JEREMY BOSSENGER: The case for smaller, more diverse boards

In the international mining community company boards are coming under the spotlight. The reason? Those companies that operate with the core principles of good governance in mind will perform better, attract more investors and achieve superior growth.

Here’s a look at how the size, diversity, and environmental, social & governance (ESG) awareness of a mining board can affect the overall success of the company.

A recent white paper on mining boards is proving helpful among worldwide executive search firms as it focuses on the steps necessary to improve the running of mining companies via their boards. If you’ve ever heard of “bloated board” syndrome, in which any keen and qualified executive’s ability to participate effectively in a board meeting is severely hampered by the size of that board, this topic will resonate strongly with you.

An example from Governance Coach spells it out: “A board of 28 directors, meeting for a solid seven hours (not including any breaks), averages 15 minutes of speaking time per person.” This expert coaching business adds that because committee chairs, CEOs and the like tend to get more airtime than others, the remainder of the board members would probably get even less than their allotted 15 minutes to contribute a critical opinion.

While 28 members on a mining board may be excessive, you also wouldn’t want to go too small because that could reduce your company’s strategic network, leading to the hiring of potentially inappropriate or lesser qualified staff.  

According to the research of governance specialists Governance Today, eight to 10 members is ideal, with the benefits of this size including:

• sufficient individuals to meet diversity and skill-related needs;
• numbers big enough to spread what projects need to be accomplished; 
• less likelihood of cliques forming;
• each individual gets sufficient airtime;
• costs can be kept in hand;
• attendance and engagement remain high; and
• a streamlined succession plan can be implemented.

While mining is reported to have some of the least minority-inclusive boards of any sector, when companies begin to hire in a more inclusive fashion profit margins soar. A case in point is shared in the PwC paper “Mining for talent — a study of women on boards in the mining industry”. It reveals that within the male-dominated sectors — mining, oil, gas, aerospace and construction — when women with the relevant qualifications are hired they add considerable value.

The paper’s section on financial performance reveals that of the top 500 global mining companies surveyed, the 18 companies with 25% or more of their board comprising women had an average net profit margin for the financial year that was 49% higher than the average net profit margin. What’s clear is that the benefits of more gender diverse boards are yet to be realised within the global mining sector, with the paper reporting that 5% of board seats on average are occupied by women.

The good news in our territory down south is that the average percentage of women on boards — that is, mining companies listed on the JSE and Australia’s ASX — is more inclusive and steadily rising, at 21% and 12% respectively.

Another factor that cannot be ignored by CEOs in this sector is the way in which mining companies with superior ESG ratings are delivering average shareholder returns that are 10% higher than their competitors.

While it can be tough to find a suitably qualified and experienced ESG director, this is not an area to skip over because the research — for example Accenture’s 2022 report, “Mining’s new role as a champion of decarbonisation” — reveals that up to 63% of all investors in mining and metals would either divest, or not invest in the first place, in those companies falling short of the industry’s decarbonisation targets.  

A figurehead board member will not suffice, as ESG is becoming an complex and demanding niche in which vast quantities of relevant data (concerning environmental impact, social spending and public engagement) will need to be prepared and shared with investors before the latter consider a particular mining company to be worthy of their money and attention. An interesting aside: while 5% of individuals on global mining boards have specialised in ESG, at least half of them are women.

Through our work in the challenging executive search realm we keep all these factors in mind as we take on the task of hiring suitably qualified and experienced executives to join the boards of mining firms. This is, after all, going to be a big sector in driving the energy transition — not just for financial reasons but because the UN’s 17 sustainable development goals (particularly numbers 3 (gender equality) and 12 (responsible consumption and production), are of critical importance in ensuring there is a planet for our children to live on.  

• Bossenger is director of BossJansen Executive Search.