Why boards need to ensure gender diversity

One of the fundamental principles of business is for companies to do as well as they can financially. Keppel, for example, says it is focused on “growing our businesses to deliver sustainable earnings growth”. OCBC says its objectives include meeting return on equity (ROE) and earnings per share growth targets.

While management has primary responsibility for corporate results, the board of directors is supposed to take a strategic approach towards making sure their company has what it needs to perform well.

Indeed, the Code of Corporate Governance from the Monetary Authority of Singapore (MAS) says an essential part of the board’s role is to ensure that the necessary financial and human resources are in place for the company to meet its objectives.

The recent remark by Mr David Gerald, president of Securities Investors Association (Singapore), that it is not the business of boards to focus on gender diversity is, therefore, surprising, coming from an organisation that says it champions the rights of investors.

On the other hand, it is encouraging to see the Diversity Task Force (DTF), comprising industry leaders from the private and people sectors, announcing various proposals a few weeks ago to improve gender diversity in Singapore companies.

The DTF was initiated by Speaker of Parliament Halimah Yacob, during her previous term of office as Minister of State (Social and Family Development). The move was prompted by the growing concern that women in Singapore continue to be under-represented on boards and in top-level senior management positions.

While the DTF’s proposals mark a start towards improvement in gender diversity, corporate boards need to take stronger and faster action if they are to maximise financial results and fully achieve their objectives. Indeed, research showing that having more women in senior roles leads to better results clearly demonstrates the importance of gender diversity.

WOMEN POWER

Analysis by Catalyst, a United States-based non-profit that provides research and information about women at work, shows that companies with high representation of women on the board of directors outperform those with low representation by 84 per cent on return on sales (ROS), 60 per cent on return on invested capital (ROIC) and 46 per cent on ROE.

Here in Singapore, the NUS Business School and BoardAgender, an arm of the Singapore Council of Women’s Organisation whose aim is to raise awareness of the economic benefits of gender balance, similarly found correlations between the ratio of women on the board and firms’ return on assets (ROA) and ROE.

Boardrooms are not the only place where women make a difference. Consulting firm McKinsey found that companies with a higher proportion of women in their management committees achieve the best performance and companies with the highest level of gender diversity in top management outperform their sector in terms of ROE, operating results and stock price growth. Despite these impressive results, the DTF found that only 8.3 per cent of board directors are women and nearly 57 per cent of companies do not have any women on the board at all.

The latest Singapore Board Diversity Report produced by NUS Business School and BoardAgender showed that only 4.6 per cent of chief executives in the 677 SGX-listed companies are women. And a level down, Grant Thornton found that only 27 per cent of senior management at local companies are women.

WHAT CAN BE DONE?

While the DTF proposed training, mentoring, awards and research as well as internal processes for companies to develop a gender diversity policy and review why board nominations do not include women, many of these activities call for reviews rather than concrete action.

The DTF’s target date of 2020 for women to comprise 20 per cent of boards is also far away. Boards should act more quickly to place more women in senior roles to fulfil their responsibility of maximising performance.

One solution is for boards to set clear targets and time frames for increasing the percentage of women in directorship and senior management roles, and then holding management and themselves accountable. A complementary tactic is to set term limits for board members and replace retiring members with women.

Another is to bring women with specific skills onto the board rather than only those with directorship experience. Leveraging the skills of the 27 per cent of women in senior positions at large companies as well as other women in small and medium enterprises or consulting could be the right start.

The DTF’s proposal to place more emphasis on gender diversity in the Code of Corporate Governance, such as by requiring companies to disclose their gender-diversity policy, is a good one. Since listed companies are required to explain deviations from the code, they would be required to explain why they do not have more women on the board if percentages remain low.

When companies are not putting in place the human resources that will help them fully meet their objectives and optimise performance, as is happening now with the low numbers of women in senior roles, practices need to change. The board has a responsibility to make sure it and senior management both put more women in their ranks, so the company, its employees and its shareholders can all attain the results they deserve.

ABOUT THE AUTHOR:

Richard Hartung is a financial services consultant who has lived in Singapore since 1992.