Beyond diversity targets, companies' strategic plans are also helpful disclosures: BlackRock

WHILE disclosing targets on board gender diversity is a meaningful indicator of how a company's board approaches the wider concept of board diversity, other helpful disclosures for investors would also include strategic factors that will impact a company's financial performance.

Speaking at a virtual panel discussion on board diversity organised by the Singapore Institute of Directors, Shinbo Won, managing director of asset management firm BlackRock, said that diversity targets should tie back in with a company and its board's capability to create financial returns over time, and less for the sake of diversity itself.

"How do we perform as a financial return-generating entity for investors over time? What are the kind of skillsets that we actually need on this board to guide the company to do that? What are some of the risks? What are the opportunities," said Won during the webinar on Wednesday (May 4).

"What is our approach to ensuring that the board has a strong succession plan to build that leadership team overtime?"

He added that the best disclosures are those that not only include diversity targets relating to gender and age, but also those that include these strategic factors, and such helpful disclosures are rare.

That being said, Won reiterated that board diversity is one of BlackRock's key consideration when assessing board quality, as they play a crucial role in the performance of companies over the long-term.

Other panellists in the webinar spoke about various ways companies can improve their board diversity. While efforts to improve board diversity among Singapore companies have been ongoing over the last few years, the Singapore Exchange had announced in December last year that companies are required to provide climate-related reporting as well as disclosures on board diversity from January this year.

Ramlee Buang, an independent director, said the nominating committee of some of the boards he is on have specifically reached out to individuals who have no directorship experience in any listed companies in the last 2 to 3 years, as a means of improving board diversity.

"The most important thing is the mindset of the board has changed as well. Nothing is actually off the table. We looked at people with cultural differences, we looked at people of different nationalities," he added.

According to the report released by the Council for Board Diversity in March, there were more first-time directors being appointed in 2021 than previous years, with 59 per cent of board appointments in the top 100 companies coming from first-timers - the highest since tracking began in 2015. However, male directors made up 45 per cent, while women at 14 per cent.

Rachel Eng, the managing director of law firm Eng and Co, as well as a member of the Council for Board Diversity, suggested that female directors should be appointed to chair the board's nominating committee, which role is to identify the best candidates for different director positions.

She said that male and female executives tend to operate in different networks, and it may be more challenging for male executives to reach out to potential female candidates, who may not have the experience, but have the qualifications. Having a female chair the nominating committee would give the board access to a wider pool of network that includes females.

One other way boards can be introduced to potential female candidates is by getting to know them first through their work.

"We got to have someone to put us on the first board before we gain experience... Most boards are quite accepting and quite capable of appointing 1 female candidate. But most of them, after they appoint 1 candidate, they pat themselves on their shoulder and say, 'We've done our job,'" said Eng.

Oscar Wezenbeek, from paint company AkzoNobel, said that his company set up a steering committee to find out challenges on recruiting female talent and keeping them in the organisation, and whether programmes set up to raise awareness and eliminate these obstacles have made progress. The company also set up women-inspired networks for networking opportunities for women.

He also pointed out that wider organisational change in the company should also come from bottom-up initiatives, instead of top-down pressure from management reacting to government regulations.

And while female candidates should not be appointed for the sake of meeting diversity targets, Eng pointed out that there is a big gap between qualified but inexperienced female directors and seasoned board members, and they may just need more time to prepare before meetings.

She also said that good chairmen would give these female directors a voice and specifically ask them for their views, to ensure that their views are not drowned out among other male directors.

To find out what gaps there are on a board, Eng also suggested that the company's management can come up with a list of skill sets or experience they wish to have on the board, and get existing board members to check through what are their expertise, to get a clear sense of the parts that are lacking.

An alternative is to get an external party to evaluate the board performance, she added.