Gender diversity on boards: are quotas the answer?
Alicia Yi, Managing Director, Board and CEO Services, Korn Ferry, discusses whether quotas will be required to increase the number of women on the boards of Asian listed companies.
Asian companies continue to lag the rest of the world when it comes to gender diversity according to research by global people and organisational advisory firm Korn Ferry. The long-term research project has found little change in Asian markets which do not adopt a quota system or board membership regulations, despite the publicity and the professed commitment to diversity by listed companies.
The Korn Ferry Diversity Scorecard, done in conjunction with the Centre for Governance, Institutions and Organisations at the National University of Singapore, also observed that Asian boards seem to adopt a more systemic and collective ‘blindness’ to the value of diversity based on a more traditional patriarchal approach.
While the study suggests a compelling business case for the appointment of women to the board – they are good for the bottom line – this has not translated into seats on the board for women in listed companies across the region. Companies in the study with at least 10% female board members on average have a higher return on assets and return on equity than companies with fewer than 10% female board members.
‘When companies have a good corporate practice, it shows up in gender diversity as one aspect of many things that they do,’ says Korn Ferry’s Managing Director, Board and CEO Services, Alicia Yi. ‘Boards that seek real advantage from diversity first have to engage in some self-reflection and be ready to make a few changes in both thought and process. That may include examining views of diversity on the board’s own team, accepting diverse directors as full-fledged partners, and employing tactics that make room for new directors on the board. The role of the board is a challenging function – its job is to challenge management. Doing risk management is not about rubber stamping – it’s imperative to have different views on the board, but that mindset is not yet prevalent in Asia.’
Based on the top 100 listed companies from each economy in 2014, the year covered by the latest study – Diversity Scorecard 2016: Building Diversity in Asia Pacific Boardrooms – women made up 10.2% of the directors, up from 9.4% in 2013 and 8.0% in 2012. For Hong Kong, the figure was 10.7%. Another study released in March 2017 by the not-for-profit organisation Community Business found that 12.4% of directors on boards in Hong Kong are women.
So why are women missing from the Asian boardroom?
‘There are a couple of things you need to think about,’ says Ms Yi. ‘One is the funnel or pipeline. The female supply of candidates that fit board requirements is limited because there are not enough women at senior levels in companies. You actually see a lot of women – almost 30% to 40% in middle management roles, but it dwindles very fast as you move up the organisation.’
‘Boards also generally want to hire people with profit and loss experience. The trouble is when you look at the C-suite, men dominate,’ Ms Yi explains. ‘The issue is not so much that there aren’t capable women – but that they don’t fit the required mould.’
Firms like Ms Yi’s are increasingly being asked to improve the pipeline to a pool of possible female candidates by helping prepare senior women to be board-ready. ‘Though there has been talk about gender equity in top leadership roles, in reality, we have reached a plateau. It has been difficult to shift from the stated desire of companies to have more women in leadership positions to tactical delivery that will ensure women are in the talent pipeline. Businesses need to put more effort into developing female talent up the career ladder. That could be how they retain their senior executive women and meet their diversity targets,’ she tells CSj.
The predominance of family-owned or controlled companies in Asia is usually cited as a barrier to greater gender diversity in listed companies and a particular characteristic of the Asian corporate landscape.
‘That has an impact on the dynamics of selecting the board members because the family having a controlling power will appoint the people they are comfortable with, usually from within their inner circle to join the board,’ Ms Yi says.
But change is afoot as the second and third generation of these founding families return from studies in the US or UK with their MBA or business management experience and with a different mindset, but change is happening slowly according to Ms Yi. ‘Often the founders have a difficult time letting go and even when they hire a CEO who is professional, they maintain a strong control over their companies,’ she says.
She adds that the old boys’ network is still prevalent across Asia and this too is inhibiting the appointment of women to boards. ‘In Asia, there is a lack of leaders who strive to bring about a diverse and inclusive board structure. When you look at the composition of a lot of boards in Asia, there are not many truly independent directors and the board selection process still relies heavily on social networks. The way Asians view board appointment needs to catch up with the times too. Board directorships are often coveted for their prestige and viewed much like memberships to an exclusive club where directors view it as an honour to be asked to sit on a board rather than a professional responsibility that will require a considerable time commitment.’
‘In markets like Australia you can’t sit on the boards of more than six listed companies, so in a lot of developed countries there are regulations around how many listed boards you can sit on. I haven’t seen that in Asia yet. I know some people in Singapore who sit on 15 boards, that’s more than a full-time job.’
This is where, Alicia believes, the board chairman and company secretary have a role to play in leading and managing a board. ‘Board leadership, composition and process are not static; rather, they change to align with shifting strategies as well as external factors, including macroeconomic forces and new competitors. No structure can be expected to last forever. As such, renewal and remodelling is needed,’ she says.
So why are Singapore and Hong Kong, the two leading international business hubs of the region, that pride themselves on their corporate governance and commitment to diversity and equality, lagging behind Malaysia, India and China when it comes to gender diversity in the boardroom?
In India and Malaysia, the presence of quotas plays a big role, but Ms Yi believes corporate culture also plays a role. Although Hong Kong has a track record of high-profile women in business and government, including the Chief Executive elect of the Special Administrative Region, this has not translated to the boardroom. ‘Due to the visibility of a select number of high-profile female leaders in different sectors, often people just assume that the bias doesn’t exist anymore, but our research paints a different picture,’ she says.
Despite Hong Kong having the largest boards in the region with an average of 14 members, 29% of boards still have no women, In particular, few women are being appointed as executive directors, who comprise 31.3% of directors (another 39.7% are independent board members and 29.0% non-executive directors). The energy and information technology sectors also saw the lowest representation of female board members at less than 4%.
Singapore has a board culture that does not place emphasis on gender diversity, with only 33% of boards surveyed considering it an important attribute. Furthermore, over 80% of board search committees use criteria that tend to favour managers already within the pool of directors on boards. This makes it difficult for women to break into this network of directors seen as having the right skills, experience and contacts to serve on boards. Another major limiting factor is the tenure of Singapore directors, with an average of 9.4 years amongst male directors and 7.2 years for female directors. Both figures are the highest in the region. This low turnover limits the opportunities for women to obtain directorships and there are still several sectors in Singapore where women make up less than 5% of board members.
One force for change may be emerging from the bottom up – shareholder activists. Ms Yi says, increasingly, institutional investors are demanding gender diversity as are shareholders at meetings, more so in Hong Kong than Singapore.
Half the sky
China does not have a gender diversity quota or regulations on the composition of boards of listed companies but it comes ahead of Singapore and Hong Kong in the survey. Chairman Mao’s maxim that women hold up half the sky may have had some influence on this.
‘When I look at the corporate culture, I think a positive thing that resulted due to communism is this gender neutrality. Women have long been recognised as assets in the Chinese workforce and this is apparent during my business meetings in China where I see a lot of women in senior roles. This is a stark contrast to Japan and Korea,’ Ms Yi says. Booming technology and ecommerce companies in China also have a very different, gender blind, philosophy in regards to hiring. ‘They are just looking for the smartest and most qualified talent,’ she adds.
Ms Yi has changed her attitude towards the idea of quotas. ‘I think quotas are the only thing that will really work if I want to see a significant change in my lifetime. I used to be really against it for all the reasons people talk about. A lot of women are against it because they don’t want to be seen as token additions.’
‘While progressive societal norms are the most effective way to build meaningful and impactful gender diversity on corporate boards, each region has different levels of societal acceptance for gender equality. Relying on market forces will not move the needle by much. Putting in place a target with a threat of a quota, similar to the UK Corporate Governance Code on gender diversity at board level, is a step in the right direction,’ she adds.
An emerging area where women can have a greater input if at the periphery of the board, is on advisory committees. ‘Because board composition is less flexible, a lot of companies are now starting to put together an advisory board and we see that happening a lot in China,’ she points out.
Ms Yi sees sprawling Chinese conglomerates embracing these committees as their businesses grow quickly and diversify, and they need the experience and insights to comprehend new sectors and markets. ‘A Chinese company trying to market in the US or a traditional company trying to get into ecommerce may need some advisers. There are a lot of companies moving towards the advisory board concept.’
‘As Asian companies mature and face greater competition and go global, there has to be a trend of professionalising the whole process of selection and appointment. The highest-performing boards now plan for board succession as much as they would for CEO succession. Undertaking a regular board evaluation is a crucial element of the board succession planning process. That requires a keen understanding of the strategy, as well as the ability to identify directors with the skills and experience that synchronise with the strategy. To enable success, an increasingly important consideration for all boards as they refresh membership is diversity,’ she says.
Listed companies and boards are increasingly looking to firms like Ms Yi’s to support the selection process. The traits she looks for in a potential board member for her clients, though, remain gender neutral. ‘What I look for in a board member is their ability to articulate an insight and that insight could come from asking certain questions,’ she says.
‘It’s a combination of competence as well as maturity in their thinking because it’s a very different responsibility from being an executive. As a board member, you are given a lot of information and you need to be able to reflect on it and ask the right questions. It’s insight and depth, and the ability to demonstrate professional experience and provide a different perspective. They have to come well prepared to the board meetings, and, more often than not, female board members ask different questions, bring a different set of experiences and concerns with them into the boardroom and come better prepared,’ Ms Yi says.
Korn Ferry’s Diversity Scorecard 2016: Building Diversity in Asia Pacific Boardrooms is available online at: www.kornferry.com.
The Community in Business report on gender diversity on boards ‘Women on Boards Hong Kong 2016’ is available online at: www.communitybusiness.org.