Board diversity: How you get there matters

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??This week: The elusive quest for gender parity among the boards of Singapore-listed companies has drawn a call for a new strategy: Search better.

In an opinion piece, Seah Gek Choo, Deloitte Southeast Asia and Singapore boardroom programme leader, and Terence Lam, director for advocacy and professional standards at the Institute of Singapore Chartered Accountants, put most of the blame on companies “not holistically considering their board candidates from a broader talent pool”.

Companies need to move past their preference for candidates with chief executive officer experience to include other C-suite expertise, they said. Looking beyond gender diversity, companies should also consider a diverse mix of skills, backgrounds and capabilities.

The focus on search processes could be a powerful shift in the market’s approach towards board diversity and gender parity, but the authors can perhaps go further than just looking at skill sets. Instead of aiming diversity targets at board composition percentages, companies might make better progress if more targets and processes were applied to how candidates are found and assessed.

A point of pride among Singapore’s board gender diversity movement has been the progress made without a national quota. Data by the Council for Board Diversity (CBD) showed that women held 23.7 per cent of board seats among the 100 largest Singapore-listed companies as at December 2023, significantly better than the 7.5 per cent participation rate 10 years earlier.

One of the driving forces behind the progress has been a regulatory requirement to disclose diversity policies, including targets. But despite that requirement, diversity outside of the largest companies has been slow. As at end-2023, women held only 16.1 per cent of board seats among all Singapore-listed companies. Furthermore, 43 per cent of boards outside of the top 100 listed companies have no female directors.

It might be time to consider shifting the focus away from the eventual board composition and towards how search and assessment are carried out.

An important reason to do so is to avoid the trap of reaching the numerical target but getting there the wrong way. If companies appoint female directors just to meet a target, that raises the risk of underqualified token appointments and nepotism. As CBD points out on its website, “meeting quotas does not guarantee that benefits follow”.

What might a process-centric diversity policy include?

• Diversity targets for candidate slates. One of the most cited reasons for the under-representation of women on boards is that nomination committees are drawing from a small pool of potential candidates. This leads to the mistaken perception that there are not enough women directors. To address that, leading search firms in Singapore have developed a “Statement of Good Practice” that states “search firms should ensure that 20 to 25 per cent of the candidates are women” during executive searches. That percentage should perhaps be higher, given that research suggests 30 per cent is the critical level at which members of under-represented groups are judged more fairly. Nominating committees should also commit to that threshold.
• Diversity training for directors. Even a diverse pool of candidates can be defeated if the assessors cannot overcome their biases. Ensuring that nominating committee members – possibly all board members – receive adequate training about diversity, equity and inclusion can help to overcome those prejudices.
• Pro-active and continuous searches. A US study into higher education diversity hiring practices found that hiring pools were improved and more diverse when the search wasn’t only handled by a search committee when a need arose. The suggestion is to get every board member – even those not on the nominating committee – to see it as part of their responsibility to be on the lookout for potential candidates all the time, and to add those candidates to a constantly-refreshed list. This not only maintains a wider pool that can be tapped in times of need, it also ensures that the search pool overcomes limitations and biases of the nominating committee.

A diversity policy focused on processes can still include board composition targets to ensure that progress is sufficiently ambitious. But because the processes are more robust, companies and stakeholders will have greater confidence that when they do reach their goals, they would have gotten there the right way.

??Top ESG reads:

1. The decarbonisation of the Asia-Pacific is reshaping the global investment landscape, says MSCI chairman and CEO Henry Fernandez.
2. Accountants will have to learn sustainability-related skill sets to remain relevant and valuable, says Association of Chartered Certified Accountants CEO Helen Brand.
3. Singapore’s planned national centralised gas procurement company will charge on a cost-plus basis to ensure price competitiveness, says Second Minister for Trade and Industry Tan See Leng.
4. Electric vehicle makers in Thailand are asking for leeway on production deadlines for economic incentives amid slower than expected sales.
5. China is consulting the public on plans to add cement, steel and aluminium to its carbon emissions trading scheme by the end of 2024.

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