This article was first published in the July/August China edition of Accounting and Business magazine.
At a recent closed-door briefing, I was struck by one piece of information about boardroom diversity in the UK. One of the presenters, a global headhunter, observed that in the past 12 months, 48 women were appointed to the boards of FTSE companies. That helped raise the proportion of women at the board level to 25% in three years – from just 11% previously.
Of those 48 women, roughly half came from the finance function of other enterprises, typically the CFO and deputy CFO. It seems that the way to the top is opening up for the female finance professional in the UK at least, although in general women in accounting still have a long way to go.
This trend should interest many finance folks in Asia. The 30% Club, the UK group comprising FTSE 100 chairmen, international business leaders and some fund managers, is credited with encouraging the hiring of more women on UK boards. In March this year, The 30% Club was launched in Hong Kong with no less than Chief Executive CY Leung as keynote speaker.
Like its UK counterpart, The 30% Club in Hong Kong aims to increase the proportion of women board members in the city’s listed companies to 30%. It is currently a very low 10%, though that is actually higher than in Singapore, Korea and Japan.
There is another driver coming in Hong Kong. In September, an amendment to the corporate governance code issued by the Hong Kong stock exchange comes into effect. According to this provision, ‘The nomination committee (or the board) should have a policy concerning diversity of board members, and should disclose the policy or a summary of the policy in the corporate governance report.’
The new policy has been criticised as mere lip service, but the Hong Kong Exchange (HKEx) has been adamant about not setting quotas, as Norway has done. The Norwegians have made it mandatory for boards of public limited liability companies to have 40% of seats given to women. That quota has been reached, but it is unclear whether it has had an impact, good or bad, on company performance.
A number of serious studies by the likes of McKinsey and Credit Suisse have purported to show that companies with women board members outperform the average and those with fewer or no women on the board.
The problem, as the briefing’s presenters noted, is that correlation does not mean causation. It may be that the outperforming companies had hired women board members because they are innovative and effective organisations – and thus are likely to perform better than other less innovative enterprises.
The danger with quotas is that companies might simply tick the boxes to comply with the regulation. The whole point, after all, is to bring diversity of thought into the boardroom so that all the best thinking to enhance company performance can be captured. That is difficult to do when the woman you hired is the 90-year-old aunt of the company’s former majority owner.
On balance, the HKEx’s non-quota approach is probably the best for Hong Kong. Diversity is situational and so ‘each issuer should take into account its own business model and specific needs’, the bourse states. Women CFOs and other finance professionals in Hong Kong – and hopefully the rest of Asia – should soon have a more open path to the top.
Cesar Bacani is editor-in-chief of CFO Innovation Asia