Achieving greater women representation on Hong Kong boards

Last March 8 marked International Women's Day, an occasion where the achievements made by and for women are celebrated. But unfortunately, the latest statistics on women on boards in Hong Kong do not give much cause for jubilation.

Women’s representation on Hong Kong boards is stalling despite Hong Kong Exchanges and Clearing (HKEx)’s requirement for board diversity. According to the recently released Standard Chartered Bank Women on Boards Hong Kong 2014 research, the progress on the representation of women on the boards of Hong Kong’s leading companies is stalling.

The overall number of female directorship roles in Hong Kong’s 50 leading companies, as listed on the Hang Seng Index (HSI), has inched up a disappointing 0.2% in the last year to 9.6%. Indeed, this glacial pace has been observed since 2009 when we started to track women on Hong Kong’s boards.

The breakdown of this data reveals an even more disappointing story. Out of a total of 668 directorships on the HSI, only 64 directorships are held by women - an increase of just three since last year.

With some women holding multiple seats, these 64 directorships are held by 53 different women, a number that has remained static in the last two years. Worse still, the number of female executive directors has stalled at 15 since 2009, suggesting that Hong Kong’s leading companies are failing to build a female pipeline into senior management and board roles.

If a true measure of progress is to look at the ‘flow’ of women into board positions, here too there is disappointment - of 83 new director appointments in the last year, just eight directorship roles were appointed to five women. In fact, the ‘flow’ is slowing, from 11.7% last year to 9.6% this year.

Analysing future projections shows that at the current rate of just three additional female directorships each year, it will take approximately 45 years to secure 30% representation of women on boards and 90 years to reach parity! This is outrageously slow, and hardly reflective of the fast pace of change that is typical in Hong Kong.

Of greater concern is that this lacklustre progress takes place against the backdrop of increasing pressure on listed companies to improve corporate governance, including the recent introduction of a new code provision by HKEx last September, requiring listed companies to have a policy and to report on their board diversity, on a comply or explain basis.

Whilst the code doesn’t require companies to report specifically on gender diversity, tracking the representation of women on boards is an important aspect for companies to consider, as it provides a very tangible measure by which companies can assess the composition of their boards and ensure they are including a diversity of perspectives.

Hong Kong risks falling behind

Hong Kong’s resolutely slow-moving pace of boardroom gender diversity is in stark contrast to a global drive for greater gender balance on boards and which remains a high profile issue for global counterparts which are racing ahead of Hong Kong. In this respect, Norway most notably, stands at a fourfold advantage to Hong Kong (40.1%).

The debate continues globally whether voluntary means, with targets and objectives, can achieve results or whether the only way to bring about the rate and scale of change needed is through the use of quotas. Hong Kong, being a free market economy, would be resistant to mandatory measures such as quotas.

We feel that quotas could result in tokenism, undermining meritocracy as the key driver behind board appointments. This said, Hong Kong is falling behind the fast-moving progress of the trajectories of geographies which have adopted similar ‘comply or explain’ measures.

For example, Australia introduced a comparable code provision with additional emphasis on gender diversity in 2011, and has since experienced significant and rapid progress, from 10.7% to 17.3% in 2013. With the HKEx code provision having been effective for just half a year, we are holding our breath in anticipation that Hong Kong will show similar progress.

Perhaps, we hope, a significant change in the representation of women on boards will come after the next round of listed company AGMs where new board appointments are usually formalised.

The business case for balanced boards

The statistics described above paint a picture that is clearly not representative of the general female population. However, for those who remain unconvinced, the argument goes beyond just fairness and good sense; there is a growing body of evidence to reinforce the impact on business performance.

A recent study from the Sauder School of Business examined behavioural traits of male and female directors in merger and acquisition activity. The study found that female directors tend to be more risk-averse, and the price paid for acquisitions was reduced by 15.4% for each female director on a board, supporting the notion that female directors help create shareholder value.

Another study by McKinsey found top quartile companies with the highest number of women in executive committees, when compared with companies with all male executive committees, performed 41% better on ROE and 56% better on operating results.

However, performance is not purely financial – there are other demonstrable benefits in terms of brand and reputation as well as employee and customer engagement and satisfaction.

Again, significant research highlights a range of reasons why greater diversity (including gender) can be correlated with stronger corporate performance: signals a better and more progressive company, better mix of leadership skills, access to a wider pool of talent, better reflection of the consumer decision-maker, improved corporate governance, to name but a few. In short, it simply makes good business sense.

Chairpersons play a pivotal role in bringing about change

To navigate and succeed in today’s complex business environment – now and into the future – companies need to build strong boards made up of individuals who represent a diversity of perspectives and independence of views. In its broadest sense, board diversity should take into account factors such as age, culture, gender, thinking style, skills, and experience.

However, we cannot overlook the fact that gender is a fundamental and tangible aspect of diversity, and as such, it simply cannot be ignored. With women holding a paltry 9.6% of board positions on the HSI, women’s expertise, insights and perspectives are simply not being voiced or heard in Hong Kong’s boardrooms.

We believe that enlightened companies committed to developing a strong female pipeline that supports women in their path to the very top, and which appoint board members who are representative of their key stakeholder groups, e.g. customers and employees, will stand out in terms of future strategy and performance, and as employers of choice.

More importantly, we recognise the pivotal role that Hong Kong’s chairpersons play and that it is only with their leadership and commitment that we will see progress in Hong Kong.

Indeed the Board Diversity in Hong Kong: Directors’ Perspectives 2013 research revealed that when the chairperson takes the lead, 96% of directors overall state that board diversity is important.

Dr Raymond Kuo Fung Ch’ien, chairperson of the top two ranking companies on the Women on Boards League Table: HSI 2014, is a shining example of how strong leadership and accountability can drive significant change.

Therefore, we call upon Hong Kong's chairpersons to step up and take the lead - proactively addressing gender diversity as a critical part of their board diversity strategy. Specifically, we urge Chairpersons to:

1. Set specific goals and targets with an aim to build a pipeline of female talent to address the representation of women not just on your boards – but at mid and senior management levels.

2. Ensure that women are included on the candidate slate for every board appointment, casting the net wider than the ‘old boys club’ or other traditional channels to identify these women.

Consider the use of search firms which specialise in board nominations, and the large pool of female talent who already sit on corporate boards (1,522 women on the broader list of 1,634 listed companies), and those who have gained relevant experience from NGO and advisory boards.

3. Aim to appoint at least one additional female director in the year ahead.

4. Consider giving two female candidates from senior management the opportunity to serve as a non-executive director at another company.

5. Refer to Improving Governance through Board Diversity: A Guide for Companies Listed in Hong Kong to formulate a relevant board diversity policy and to create the right environment and mechanisms for impactful and sustainable change.

Unless specific and concrete measures are undertaken and unless chairpersons make themselves accountable for bringing about a change in Hong Kong, it is unlikely that there will be any level of improvement in the gender diversity of Hong Kong's boardrooms - and the numbers in a year's time will continue to tell a disappointing story.

Hong Kong prides itself on being Asia’s world city and a leading hub of international finance and business, with its success built on a diverse, vibrant population and an inclusive society. It is high time for our boardrooms to reflect this status. 

¹ "Director Gender and Mergers and Acquisitions", Kai Li, Maurice Levi, Feng Zhang (UBC Sauder School of Business), (2013)

² “Women Matter 2010”, McKinsey, (2010) 

³ “Board Diversity in Hong Kong: Directors’ Perspective 2013”, p.33, Community Business, (November 2013)