Women on corporate boards: Finding a voice

By the end of 2019, every California-headquartered company listed on a major US exchange must have at least one woman on its board. By 2021, the minimum requirement rises to two for companies with at least five directors and three for those with six or more directors.

The legislation – passed last year – marks the end of a longstanding reluctance among US regulators to act on board gender diversity, even as other countries have introduced quotas and comply-or-explain policies. The bill noted that 26% of the Californian companies in the Russell 3000 index had no women on their boards as of June 2017, while citing an array of studies indicating that female representation leads to improved performance. Investors believe it is already making a difference.

“There is a resounding ethos that the bar is not being lowered. Rather, it allows boards to consider people who are not the most obvious choice,” says Judith Li, a partner at Lilly Asia Ventures. “There are outspoken former CEOs you would normally jump to but because the law requires you to consider women, you might consider someone who is a chief medical officer.”

The California legislation was not without controversy. There were claims that it would violate existing civil rights law, undermine ongoing efforts to promote ethnic diversity, and result in sub-optimal levels of governance. However, among those actively pushing for greater female representation on boards, there is another perspective: Are quotas necessary to drive change?

“The best way to change is through a cultural commitment to diversity, top down and bottom up,” says Fiona Nott, CEO of The Women’s Foundation (TWF) in Hong Kong. “If you have quotas, there must be other support measures, so people don’t see the quotas as fillers and pull out. One of the problems with quotas is that you can put anyone in there – a family member could just install a female family member, so they aren’t developing the pipeline.”

Positive input

The number of women on boards has been growing in recent years, especially as institutional investors make the issue a higher priority. Women directors occupied 22% of the seats in the S&P 500 last year, up from 16% a decade ago, PwC said in its latest annual corporate directors survey. 

The survey also found that women are having a positive impact on discussions, offering different perspectives on corporate culture, talent management, social issues and board diversity itself. Respondents identified gender diversity as the fifth most important attribute on their boards, trailing financial and operational expertise, but within a few percentage points of industry knowledge and risk management skills.

Asked to explain the impetus for change, Neil Waters, head of the Hong Kong office for recruitment firm Egon Zehnder, claims it is partly embarrassment: It is hard to defend the premise that boards should be a male bastion. A second factor is research indicating that diversity adds value, even though questions about causality – whether diversity is a proxy for progressive thinking and openness and that might be the real reason why profitability is higher – remain. Third, there’s just more talent.

“Now more than ever, we have a large number of women who have dedicated themselves to the professional workforce. The number of qualified women is growing across the board – I wish it were higher, but its arguably better than it ever has been,” Waters says. Women account for 57% of the recent board appointments Egon Zehnder has worked on. Sometimes the firm is asked to look solely for female candidates; other times female candidates win out on merit.

Nevertheless, there is still more to be done. One investor describes the board recruitment process as even more mysterious than the PE recruitment. “Someone nominates a person they have worked with before. That person meets the rest of the board and that’s how it goes. In a male-dominated society, the usual suspects would be male,” the investor says, adding that any measure encouraging people to dig deeper, whether a quota or something else, is beneficial.

The 30% Club advocates for 30% female representation on public company boards and tracks movements in leading index constituents across the 14 markets in which it operates. While Australia and the UK are within half a percentage point of hitting the target, the US is on 23.6%. Malaysia leads in Asia on 23%, with Hong Kong and Japan lagging on 13% and 7.6%, respectively.

Regulatory action

Efforts in Malaysia have been supported by the introduction of a government mandate stating that women must account for 30% of board seats by 2020. In India, since 2015, companies of a certain size have been required to have at least one female board member, while Taiwan has a one-third target. Last year, the number of board seats held by women was 14% and 10.9%, respectively, according to MSCI. Progress in the UK and Australia hasn’t come as a result of quotas. 

“They have government behind it, regulators behind it, and individual directors behind it. They have a common goal,” says TWF’s Nott. “Companies must have a diversity policy across their organization, they must have measurable objectives on how to achieve diversity, and they must report on it. This happens at board level and at management level. There is a lot of transparency and commitment to change.”

In this respect, Hong Kong might be starting to move in the right direction. In May, Hong Kong Exchanges & Clearing (HKEx) published a consultation paper on environment, social and governance (ESG) that proposed mandatory disclose requirements regarding the board role in ESG governance and upgrading social key performance indicators (KPI) from voluntary disclosure to comply-or-explain. TWF would like the exchange to go a step further and be explicit on gender diversity.

This appears to be happening with IPOs. HKEx issued guidance requiring listing applicants to provide additional information on board gender diversity, while those with single-gender boards must outline how they plan to change. “The consideration of diversity is becoming an increasingly important factor when investors make their investment decisions. Promotion of board diversity is a key focus of the exchange and an area we are committed to continuing to develop,” noted David Graham, HKEx’s head of listing.   

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• North America
• GPs
• Regulation
• USA
• China
• Hong Kong (China)
• Lilly Asia Ventures
• ESG