A Small – But Important – Step Towards ‘Director Diversity’

By Jony Ho

A company’s main mission is to find sustainable profits. At the same time, the issue of corporate governance is drawing growing investor attention, focused on how to balance the interests of all stakeholders under their legal and compliance requirements, while still achieving reasonable returns on a sustainable basis.

As China’s window on the international financial world, the Hong Kong Stock Exchange (0388.HK) attaches great importance to corporate governance issues, led by the importance of independent directors. It expects independent directors in non-executive positions to play a supervisory role, to balance the powers between executive directors while representing rights of minority shareholders.

In this regard the Hong Kong Stock Exchange has set out specific rules, such as requiring that a board have at least one-third independent non-executive directors; and if an independent director has been on the board for more than nine years, he or she must stand for re-election in a vote by independent shareholders, and explain how he or she has managed to stay independent after serving on the board for such a long time.

When compared with other major exchanges such as the NYSE, Nasdaq, LSE and ASX, there is still a lot of room for improvement by the HKEX. For example, it could require increasing the proportion of independent directors to more than half, which would include an independent non-executive director, and even mandate the addition of a senior independent director for communicating with shareholders. But we also understand that most Hong Kong-listed companies are family businesses, and their boards are generally controlled by family members, which are often resistant to such change.

More women in the board

Against that kind of backdrop, we can turn to a less sensitive topic: How to increase the diversity of listed company directors? This element, which looks at whether the directors are diverse in terms of working background, professional qualifications, education, race, and even age and gender, has also attracted considerable investor attention in recent years.

The HKEX issued a consultation document in April suggesting all single-sex boards of listed companies should appoint at least one member of the other gender during a three-year transition period, indicating it doesn’t want to see the board of any IPO applicants dominated by a single gender. As we all know, the boards of Hong Kong listed companies are dominated by men. Thus the document is issuing an obvious message to listed companies: Your boards must have female directors.

Was such a request the work of HKEX Chairwoman Laura Shih? Of course, we’re just kidding. But there’s no kidding that one-third of the boards of more than 2,500 publicly traded Hong Kong companies are all male, and only 12% of directors are women. Compared with other markets, the proportion of female directors in Hong Kong is relatively low.

Although the LSE and ASX don’t have rigid regulations for women’s representation on company boards, the ratio of female directors in the two are as high as 34% and 32%. In Malaysia, India and Singapore, the ratios are 27%, 18% and 17%, respectively, which is also significantly higher than Hong Kong.

These examples show just how conservative Hong Kong is in this regard. Even in India, which has always been a patriarchal society, regulators require listed companies to have at least one woman on their boards (although in many cases, this female director is the spouse of a major shareholder or current director), in order to meet gender diversity requirements.

Among the 12 directors of London-listed Barclays Bank (BARC.L), the male-to-female ratio is 8:4, including the chairman, eight non-executive directors, and a senior independent director, which looks like a good example of independence and diversity.

Hong Kong’s capital market is complex and diverse, and has its established traditions. Coming from that kind of background, it may be difficult for the HKEX to force listed companies to hire female directors. But at least the exchange is taking the first step by providing some guidelines.

Understanding gender differences shows that men and women often have different working styles. For example, men are often less interested in smaller matters, while women are often more attentive and considerate. If companies name more female directors to their boards, it could well bring a positive new look and feel to local corporate governance.

(In the event of any conflict between the English and Chinese versions of this blog, the Chinese version should be the reference.)

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