Diversity in corporate boards linked to return on assets, says NUS study

Published Wed, Oct 29, 2014 · 02:30 AM
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BOARD diversity makes business sense, the Singapore Board Diversity Report has found.

Companies with both genders, at least two ethnic groups and two generations represented in their boardrooms have significantly higher return on assets (ROA) - they enjoy average gains of 5.1 per cent, compared to the average of 1.1 per cent in companies with none of these diversity indicators.

ROA is also, on average, higher for boards that are either diverse in gender, ethnicity or age, said the report, which was put together from a study of annual reports issued by 676 companies listed on the Singapore Exchange.

A major finding was that 43.8 per cent of companies with at least one female director in the boardroom fared better, enjoying an average ROA of 3.3 per cent. The figure was 0.3 per cent in companies with all-male boards.

The study also examined whether multiple generations were represented in boardrooms, using a 20-year age gap between the oldest and youngest director as the benchmark.

It found that firms with multiple generations on their boards enjoyed an average ROA of 3.3 per cent, compared to 0.6 per cent in companies with single-generation boards.

Ethnic diversity was found to be rather limited in Singapore boardrooms. Fifty nine per cent of boards had members from only one ethnic group; 30.8 per cent of boards had two ethnicities represented. Nearly 86 per cent of all directors were ethnic Chinese.

The National University of Singapore (NUS) Business School's Centre for Governance, Institutions and Organisations (CGIO) and BoardAgender have been publishing the Singapore Board Diversity Report annually since 2011, but this was the first study of the impact of diversity in Singapore's boardrooms on companies' performance.

Associate Professor Marleen Dieleman, the co-author and associate director of CGIO, said: "Our study demonstrates that boardroom diversity is associated with significantly higher profitability, and this holds true for all types of diversity we measured - whether it be gender, age or ethnicity."

Despite the link between board diversity and the bottomline, the research found SGX-listed boards in Singapore to be largely uniform. More than half of the boards studied were all-male and had all their directors from the same generation and ethnic group. Only 7.7 per cent of boards displayed diversity across the three categories of gender, ethnicity, age.

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