Her seat at the table

The business case for gender-diverse boardrooms 

WHAT do companies like Apple Inc and Microsoft Corp have in common? Besides competing and at times partnering in the same industry for years, Apple and Microsoft made it as the most profitable companies in 2022, as per the much touted Forbes Global 2000 ranking. Although there are many contributing factors that would have led to this achievement, a closer look into the internal structures of Apple and Microsoft reveals the promising commonality of both corporations being driven by sturdy, diverse boardrooms. 

It can no longer be gainsaid that gender-diverse boardrooms help companies move closer to their bottom line. Repeated findings over the years have demonstrated strong correlation between profitability of companies and boardroom composition. 

In 2016, Credit Suisse Group AG observed that companies with at least one female director were more profitable compared to companies with all-male boardrooms. More recently in 2019, McKinsey & Co confirmed that corporations with diverse boardrooms are 25% more likely to experience an above-average profitability. Similar observations was made by McKinsey & Co in the following year. 

Gender-diverse boardrooms is a winning formula for corporations. As Malcolm Forbes once put it, diversity is “the art of thinking independently together”. Implemented within corporate governance structure, this art can strengthen the very mind of companies. 

More specifically, it is observed that female leaders, with backgrounds and experiences distinct from their male counterparts, have the ability to enrich boardroom dialogues with renewed perspectives. This is because women lea- ders are more inclined to engage, disagree and even ask tough questions, which can help enhance the overall quality of decision-making nd layers of risk-management within a corporate structure. 

The Covid-19 pandemic serves as an important reminder to us that companies can no longer subscribe to the aged-old idea of existing to only maximise short-term profits for their investors. In these times of recovery, it has become even more crucial for companies to operate in a socially responsible manner, and women directors with inherent and unique attributes can help companies “build back better” in this respect. Born nurturers, women empowered through positions like corporate directorship are capable of cultivating valuable and inclusive business culture both within and outside boardrooms. 

There is a general consensus that women leaders are people-orientated, empathetic and tend to exert greater efforts in cultivating meaningful and continuous engagement with key stakeholders beyond investors, such as employees, suppliers and customers. For a post-pandemic world, this form of social sensitivity is indeed the very sensibility needed by companies to steer towards the right direction, not just financially, but also in terms of overall resilience and long-term sustainability. 

Measures to Ensure Her Seat at the Table

A proactive demand for companies to achieve gender-diverse boardrooms can be traced back to the aftermath of the global financial crisis of 2007-2008. Besides paving way to a timely reassessment of the general effectiveness of corporate governance structures in listed companies, the said crisis served as a significant juncture which strengthened further the universal call for greater female representation on corporate boardrooms. 

More than a decade post the crisis, we are witness to a sporadic progress in this regard. Most Euro- pean countries such as Norway, followed by Belgium, France, Italy, Germany, Austria and Portugal, have accomplished more than 40% women representation in the boardrooms of listed companies through the implementation of mandatory quota laws. 

Although effective in reaping immediate results, quota regimes are practically problematic to implement, besides being too drastic and intrusive. In the initial stages of its quota laws, Norway struggled with the privatisation of numerous public companies as well as the infamous “golden skirts” phenomena whereby many female directors ended up holding multiple board seats in various companies. 

On the other hand, India struggled with the issue of tokenism when its 2013 law mandating the appointment of “at least one woman director” which led most listed family-owned companies to conveniently appoint wives of the controlling owners to fill in the position. To counter this issue, the Indian Securities and Exchange Board later amended its law in 2018 to require listed companies to appoint at least “one female independent director”. 

Western economies such as the US and the UK, and Eastern countries such as Hong Kong and Malay- sia, have resisted the introduction of vigorous mandatory quota laws for the longest time. These countries have generally adopted soft laws in the form of best practices or corporate governance codes and voluntary diversity targets which companies are free to adopt on a “comply or explain basis”. 

However, recognising the strength of gender-diverse boardrooms, listing authorities in these countries and more have started to introduce relatively robust listing rules. For instance, listing rules in the US now requires companies listed on the Nasdaq to “have or explain why they do not have at least two diverse directors”, which must also include one director “who self-identifies as female”. Likewise, the UK’s Financial Conduct Authority amended its listing rules requiring listed companies, starting April 20, 2022, to achieve the appointment of “at least 40% of women and those self-identifying as women”. 

Here in Malaysia, the Securities Commission Malaysia have similarly introduced a new listing rule mandating all public listed companies to appoint “at least one female board member” by Sept 1, 2022, for large-cap companies, and by June 1, 2023, for the remaining listed companies. Whereas the most recent listing rules in Hong Kong prohibits single-gender boards and specifically mandates listed companies to achieve gender-diverse boards by December 2024. 

Moving Forward: Making the Smart Choice

In its 2022 Global Gender Gap Report, the World Economic Forum (WEF) reported there to be “a steady increase” of representation of women in the positions of 

corporate leadership — from 33.3% in 2016 to 36.9% in 2022. Although this may appear promising, and whilst some countries are progressive in implementing gender quota laws and others have been agile in introducing robust listing rules, the overall progress still remains sporadic and slow (Deloitte, 2022). 

In the past, major corporate scandals have understandably triggered deliberate regulatory interventions by governments on corporate governance regimes. The Covid-19 pandemic is, however, novel in that it does not only pose unprecedented challenges for the corporate world, but serves as a golden opportunity for the companies to introspect on their existing governance structures, policies and practices. 

As this article has discussed, one of the many ways forward for companies to build back better is to rethink their boardroom structures toward achieving greater gender diversity. For some companies, the addition of female director (s) as executive or non-executive appointments in the early stages or lifecycle of their businesses may be feasible. 

Companies with no immediate talent pool or suitable candidates should work on devising and adopt- ing inclusivity and diversity policies and practices that can help build pipelines of women leaders in the long term. This is akin to approach taken by Canada, whereby all companies are encouraged to not only focus on increasing the representation of women at boardroom levels, but in the workplace in general. 

Either way, it needs to be emphasised that any efforts employed in promoting greater women representation on corporate board-rooms should not be treated as a gender issue nor a number game, rather it should be acknowledged for what it truly is — a sound business decision which is “not only the right thing to do, but also the smart thing to do” (International Labour Organisation, 2015).pic Bloomberg

  • Kashmir Harbans Singh is a department head and lecturer-in- law at the Kuala Lumpur-based Advanced Tertiary College (ATC). 

  • This article first appeared in The Malaysian Reserve weekly print edition