Board Diversity in Corporate Governance: A Comprehensive Report

This report delves into the critical issue of board diversity within corporate governance, examining its significance and impact on organizational structure and performance. The report begins by defining board diversity, encompassing aspects such as gender, age, ethnicity, and skills. It then explores the theoretical underpinnings of corporate governance, including the agency theory and the principles outlined by the Australian Stock Exchange (ASX), to establish a framework for understanding the importance of diversity. A central focus is the analysis of Apple Inc.'s approach to board diversity, including its initiatives to increase representation of women and underrepresented groups. The report examines the advantages and disadvantages of board diversity, considering arguments for and against its implementation, as well as the influence of shareholders. It offers recommendations for achieving effective board diversity, including the need to balance efficiency and merit, while maintaining social standing. The report concludes by emphasizing the importance of board diversity for achieving a higher ratio of profit, maintaining a positive social image, and fostering a competitive working environment.

Running Head: Board Diversity 0
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2020

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Executive Summary
This report aims at studying corporate governance giving special reference to board diversity
as to how board diversity is essential for a corporation’s good governance, how it affects the
structure of a corporation and how its effective implementation influences the working
environment by keeping Apple Inc in mind.

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Table of Contents
Introduction................................................................................................................................3
Theory of Corporate Governance and ASX principles..............................................................3
Studying Board Diversity of Apple Inc.....................................................................................4
Higher ratio of women and underrepresented groups............................................................4
Age Diversity.........................................................................................................................4
Importance, Advantages and Disadvantages..............................................................................6
Recommendations......................................................................................................................7
Bibliography...............................................................................................................................8
Appendices...............................................................................................................................10

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Introduction
This report focuses on the issue of board diversity in corporate governance. Factors
considered in board diversity are gender, age, ethnicity, skills, geography, expertise etc.
Recently corporations are laying a great emphasis on board diversity in construing the
structure of their company. It has been argued by the academicians and practitioners that
targets must be introduced in a corporation to encourage board diversity whereas on the other
hand the arguments are advanced in favour of merit based approach rather than following
board diversity.
So in this report the advantages and disadvantages of inclusion of board diversity is
studied by taking help of a company and its construction as to how board diversity helped the
company in achieving its desired result and what are the shortcomings of board diversity.
And further how to reach towards an effective implementation of board diversity in the panel
of directors for better governance in a corporation.
Theory of Corporate Governance and ASX principles
In order to study board diversity let us first relate the concept with the broad theories
of corporate governance and how they support board diversity in corporate governance. The
corporate governance agency theory explains that an agent and principal relationship exists
between the shareholders and executive of a corporate body in which the shareholders are the
deemed principal of the corporation whose interests are represented by the agents of
corporation i.e the elected executives. And thus it can be sufficiently agreed that this theory
supports the proposition of board diversity.
The Australian Stock Exchange has also listed down principles which also talk
broadly about board diversity and support their incorporating in organisation. The principles

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are: Clear marcation of roles and responsibilities of board and management, Structure of the
board should be of an appropriate size and have collective skills, imbibing a culture of acting
ethically and responsibly, etc. These broad principles are also in line with the concept of
broad diversity in organisation as they too advocate good corporate governance and are in
accordance with the Corporations Act 2001(Cth) (ASX, 2020). Since Apple is a listed Public
Company thus it has to follow the principles laid down by ASX.
Studying Board Diversity of Apple Inc.
Apple Inc. is an American multinational technological company with its headquarter
in Cupertino, California, US (Jason, 2009). It became the first publicly traded U.S
Corporation which reached the market value of $1 trillion in 2018 (Rob, 2018). So it becomes
a futile exercise to study how board diversity helped Apple Inc to reach to its heights.
Higher ratio of women and underrepresented groups
Apple hires more women and underprivileged and underrepresented minorities, the
new recruits in technology groups consists of more than 53% of women and underrepresented
minorities such as Hispanic, Native Hawaiin, Black and Other Pacific Islander as shown in
Figure1 attached under as appendix. This drives a better progress every year and a highly
encouraged workforce at Apple Inc., US (Refer to Figure 1 and Figure 2). This has further
hatched better results at the workplace as it has influenced the working hands and has turned
into a better competitive zone.
Age Diversity
Apple Inc. is multigenerational corporation with employees of having diverse age
groups ranging from 18 to 87. And with this the most diverse age group is group of
employees under 30, who apparently are also the fastest growing employees. Among the
under 30 group 45% of leaders are women and 17% underrepresented minorities. The

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greatest progress in Apple Inc. is noticed with the diverse under-30 and new hire employees
(Refer to Figure 3).
Objection to Increasing Board Diversity
Even though Apple has taken steps to hire women and people of every colour, it also
launched a tab “Inclusion and Diversity” on its official webpage which offers visualization
of data regarding the current and previous hiring and these method have increased the margin
or profits earned in a year. But a group of shareholders believe that the company has to
increase the profit ratio and voted to increase the diversity in management so that it picks up
the pace. The shareholders have submitted a proposal to adopt such recruitment policy which
accelerates and increases the diversity among senior management including the board of
directors (Jacob, 2017). This means that if the proposal gets approved Apple Inc would be
prioritising diversity at top levels of management by adding new board members from
diverse backgrounds. As per the shareholders, presently Apple Inc.’s top management fails to
represent adequate diversity and thus are pushing for this proposal. Shareholders assert that
Apple has brought changes in their employee structure but only at junior level, the efforts
have been made to include diversity but it is restricted to the junior staff mostly working at
retail operations. The shareholders also attribute this as being the reason why Apple Inc. does
not participate in DiversityInc Top 50 for diversity competition as it lags behind in its
commitment to diversity in top management (REUTERS).
But the Apple Inc is fighting back and refusing to implement the proposal seeking
hiring at the top managerial level to increase diversity. It wants the shareholders to shoot
down the proposal and vote against it by stating that the proposed policy is not required and
is not necessary. The management at Apple Inc refutes that diverse representation at the
senior level is required to make the company run at high pace, instead, they say that they

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have conclusive data showing that diversity in management is rather critical for overall
company’s performance (REUTERS). As they say that there are not sufficient people to be
engaged at those roles and thus it would rather be a disastrous step. It also justifies its non-
participation in DiversityInc. Top 50 by saying that the company does not want to participate
as it focuses on increasing diversity not just in senior management but all across the company
including both, senior and junior levels. Apple Inc responded to shareholders proposal as
being unnecessarily burdensome (Jacob, 2017). In response to shareholders proposal the
Apple Inc. argues that it has made steady progress in last three years by hiring a diverse,
more women centric and underrepresented minorities and have thus demonstrated their
commitment.
Importance, Advantages and Disadvantages
In 2003 the first gender quota law for board of directors was introduced by Norway.
The other countries to follow this example were Belgium, Spain, Germany, France etc.
Companies like Catalyst also pressurised listed companies to adopt gender quota law, to
prefer increasing female representation and support higher gender diversity on corporate
boards (A.Zattoni, 2016). The reasons for promoting gender board diversities can be divided
in two broad categories:
 Business case (also called as the utility rationale): this view says that board
diversity increases the number of alternatives which creatively and positively
affects the quality of collective decision making (Hillman, 2015).
 Individual view: this view supports equal treatment and equal representation
of people and thus favors increase in involvement of underrepresented groups
in composition of corporate board and it furthers the principles of non-
discrimination (R.B. Adams, 2015).

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As also indicated by a study a more balanced board with equal gender representation
and diverse representation of underrepresented groups of all colours allocates more time to
effective board monitoring (Tricker, 2019). Hence the idea of a diverse board is more
advocated towards top management officials (Ferreirs, 2015). It further shows that a greater
percentage of women on board have resulted into a positive influence on accounting returns
though it does not yield a better result in market performance (Byron, 2015).
Inclusion of women directors and underrepresented minorities in the board has further
raised the debate of competence and merit (Henretta, 2018). An empirical analysis on gender
diversity has further shown that it is not an apt way to reduce the gender discrimination in the
corporate boards rather the labor practises adopted in an organisation, cultural and welfare
practises have to be strengthened to make the number of women on boards at par. Thus the
diffusion of women members becomes more of a social legitimacy criterion to be fulfilled
than being more efficient search for the company and thereby the merit here sometimes loses
(Byron, 2015). Even though presence of women in board generally has resulted in a positive
impact on the organisation’s social performance and the boards act more motivated when
resources are driven by female directors resulting in more investors (Bell, 2018). But the
influence of female power is more on social performance than on the firm’s financial
performance (Baker, 2020). The study also shows that female directors contribute more when
provided with direct control.
Recommendations
As discussed in the paper a diverse board composition has been welcomed by many
countries and companies also advocate in its favour. The impact of board diversity yields
greater profit, maintains a social stand and has also enhanced the working environment, and

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competitive structure which produced greater return with reference to Apple Inc. But its
certain limitations have to be kept under check. Wherein, it has to be seen whether the gender
disparity is proposed by the shareholders for gaining economic efficiency or for social justice
rationales. Since the shareholders mostly target firms with inadequate gender representation
thus it also becomes an important finding that the firms which have an adequate gender
representation are less likely to be targeted by the shareholders and thus less shareholder
activism. Since the aim of the corporation is towards achieving a higher ratio of profit and
maintain social stature but it should be done without compromising the efficiency and merit.
Thus board diversity is welcomed where the standards of efficiency are not lowered
only to include the underrepresented minority groups or to maintain gender parity. For e.g
Apple Inc it has adopted a policy of hiring diverse recruits like employees ranging from age
18-81, women, underrepresented minorities etc. But it is not hiring by lowering its standards
and only to keep the investors happy, instead it hires the people in the same way requiring the
same skill set to keep the efficiency of the job and the production in the organisation
unaffected. However this setback should not act a deterrent for any organisation to not adopt
board diversity.
Bibliography
A.Zattoni, P. &. (2016). Corporate governance, board diversity and firm performance.
Corporate Governance: An International Review, 388-389.
Apple. (2020). Apple. Retrieved March 12, 2020, from apple.com:
https://www.apple.com/diversity/
ASX. (2020). ASX. Retrieved March 2020, from asx.com.au:
https://www.asx.com.au/regulation/rules/asx-listing-rules.htm

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Baker, H. P. (2020). A bibliometric analysis of board diversity: current status, development,
and future research directions. Journal of Business Research, 232-246.
Bell, B. D. (2018). Social capital as a new board diversity rationale for enhanced corporate
governance. Corporate governance, 425-439.
Byron, C. P. (2015). Women on Boards and firm financial performance. Academy of
Management Journal, 1546-1571.
Ferreirs, D. (2015). Board Diversity: Should we trust research to inform policy? Corporate
Governance: An International Review, 108-111.
Henretta, K. W. (2018). Why the influence of women on board still lags. MIT Sloan
Management Review, 79-81.
Hillman, A. (2015). Board diversity:Beginning to unpeel the onion. Corporate Governance:
An International Review, 104-107.
Jacob, K. (2017, February). The Verge. Retrieved March 2020, from theverge.com:
https://www.theverge.com/2017/2/15/14614740/apple-shareholder-diversity-proposal-
opposition
Jason, O. D. (2009). Apple Inc. Corporations that changed the world. ABC-CLIO.
R.B. Adams, J. d. (2015). Board Diversity: Moving the field forward. Corporate
Governance: An International Review, 77-82.
REUTERS. (n.d.). Diversity411. Retrieved March 13, 2020, from diversity411.com:
http://diversity411.com/diversity-in-the-workplace/diversity-apple/
Rob, D. (2018, August 2). The Guardian. Retrieved March 12, 2020, from theguardian.com:
https://www.theguardian.com/technology/2018/aug/02/apple-becomes-worlds-first-

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trillion-dollar-company
Tricker, B. (2019). Corporate Governance: Principles, Policies and Practises. Oxford
University Press, Oxford.
Appendices
Figure 1: The ratio showing diversity in new hires.
Source: (Apple, 2020)

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Figure 2: Increasing percentage of diversity in employees
Source: (Apple, 2020)

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Figure 3: New hires under 30 .
Source: (Apple, 2020)