I am so thrilled have our article on the decoupling of diversity disclosure and practice published in the Australian Journal of Management! It’s a really fun piece, and I’m proud to make such an important, practical contribution to our knowledge of diversity in leadership. Corinne Cortese, Abdullah Al-Mamun and Searat Ali and I look at diversity disclosures through annual reports, and the actual practice of appointing diverse leaders between 2005 and 2021. We compare the institutional forces driving change, and look at the extent to which there is decoupling between diversity disclosure and practice.

I am often very frustrated with company annual reports. Although annual reports are the primary public company ‘performance’, and the main way that companies and stakeholders speak to one another, the content of annual reports is largely unregulated. Companies can more or less say whatever they want in the glossy narrative sections, waxing lyrically about responsible business, equality, sustainability and so on, but with no real mechanism or recourse for straight up lying about it. In my teaching on diversity and inclusion, I routinely get students to analyse company annual reports, and tell me whether they actually mean anything. Do statements have measurable outcomes and timelines, do they describe how they are going to achieve their aims? Are there independent evaluation mechanisms and consequences for failing to meet targets? If not, it is a waste of paper (or pixels).

This paper speaks to this issue: is there a disconnect between companies saying they support diversity, and their actual practice of appointing diverse leaders? We looked at the leadership suite of top companies, identifying women and non-white directors. We then performed a content analysis of company annual reports, identifying those reports that included diversity statements, and drawing out general trends regarding the types of diversity they covered.

As we are looking at large cohort-level data, we examine both leadership appointments and annual reports as collective organisational forms through institutional theory. Institutional isomorphisms (coercive, mimetic and normative pressure) provide the ‘rules of the game’ that encourage organisations to conform, not necessarily due to efficiency, but for the purpose of establishing power and legitimacy in their field. Coercive isomorphism encompasses factors determined by the external environment, including pressure from regulators, legal requirements, and cultural and societal expectations. Mimetic pressure involves firms imitating others or modelling past successful performance. Normative pressure stems from organisations conforming to ‘best practice’ established or legitimised through professional structures and industry associations.

Although there are similar institutional forces that act on leadership appointments and annual reports, there may be a disconnect between these two organisational forms. Decoupling argues that firms undertake two distinct forms of action – internal and external – to respond to institutional isomorphic pressures. Internal actions, or the inward-looking real practices of the company, are geared towards meeting the needs of internal stakeholders, whereas external actions generally focus on portrayal and legitimacy in the eyes of public stakeholders. There is research on the way companies have decoupled their reporting and practice with regards to CSR, environmental standards, bribery, human rights, and work, health and safety disclosures. Basically, just because companies say they are doing stuff doesn’t mean they actually are.

We find that there has been close alignment between diversity reporting and women in leadership. The number of women in leadership has increased, and there has been an acceleration in their proportion of board seats. The incidence of diversity reporting was lower than the proportion of firms with at least one female board member in each benchmark, though was roughly equal to the proportion of firms that had a critical mass of women (three or more) on their board (82% compared to 88% respectively). Diversity reports were thus not necessary for women’s board or executive representation, but closely tracked alongside deepening commitments to gender equality. Unsurprisingly, the content of diversity statements largely focussed on women.

When it comes to ethnic diversity, there is a stark disconnect between general public commitment to diversity, and the practice of appointing non-white corporate leaders. Although the number of firms with at least one non-white executive or director roughly doubled (from 29% in 2005 to 51% in 2021), there were disappointing improvements in the overall number of board seats, from 3% in 2005, to only 7% in 2021. At the same time, diversity reports began at a similar level as the proportion of firms with at least one non-white director in 2005 (26%), but became far more common than firms with at least one non-white leader (82% in 2021). There was a significant proportion of companies that included a diversity statement alongside an entirely white leadership suite, from 81% of companies with a diversity statement in 2005, 78% in 2010; 62% in 2015; to 41% in 2020. For example, in 2010, Stockland argued that they recognised “the importance of cultural and ethical values, and the benefits of diversity” (Stockland 2010: 10), though only appointed Anglo-Celtic or Caucasian directors.

So why was there close coupling regarding disclosure and practice for women in leadership, but decoupling regarding ethnicity? Diversity reporting is principle-based rather than rule-based, and so the coupling and decoupling we observed is largely due to competing institutional isomorphisms that have acted as ‘soft regulation’. The disclosure and appointment of women in corporate leadership has been subject to a comprehensive suite of coercive, mimetic and normative interventions, including specific recommendations from the regulator and industry bodies, media and government attention, and path-setting from market leaders. To compare, institutional isomorphisms regarding ethnic diversity have been very limited.

These findings not only dunk on corporate reporting in general, but also highlight the mechanisms that have been meaningful for aligning corporate disclosure and practice for women in corporate leadership, and the work still to be done with regards to ethnic diversity. Looking to the future, we recommend more stringent coercive, mimetic and normative pressures for diversity in corporate leadership, which incorporates a broad cross-section of gender, ethnic, age, experience, sexuality and disability diversities.

To read more, see the published version of this paper here: https://journals.sagepub.com/doi/10.1177/03128962231169142.

If it is behind a paywall for you, I have uploaded the pre-print version here: https://claireefwright.com.au/articles/.

You can also read our opinion piece for Emerald Online here: https://www.emeraldgrouppublishing.com/opinion-and-blog/whiteboard-ethnic-diversity-corporate-australia

And my previous blog on this topic here: https://claireefwright.com.au/new-opinion-piece-ethnic-diversity-in-corporate-australia/