Corporate Governance and Board Composition: diversity and independence of Australian boards

Abstract

The board of directors is one of a number of internal governance mechanisms that are intended to ensure that the interests of shareholders and managers are closely aligned, and to discipline or remove ineffective management teams. Among the most significant governance issues currently faced by the modern corporation are those relating to diversity, such as gender and age, and independence of directors. While board diversity and independence has been a growing area of research in recent years, most empirical research on this topic has been restricted to US data. The generalisability of such findings may not extend across national boundaries due to different regulatory and economic environments, cultural differences, the size of capital markets and the effectiveness of governance mechanisms. Consequently, the importance and value of various governance structures, including board diversity and independence, should be separately examined in each country, and the influential factors investigated. This study reports on the diversity and independence of the board membership of 100 top Australian companies in 2003. Australia has one of the most developed stock markets in the Asia‐Pacific region. With the collapse of several well‐known public companies such as Ansett, OneTel and HIH, there is an increasing demand to evaluate the corporate governance practices of Australian companies, including the composition of boards. Accordingly, this research provides a timely review of the state of corporate governance in Australia so far as board composition is concerned.