that solution.

As a general theme, the business uncertainty experienced since the 2008 global recession has generated a climate where business leaders are concentrating on the quality of their employees and customers. Building and retaining a highly skilled and engaged workforce and servicing a growing and loyal customer base have become key foci. Innovation in products, services and financing for growth was also regularly mentioned. The increased digitisation of the workplace provides both an opportunity for growth and business intelligence capability, but is balanced against increased risks in global supply chains, regulatory constraints, cyber-security and business continuity. In terms of leadership, in the words of Professor Mike Useem at the Wharton school; “Leaders must be able to act more quickly and decisively, even as it becomes tougher for them to know precisely what to do”.

We now look at each key theme, one at a time to provide our judgment on what the status quo may be:

1. Growing the business in an environment of business uncertainty and weak sales

In Australia the two dominant market sectors are Mining & Metals and Energy, where female representation is well below average. Selling in these industries is technical and industrial in nature and not the traditional domain for females. That said, selling coal and iron ore to the Chinese is as much about building long-term relationships, as it is technical. Fundamentally we want to know if women make better sales people than men? Tom Peters and Dave Kurlan think so, or at least believe that they have some fundamental innate capabilities that can lead them to outperform men in sales. Dan Pink in his recent book ‘To Sell is Human’, suggests the old, often male, stereotypes of the salesperson are now well out of date and that we all spend a substantial part of our working lives ‘selling’ something to others, whether they be traditional clients or people in your own organisation. That said, this list of ‘The 10 Greatest Salespeople of all Time’ contains just 2 women, which is about the status quo today.

Verdict: Potential

2. Creating new growth opportunities through new and innovative products and services. Continuous experimentation should be the norm.

Again when we think of organisations with an innovation track record there is a paucity of female role models at the big end of town. There is no shortage of female entrepreneurs in the small business sector, but few have been able to scale their ventures into larger listed companies, as evidenced by the low proportion (3.6%) of female directors for ASX debutant companies, which is only about half the overall ASX proportion.

Verdict: Not Really

3. Financing growth…looking for more innovative mechanisms now

The global financial crisis has resulted in less funds becoming available from traditional sources to fund business growth. Funding from cash flow is becoming more regular, though clearly limiting the speed with which growth can occur. Innovative financing mechanisms like crowd-funding and micro-financing are becoming a more popular source of funding, though clearly the overall investment levels are still relatively low. This is an area where females have demonstrated experience, more often as recipients, funding businesses that are shunned by the traditional banks and lending institutions. Perhaps the best example is the Grameen Bank making small loans to impoverished female run start-ups in Bangladesh.

 The banking and finance sector is one where female director participation is greatest (12%), and therefore provides some potential for making a difference.

 Verdict: Potential

4. Gaining, training and/or retaining high skilled staff; compensation/reward strategies, talent management, building team capacity

This HR challenge was the most pervasive of those mentioned. The HR function has become a female domain and is the function on leadership teams where females are best represented. Human Capital is being nominated as the most critical asset in the uncertain business environments we now face. And at least one Forbes blogger believes that 2013 will be the year that HR goes ‘Social’ . This is the one challenge where female participation and contributions are currently acknowledged at all levels of business.

Verdict: Definitely

5. Employee Engagement – being motivated to work productively; workspace innovation; more freedom and fun at work

NY4One of the key findings of the 2009 Deloitte Big Shift Report was that only 18% were passionate about their jobs . This was seen as a major lost productivity opportunity, especially in these more austere times. This challenge is another that is ‘people centred’ and an opportunity for women to make a difference. If we look at today’s traditional workplaces, they have largely been designed for and by working males. Only in recent times have workplace practices been adapted to accommodate childcare or other carer responsibilities, that require more flexible work hours, and have tended to impact  women to a larger degree. Traditional workplace environments are only now starting to break out of the industrial model, where worker passion for the job was neither sought nor expected.

Employee engagement is definitely an area where females could excel. Female leadership styles are acknowledged as more people empathetic, inclusive, and therefore well suited to this challenge.

Verdict: Potential

6. Overcoming the impediments of increased regulation

One of the unfortunate consequences of the 2008 global financial crisis is increased regulation. Several commentators mentioned the dampening effect increased regulations was having on business growth, with a few mentioning the cancelling of projects resulting.

Expeditious navigation of complex regulations suggests the need for a strong legal and commercial competence. According to this article in the Wall Street Journal,  female law graduates are now roughly matching men. However, as with the the general workplace, this has not translated into women occupying postions of influence and visibility in any great number, with just 15% females making equity partner in law firms in the USA.

 Verdict: Not Really

7. Customer experience and loyalty; developing trust with customers

Do female led businesses develop more return customers than male led firms? We don’t have any data on that, but anecdotally the strong socialisation skills of women, especially with other women might suggest that there is potential here. Also a strong presence in the consumer/retail markets might suggest a natural strength in designing for a superior customer experience.

 Verdict: Potential

8. Business intelligence through data (big data)

The increased digitisation of business has naturally led to a flood of data available for mining business intelligence from. Previously the domain of large firms with strong data processing capabilities, data mining has now been brought down to the consumer level, where virtually anyone with a web site or web presence can obtain web analytics, much of it for free. Separating out the intelligence ‘nuggets’ however is not straightforward and still remains in the domain of the analytical ‘geeks’. ‘Geekdom’ is not an area heavily populated with women, despite some attempts to rally those that like science and analysis.

Verdict: Not Really

9. Business Risks – Supply Chain; Globalisation, Information Security

NY5The current uncertain global business environment brings with it an increased level of business risk. Some of the common areas mentioned were supply chains where many participants are less secure than in the past. We have seen evidence of this with some high profile failures of automotive component suppliers, no doubt under increased pricing pressures. Globalisation was brought both new opportunity but also new risks as companies are forced to work under legal and commercial regimes that they are less familiar with. Digitisation has also brought with it increased risks of fraud, or with the advent of ‘cloud based’ information storage infrastructure, the potential loss of critical business information.

Astute risk management requires strong commercial, legal and technical capabilities. Are women in general more risk averse than men? Well the answer may not be definitive but the evidence points to the affirmative . It is generally accepted that men love to compete more and will take greater risks to prove superiority. But risk aversion is not the same as risk management, however in today’s climate, a bit a risk aversion is probably a good thing.

Verdict: Potential

10. Leading decisively under uncertainty

Posed by the Wharton school, this challenge relates to the ability of a leader to consistently make the ‘right’ calls in uncertain environments. We would suggest that in uncertain environments there is always an element of luck and therefore we suggest it is impossible to be right all the time. We prefer to think of this challenge being satisfied if your ‘right’ calls significantly outweigh the wrong calls. For example, Steve Jobs is credited with making some significant ‘right’ calls on Apple products during his extended tenure in, an industry awash with uncertainty. But he also made some significant ‘wrong’ calls e.g. Apple III, Next Computer, Atom, which are now largely forgotten. Other long term CEOs in volatile market sectors could also fit this bill e.g. Bill Gates, Larry Ellison, Richard Branson, Jack Welch to mention just a few. ‘Best CEO’ lists regularly show very few women (1 – 3%) , with one publication noting that a drop in the share price regularly accompanies the announcement of a new female CEO!

We believe that this theme is the most nebulous to judge. While the CEO rightly will take accountability for the end result of the decisions that the organisation takes, how these judgments are made are far from transparent. Tom Albanese recently stood down from the leadership of Rio Tinto after a string of disastrous acquisitions. How much were these decisions a function of poor ‘organisational judgment’, rather than wholly poor judgment on Albanese’s part? If it’s the former, perhaps his leaving will have little impact? Our penchant for attaching hero status to CEOs and assigning either accolades and/or banishment, according to the judgments they preside over, is perhaps masking the organisational processes that underpin these judgments?

 ‘Organisational judgment’ is an area only lightly studied when compared with the literature on personal judgment. A recent book “Judgment Calls” by Tom Davenport and Brook Manville looks to help fill this gap. They tell 12 stories about organisations that have demonstrated superior organisational judgment. A key theme extracted was the inclusive nature of the leadership. Far from taking an “I’m the Boss so I need to make the calls” perspective, the leaders of these organisations were much more inclusive and transparent about their decision-making. They looked to draw opinions and take advice from the most diverse sources, rather than to rely on a selected inner circle. Evidence based decision-making and the use of analytics also often played a part in their judgements. We think that the Rio Tinto shareholders would be much more assured of a better future if they could better understand how the firm will make decisions and judgments in the future, rather than who will occupy the top seat.

On the basis of these findings alone and a view that female management styles tend to be more inclusive and considerate of diversity, we believe there is potential for women to change the way organisational judgments are seen to be made, despite the paucity of current role models.

 Verdict: Potential

 Final Score?

NY6Well overall the picture is not pretty (like last years statistics), but hopefully this different type of analysis provides some more specific actions that can be undertaken to improve the situation and hopefully move toward that sought-after tipping point.

In terms of the Tipping point analysis:

  • More professional selling – there are no shortage of advocates but perhaps the injection of a few industry hardened sales people can help the cause.
  • Developing a compelling story that wins both hearts and minds. Perhaps one that plays to the natural human capital management strengths that females are most adept and managing.
  • Network your way to the ‘islands of doubt’. To dat the influence network tends to be limited to particular industry sectors. Make a point of winning over the key influencers in the Mining & Metals and Energy sectors (at least in Australia).

In terms of servicing ‘pent-up demand’:

Definitely = 1; Potential = 6; Not Really = 3

  • Play to the strength of human resource management. Human Capital is being seen as the key asset in the current and foreseeable uncertain business environment. Lobby for ‘Human Capital’ director representatives on all boards and aim to dominate this role. Once there, the potential exists to expand beyond the role.
  • Back this up by building and highlighting capabilities in the more human centred challenges like employee engagement, customer experience and loyalty as well as promoting innovative financing mechanisms. Demonstrating more transparent and inclusive decision-making is also likely to be well received by shareholders. 
  • In the short term promote natural risk adverseness as a positive quality for firms looking to survive the current economic environment.
  • For the challenges assessed as ‘Not Really’, more fundamental changes are required. The fact that the largest industry sectors tend not to be popular amongst women is a major impediment that can only be changed by a gradual re-education and promotion of role models. Progress needs to be made but there are no quick fixes here.

Perhaps we are still a little away from the ‘Tipping Point’ for gender equalisation on boards. While we have provided 10 themes of pent-up business demand it could be that meeting just one could be enough to trigger the tipping point. We can therefore be encouraged by the speed with which change can happen once the conditions are met.

In closing we would like to share a comment made to us by board adviser Tim Boyle from Blackhall Pearl: “…the problem is that skills are taken as a proxy for value of the director, which is erroneous. Directors are hired by skill but remembered and valued for judgment. 10-15 years mining or chemical or banking experience doesn’t give you judgment it gives you 10-15 years working in an area. So perhaps we need a new criteria or method of selecting directors which could in turn lead to hiring more female directors that add value”.

We are also interested in your own views. In looking to take a radical alternate view on gender diversity issues we know we will attract many supporters but also will have alieniated many others. We expect many of you won’t agree with our judgements of the status quo. Lets hear your thoughts. The power is always in the conversation.

Are Board Turnover Rates Limiting Diversity Opportunities and Growth?

Turnover p1

Let’s face it, sought after board positions on publicly listed companies are not advertised in the newspaper. Despite listed companies being “owned” by the shareholders, when you receive your invitation to attend the annual general meeting to vote for the re-election of existing directors or installation of a new director recommended by the chairperson, it is likely that you will accede to the chairperson to vote on your behalf. Even when there are owners with a significant shareholding it can still be difficult to achieve board representation, as evidenced by Gina Reinhart’s attempts to gain seats on the Fairfax Media board. The majority of directors who submit themselves for re-election will typically succeed. In the USA only 2% of directors leave through stepping down, being dismissed or not being re-elected. They will typically only leave voluntarily. Perhaps the most endangered board members are the CEO and executive directors, who may potentially suffer dismissal from their company roles, and hence the board, should poor performances demand it.

So with this in mind, who is managing the appropriate level of board renewal? What is an appropriate level of renewal for company boards? If ‘vacancies’ are so rare, what impacts will that have on the timing of the board diversity agenda? Even if board quotas were to be implemented, would it be realistic to ask companies to double or triple their board renewal rates to meet a quota?

Turnover p2Continuing our theme of analysing ASX board data in support of the diversity agenda, we have looked at current ASX board turnover rates, and as expected, board turnover rates are often lower than inside the companies that they represent. We measured board turnover by averaging the year-to-year changes in board memberships since 2004. We found that of the 539 companies listed for the full period, 212 have on average 10.2% annual turnover.  25 companies had experienced no changes at all over the 8-year period. Of the 1652 companies listed for more than 12 months the average annual turnover is just 13%, and for the ASX200 10.7%. With an average board size of less than 5 for the ASX as a whole, this means on average only 1 board seat will become available every 2 years. For the ASX200 the average board size is a little higher at 7.7 members so about 165 board seats on the ASX200 would on average, become available each year.

Turnover p4For the gender diversity supporters, current board renewal rates will become a natural governor on progress. Without forced quotas, which means regulatory removal of current board members, a desired 40% participation rate cannot happen overnight. Even if optimistically, 25% of all ASX200 board vacancies were granted to women and no existing female board members were to lose their positions to males, the 40% target would take over 9 years to achieve. This a best-case scenario. As we move beyond the ASX200 with female participation closer to 10% and average board sizes of less than 5, the period for achieving these targets moves out to 13 years.

What is a ‘Good’ Renewal Rate for Boards?

While the above statistics might suggest that current board renewal rates are too low, what is a ‘good’ board renewal percentage? To investigate this we use the Compound Annual Growth Rates (CAGR) for Market Capitalization and Revenue for the 539 companies that have been continuously listed on the ASX since 2004. In looking for a ‘Sweet Spot” for board turnover/renewal percentages we plotted the CAGR against the %Annual Turnover:

Turnover p5The data indicates that there is a tendency toward a ‘Sweet Spot’ around the 15-20% range, which is significantly beyond current performance.  While the optimum is not strongly defined, if we combine this %Turnover result with our earlier analysis of network connectivity, which also showed a similar result, the business case for increasing network connectivity and board renewal to the ‘magic’ 15% +/- 2 mark, becomes far stronger. When we apply this ‘rule’ to turnover/renewal rates we find that the 80 companies in this sweet spot earned a 22.8% CAGR in capital growth and 13.1% in CAGR in revenue.  Turnover p6Those firms with less than 5% turnover/renewal earned only 6.5% CAGR in capital growth and 6.4% CAGR in revenue. The two indicators are interdependent in terms of opportunities for increasing diversity. Higher turnover/renewal rates provide more opportunity for adding diversity of thought and experience. If those new additions are also well connected then the benefit will multiply.

Is there an Industry Sector Effect?

By introducing some context in the way of industry sector classifications we can start to understand whether turnover/renewal rates are related to the dynamics or otherwise of the particular industry sector that a company operates within. The following graphic classifies turnover/renewal rates by industry sector:

 Yurnover p7

If we look at the extremes we can see that Media, Technology Hardware & Equipment, Energy, Mining & Metals and Insurance are the only sectors with renewal rates approaching the sweet spot. One could argue that there have been significant change activities, both in terms of high growth (Mining & Metals, Energy, Technology Hardware) or structural changes in the industry forced by new technologies (Media, Insurance), that has forced renewal in these sectors. In these more dynamic times, these sectors have responded through greater levels of board renewal. At the other end of the scale Paper & Forest Products and Consumer Durables & Apparel have experienced negative growth in capital value and revenue over the past 8 years, indicating that board renewal is long overdue. The other sectors showing negative growth include Automobiles & Components, Construction Materials, Food, Beverage & Tobacco and Pharmaceuticals & Biotechnology.  These sectors might also benefit from increasing the levels of board turnover/renewal and inviting greater diversity of thought and experience onto their boards.

Some Closing Thoughts

Much of the discussion around diversity on boards has focused on gender diversity and growing the proportion of female participants on boards. Recent articles have pointed to the fact that while at the ASX 200 level, new reporting regulations have led to an increase in female participation above 15%, but beyond the top 200 this percentage falls to around 10%. Concerns had also been raised that female participation on boards was more concentrated for females as it is for males, with females by far having more multiple board memberships. Our own research has identified this effect in our “Sisterhood goes missing at Board Level” article. We followed this up by looking to build the business case for diversity through recruiting ‘appropriately networked’ directors to your board. We identified a “sweet spot” for having directors with ~7 to 9 board interlocks, representing some 15% +/- of the board membership.

 What this article addressed is the size of the ‘opportunity’ for increased levels of diversity afforded by higher turnover/renewal rates of boards. A lower than optimal rate effectively limits the scope for increased diversity and also achieving optimal financial performance. We found that firms operating with turnover/renewal rates between 13-17% enjoyed a 16% greater CAGR in Market value than those with rates of 5% or less.

The message is clear. Annual turnover/renewal percentages need to increase from the current average to over the 15% mark to optimise both diversity and financial benefits to the firm.