+ | - | reset

Women, diversity on corporate boards positively influence financial performance

8 Apr 2021

COMPANIES that appoint one-third women on board displayed 38% higher median return in equity (RoE), compared to corporate boards with no female members, according to a “Malaysia Board Diversity Study and Index” by the Institute of Corporate Directors Malaysia.

Willis Towers Watson global practice leader (executive compensation and governance) MD Shai Ganu said boards could benefit from gender diversity that could increase perspectives represented in the boards, which enhances quality of decisions made.

“In 2019, 19% of Malaysian board seats were held by women, an increase from 2016’s 14%. There is still much room to enhance the current gender representation on Malaysian corporate boards,

“The quality of the board will lead to a more considered decision making, which in turn will help the board discharge its stewardship responsibilities, help enhance overall performance and future-proof the company,” he said during the virtual presentation of the Study and Index yesterday.

The Study and Index examined the performance of 312 top public listed companies on Bursa Malaysia from 2017 to 2019. It covers family and non-family businesses across the small, medium to large market capitalisation segments.

The Index measures boards against eight key dimensions of board diversity: Gender, age, tenure, independence, culture, international expertise, domain expertise and industry expertise, after which, the aggregate performance of companies is evaluated and ranked against the diverse dimensions.

The study noted that a well-constituted board is better placed to achieve sustainable financial performance across key financial performance metrics, suggesting a correlation between board diversity attributes and company financial performance.

Specifically, the study revealed a greater adoption of diversity attributes across different dimensions — gender, independence, tenure, culture and international expertise — have correlation with performance.

It also revealed boards with 33% to 50% independence correlates to better financial performance with 29% higher RoE and 28% higher revenue growth compared to boards with zero to 33% independence.

Shai said the result thus supports the hypothesis that boards with an optimal balance between independent and non-independent representation are likely to outperform others.

To spur greater board diversity, he said there are four key actionable steps that Malaysian boards can undertake.

He stressed the need to relook at the board architecture, board refreshment may be necessary, especially with overly long tenure directors and consideration for additional independent non-EDs.

“A board skills matrix analysis may also help determine the skill gaps needed to be filled.

“Look beyond inner circles and personal networks for new board candidates. Start utilising independent sources to identify suitably qualified candidates, to get a more diverse pool of candidates to choose from,” he added.

Shai suggested that to evaluate board effectiveness, the nomination and remuneration committee should regularly assess whether the current board mix is aligned to the organisation’s future growth strategy.

“Constantly acquire new skills and knowledge. Refresh capabilities, keep up with the latest trends, issues and developments that may impact the organisation and the industry,” he concluded.

 


 

This article was first published in The Malaysian Reserve on 8 April 2021.


Survey

ICDM
Homepage

ICDM