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Diversity works

Studies show that mixed-gender boards tend to outperform all-male boards and male attendance and performance improve with more female directors.
Friday, April 1, 2016 - 05:50

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The business case to include more women on boards is a powerful one. Women represent a seriously under-fished pool of talent.

ONE of the biggest stories of the year concerns the United States presidential election. On television, radio and in social media, the debate is raging over whether the presumptive candidate of one of the two major political parties is suitable for the job. The world never imagined that such a person would stand a chance of becoming president of the world's superpower.

And yes, the presumptive candidate of the other major party is a woman. But so what? That is no longer news. Yet, the picture is very different in this part of the world.

Women hold very few seats on Asia's corporate boards. In Singapore, more than half have no women directors at all. A 2015 Korn Ferry report on board diversity in the Asia-Pacific showed that all-male boards are prevalent in South Korea, Japan, Malaysia and Singapore. The percentage of women on boards in most Asian countries is about half that in Europe, Australia and North America.

What is notable is that Singapore is ranked third lowest, after other Asian countries such as China, Indonesia and Malaysia, in female board participation in a December 2015 report by the Diversity Action Committee (DAC).

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The reality is that many Singapore corporations tend to fish from the same pool of male executives, accountants, lawyers and civil servants when adding directors to their boards.

By failing to bring women on to their boards, our companies risk overlooking qualified director candidates in a market where talent is already scarce. They risk missing an opportunity to improve corporate governance by increasing the diversity of voices and views, and they risk not connecting with the very people who are playing an ever growing role in spending decisions, in the economy and in Asia's work force. After all, by and large, businesses are likely to have customers, employees and shareholders who are women. It would make sense to have women board members too.

GENDER DIVERSITY

This reminds me of what the chair of the winning board of the Singapore Corporate Awards' Best Managed Board said: He was baffled by one question from the judging panel : "What was his board doing to address gender diversity?" To him, it was irrelevant whether his board comprised men, women or hermaphrodites!

Like him, for many years, I espoused the same view: diversity, and in particular, gender diversity did not and should not matter at all. Each director should be appointed on merit, talent, experience and skills. I thought it was insulting if extraneous matters, such as gender, were brought into the frame. One wanted to be at the table because of merit alone and not because there was a guideline, rule, quota or law that dictated affirmative action. My view on this particular issue has, over time, changed.

Every board will benefit from a diversity of ethnicity, culture and geography, academic background, competencies and experience. This paves the way for diversity of thought, new solutions, new ways of working and new innovations. This cognitive diversity breeds a diversity of ideas that will help feed companies with new solutions, approaches and ideas.

Simply put, board diversity is good for business.

One of the widely accepted benefits of board diversity is that more diverse groups foster creativity and produce a greater range of perspectives and solutions to problems, with better decision outcomes. Diverse boards are less likely to suffer from groupthink - the tendency for people of similar cultural backgrounds and characteristics to conform with accepted norms and patterns of behaviour, rather than challenging the status quo or encouraging the sort of free thinking that underpins ideas-generation and innovation.

The business case to include more women on boards is a powerful one. Women represent a seriously under-fished pool of talent.

Many studies also show that women are more diligent about attending board meetings. And not only that: male attendance and performance improve with more female directors. Men do better and come better prepared when there are women at the table. The boys want to raise their game when the girls are around. When one expands the universe of candidates, the existing ones have to work harder.

Numerous studies have shown that mixed-gender boards outperform all-male boards. Just to be clear, this is a correlation not a suggestion of causation. A recent McKinsey study of 366 public companies across Canada, Latin America, UK and the US showed that gender-diverse companies are 15 per cent more likely to outperform their peers and 35 per cent racial and ethnically-diverse boards are more likely to have higher financial returns than their respective national industry medians. In fact, a new McKinsey Global Institute Report published late last year finds that US$12 trillion could be added to global gross domestic product by 2025 if every one of the 95 countries studied match the progress towards gender parity of its fastest-improving neighbour.

So the real question is: what do we do about it?

Is it sufficient merely to encourage nominating committees to re-examine their selection processes for directors, to make it more thorough, broader and more rigorous? Can we just encourage board chairmen to look at women candidates? Will this in practice happen? And even if it does, will it be too slow?

There have been small improvements, and women's representation on SGX-listed boards in 2015 reached 9.5 per cent, up from 8.8 per cent the previous year. The rate of change, however, remains painfully slow. Given Singapore's position on the global stage today, surely our comparisons and standards should be global?

We do not have any mandatory measure for more women on boards; so the current debate is - should we put into place regulations and legislation? Today, my answer to this would be "Yes". In part, to leave this to the market would take too long; in part, legislation is often a way of transforming society for the better.

MANDATORY DISCLOSURE

A first step could be to make disclosure and reporting of diversity and inclusion mandatory. Australia and the United Kingdom, since 2010 and 2012 respectively, require listed companies to report their diversity policy and measurable objectives for achieving gender diversity and policies and progress towards achieving this on boards and senior executive positions.

Perhaps, we should contemplate quotas. While a recent study by the Cambridge Judge Business School showed that boardroom gender quotas do not have trickle-down effect to senior executives, it is not a reason to dismiss this idea completely. The implicit threat of quotas is a key reason why voluntary targets in the UK and Australia have been remarkably successful. It has also helped boards in Europe, and even Malaysia, bring broader based talent on to their boards.

We are already laggards in the area of board diversity. It is high time for some good housekeeping.

  • The writer, managing partner at Morgan Lewis Stamford, is a committee member of the Diversity Action Committee (DAC) in Singapore which was formed in August 2014 to build up representation of female directors on SGX-listed boards. The views expressed in this article are, however, entirely her own.
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