HK Recognises Need for Board Diversity

Standard Chartered Bank Building

Standard Chartered Bank Building (Photo credit: Wikipedia)

Hong Kong listed company directors recognise the value of board diversity but also identify barriers to making their boards more diverse, according to the Board Diversity in Hong Kong: Directors’ Perspectives 2013 report, the first-ever research on chairpersons’ and directors’ perspectives released by Community Business, a non-profit focusing on corporate responsibility and a thought leader on diversity and inclusion in Asia.

Conducted via a survey and a series of interviews with chairpersons and directors of Hong Kong listed companies, the research provides a reality check at a critical time when Hong Kong Exchanges and Clearing’s (“HKEx’s”) new code provision on board diversity came into effect on 1 September 2013.

According to the research findings, close to 90% of directors who participated in this study recognise the importance of ensuring a diversity of perspectives on their boards. However, 92% of directors indicated that they still face certain challenges in making their boards more diverse, with one third citing the inability to identify diverse board candidates as a key barrier.

30% of directors also indicated that a lack of awareness or understanding of the benefits of diversity to their business is another key barrier, while 76% of directors saw board diversity as a measure to comply with corporate governance requirements rather than a move that made good business sense. These findings suggest that the business case for board diversity, and its link to enhanced business performance and competitive advantage, is still not well understood among Hong Kong’s listed boards even though there is ample research[1]that demonstrates the positive relationship.

Hong Kong listed company directors also viewed diversity in broad terms beyond gender, age, and culture, and over 80% of them believe functional and industry experience as well as personal attributes, like integrity as more important.

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“It is an encouraging sign that Hong Kong directors define diversity in broad terms with a focus on meritocracy. Yet we call on Hong Kong listed boards, and especially their chairpersons, not to overlook or excuse the need for a more critical examination of the diversity of their boards,” says Fern Ngai, CEO of Community Business.

“Companies should determine the diversity ‘mix’ relevant for their needs today and into the future, by looking at all board aspects – not only skills and experience, but also other demographic characteristics such as gender, culture and age. It is only then that companies will truly reap the full benefits of board diversity to gain enhanced business performance and competitive advantage,” Ms Ngai added.

“Board diversity is now quite rightly seen as encompassing not just gender, but also other characteristics including age, ethnicity, working style, industry experience, and academic qualifications,” says Steve Bertamini, Group Executive Director & CEO Global Consumer Banking, and Chair, Group Diversity & Inclusion Council, of Standard Chartered Bank, the report’s sponsor. “An increased awareness of the issue is ultimately only one part of the equation. Companies will still need to do more work to ensure that awareness is translated into action, that boards actually become more diverse, and that the benefits of diverse boards are recognized and valued.”

Professor Judy Tsui, Chair Professor of Accounting and Vice President (International and Executive Education) of The Hong Kong Polytechnic University, which provided academic advice and review on the survey, interview guide design, analysis and final report, commented, “The research outcome and response rate suggests that diversity on boards is still not at the ‘top of mind’ for the majority of directors and businesses in Hong Kong. The majority of Hong Kong listed board directors and chairpersons interviewed and surveyed view board diversity as a measure to comply with HKEx’s new code provision.”

She added: “If implemented effectively, the new code provision can be a powerful catalyst for change of culture and mindset towards better corporate performance. However, much more persuasion and culture change remains to be acted on to move diversity from a ‘ticking the box’ exercise to an opportunity to develop boards for better sustainability and performance for businesses.”

Key Findings

— Majority of directors believe board diversity is important, however, gender and culture are rated as the least important aspects of diversity.

– Of the 101 directors surveyed, close to 90% believe board diversity is important with only 2% stating it is unimportant. When asked to rank the aspects of diversity, gender (48%) and ethnicity (41%) were ranked lowest, whilst functional experience (92%), industry background (88%) and personal attributes (83%) were ranked highest.

— Directors see board diversity leading to balanced decisions, with the impact on employee and customer loyalty ranking lowest.

– 91% of directors believe diversity in the boardroom enables balanced decision making. The benefits leading to enhanced business performance (61%), strengthening employee commitment (48%) and customer loyalty (45%) were rated significantly lower, indicating more education is required for Hong Kong to understand the business case for board diversity.

— Although most directors believe their boards are diverse, over 90% of them identified barriers to making their boards more diverse

– 77% of directors stated their boards are currently diverse, even though Community Business’ Standard Chartered Bank Women on Boards: Hang Seng Index 2013 report shows only 9.4% of directorships are held by women. This is probably due to the broader definition of diversity derived from functional experience, industry background and personal attributes.

– 92% of directors identified barriers to making their boards more diverse, stating the inability to identify diverse board candidates (33%), lack of understanding of the benefits of diversity (30%) and not seeing the relevance to their business (28%) as key barriers.

— Hong Kong Exchanges and Clearing’s new code provision is driving action at some level

At the time of the survey, which ran from 23 July to 6 September 2013, 77% of respondents stated their companies had taken some action, with slightly under half (44%) saying they had an ‘agreed and disclosed policy’. From the interviews of company directors representing small, medium, large companies, there was general intention to comply with the new code provision, although smaller companies and family-owned businesses indicated the challenge of implementing board diversity in a meaningful way that is relevant to their businesses.

From: Community Business

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