Board diversity through renewal, succession and mentorship

JUNIE FOO

AS companies reshape themselves in the post-Covid environment, there are many new opportunities for those who seek to accelerate performance. Board diversity is one way to equip corporate leadership with the necessary range of skills and experience to deal with the complexities of today's operating environment.

From 1 January 2022, Singapore listed companies are required to adopt a board diversity policy that addresses gender, skill and experience, and other relevant aspects of diversity. Companies must describe the board diversity policy and details, such as diversity targets, plans, timelines and progress in their annual reports.

The pace of change among top leadership has been lethargic. Corporate boards continue to be dominated by men, with women directors occupying just 12.7 per cent of all board seats on listed companies in 2021 - albeit up from 10.8 per cent in 2018. According to the Singapore Institute of Directors' (SID) Singapore Directorship Report, just over half (52.7 per cent) of boards have at least one woman director.

This is out of step with the evolving business environment and the need for modern, diverse boards.

Modern boards

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Boards today are expected to possess significant expertise in areas as specialised and diverse as digital transformation, cyber security, corporate reputation management, sustainability and social media, along with more robust soft skills and knowledge of human capital. Given the increased focus on racial injustice and social inequality around the world, many leaders are reconsidering and accelerating their diversity and inclusion efforts.

While board appointments should rightfully be based on meritocracy, where an individual's capability and fitness to serve is the primary focus, irrespective of gender or skillsets, diversity is nevertheless a key tenet of any effective board and much needed in this Covid world, where disruption is the norm.

Board renewal

Term limits as a method of encouraging board renewal has been used to varying effect. The jury is still out on the so-called nine-year rule, where independent directors are required to seek approval via a two-tier vote from shareholders to continue to be deemed independent beyond their nine-year term. As of 31 December 2021, nearly one-third (32 per cent) of all directors in listed companies have served more than nine years.

The lack of renewal has many consequences, including a negative impact on the development of human capital. In extreme circumstances, a lapse in leadership succession and refreshment has been associated with irregular practices and integrity breaches. Long tenures can allow board members to create networks that may benefit them personally.

Boards in industries with shifting structures - moving away from a family-owned or Temasek-held ownership, for example - will also need to look in very different places than they traditionally have, for new members. The search has to be broadened to a wider network to avoid landing up with a cookie-cutter approach to leadership.

Another reason for boards to search more widely is that executives are taking on fewer board commitments to avoid the conflict of interlocking or multiple directorships. Instead of focusing solely on former CEOs as board candidates, leaders of large business units with less experience should also be considered. As should younger and less visible candidates with newer skills like cyber security, human capital management and sustainability expertise.

A light touch and moral suasion have been Singapore's preferred approach to encourage greater diversity on corporate boards and senior management. However, sometimes a light touch is not enough. Board renewal will not happen if there is no intentional succession planning process and push. Mentoring for diversity

Mentorship is one way to support aspiring directors in gaining experience, counsel and sponsorship to eventually take on board roles. Mentorship programmes are gaining traction in professional associations, chambers of commerce and nonprofit organisations, including at SID.

Mentors play an instrumental role in the career progression of diverse talent. Proper guidance would help enhance the opportunities of aspiring directors to step up and contribute. Of course, mentorship is a two-way street. The professionals being mentored must be willing, open and proactive to receive the reciprocated value of the relationship.

Such mentorship programmes can build a deeper understanding of expectations on a listed board and governance practices. Workshops, networking and knowledge sharing can strengthen the foundation of governance and professional development, as well as provide a credible supply of board-ready candidates.

Intentional renewal as a strategy

With added pressure from economic and societal volatility, fractured or dysfunctional boards present more risk than ever before. It takes a lot of purposeful search and intentional efforts to build a good board.

Assembling a strong board of directors to work as a dynamic entity requires far more than just anticipating and filling vacancies when they occur. It is a strategic process, one that board chairs should be sure to have closely aligned with the company's business strategy. The chair and all members of the board must play a part in the board renewal process to truly build up a diverse and effective board.

The writer is a council member and chair of the Board Services and Mentorship Committee of the Singapore Institute of Directors.