Companies are becoming increasingly aware of the advantages of board diversity to help them thrive in a rapidly changing business environment. Embedding diversity into an organization’s culture not only improves its business performance in the short-term, but also helps to drive long-term sustainable development for the company and benefit the wider community.
However, the Hong Kong Institute of CPAs’ recent research report titled Board Diversity among Listed Companies in Hong Kong, which looked at the board diversity status of 1,844 December year-ended listed companies for 2021, found that many corporates in Hong Kong are lagging in this area, in terms of both gender and skills diversity at the top level.
Danny Ho, Executive Director and Chief Financial Officer of Sa Sa International Holdings Limited, and an Institute member, believes a board with a breadth of perspectives is a key driver of effective corporate governance. He adds that it also helps ensure management practices and policies remain relevant in changing times. “A diverse board brings multiple perspectives, and a wide range of skillsets and experiences, which are essential enablers when a company explores new market opportunities, evaluates risks, analyses business challenges and the potential of various geographical regions and customer segments, as well as making well-thought-out decisions,” he says.
Danny Ho adds that having diversity is also conducive to enhancing board effectiveness and performance, as well as ensuring the long-term sustainable development of the company. With this in mind, Sa Sa strives to have a highly diverse board in terms of age, gender, academic background, nationality, professional experience and industry experience.
Patrick Ho, Deputy Head, Sustainable Development at Swire Properties, thinks having a diverse board helps ensure decisions are made more effectively by reducing the risk of “groupthink”. He adds that bringing in board members with expertise in sustainability and environmental, social and governance (ESG) factors also helps to generate value for the company, as well as wider society and the environment.
“No company will be able to lead in sustainable development with a board lacking in diversity.”
Robin Healy, Director, Company Secretariat at Link REIT, agrees. “Companies form an integral part of society, and more diverse boards provide for enhanced exchange and dialogue. No company will be able to lead in sustainable development with a board lacking in diversity,” he says.
Having a diverse management team enables companies to think broadly, making them better placed to consider the long-term sustainable success of the organization, while also ensuring it makes a positive impact, according to Michael Ling, Joint Company Secretary at CLP Holdings. He adds: “Our commitment to high standards of corporate governance adds value to the business, and ensures sustainability is well-embedded into our corporate thinking and management. Board diversity is an essential element contributing to the good governance and ultimately, the sustainable development of CLP.”
Ben Ng, Chairman and Executive Director of Baguio Green Group Limited and an Institute member, points out that having a diversified board not only enables the company to access a wider talent pool, but also ensures different ideas, new angles, wider perspectives, opposing views and challenges are considered before making a decision. “It enhances the company’s insight, improves corporate governance and optimizes the decision-making process,” he says. But Ng adds that having a diverse board can potentially lead to more conflict, and it may also take more time for the board to reach a decision.
Gender diversity
Having women on boards is an important element of board diversity. “Having well-balanced gender diversity ensures the talent and perspectives of both females and males are well represented, and this can help boost decision-making quality and avoid blind spots,” says Patrick Ho.
Ng adds: “Different genders have different approaches and considerations for different situations and problems, giving wider perspectives for decision making. Women account for 37.5 percent of Baguio’s board of directors. Having a diverse board enhances the company’s reputation through promoting gender equality.”
Danny Ho points out that 50 percent of Sa Sa’s board members are women, explaining: “We operate in the beauty industry where female consumers make up an essential part of our customer base. We believe insights from women are important, and women with the necessary skillsets will be valuable board members.”
“Having well-balanced gender diversity ensures the talent and perspectives of both females and males are well represented, and this can help boost decision-making quality and avoid blind spots.”
But the Institute’s research found that while around 70 percent of companies had at least one female member on their board, overall women accounted for just 14.3 percent of board members at companies covered by the research – significantly below the international benchmark of 30 percent. Healy expects recent changes to the Hong Kong Listing Rules to help address this gender imbalance, but he adds that a concerted effort from business leaders will be required to ensure Hong Kong’s board diversity follows the globally leading business practices it demonstrates in other areas.
At CLP, more than 30 percent of directors are women, but Ling thinks across Hong Kong as a whole, the female representation and voice has yet to be truly valued by organizations. “I personally believe that male allies, under which male colleagues at a relatively senior level within an organization champion the cause of gender diversity, would help improve the situation. Director search consultants also now have a rich pool of female director candidates, so do tap into these,” he says.
A range of perspectives
Gender is only one element of the board diversity needed to help companies maximize their performance, with Healy pointing out that diversity in terms of age, ethnicity and skillset are all also important. “For diversity to add value, boards need to attract those who think differently, contrarians who can challenge groupthink. Companies that cannot innovate and change, inevitably fail. When populating the board, companies, therefore, need to hire directors who can run the company of today and also the divergent thinkers who can create the company of tomorrow,” he explains.
Patrick Ho says when deciding on appointments to its board, it is Swire Properties’ policy to consider gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge, length of service and the legitimate interests of the company’s principal shareholders.
Professional diversity is also key to having an effective board, according to Danny Ho. “At Sa Sa, our board has included members with different professional backgrounds, such as retail, finance and accounting, law, brand management and development, marketing, talent management, ESG, and technology, enabling diversity of thoughts for fostering fresh ideas.”
Ng adds that as the direction of Baguio moves towards technology and digitization, its board includes members with a profound knowledge of information technology.
Healy thinks it is also beneficial for boards to include professional accountants. “The skills of a qualified accountant are at the heart of every successful business. This goes beyond the traditional notions of numerical fluency to an understanding of the role of a director as it pertains to risk, control and good governance. The old adage of an accountancy qualification being one of the best apprenticeships in business holds true today.”
“Qualified accountants are able to understand the ramifications of business decisions on a multitude of angles... and hence are very well placed to act as caretakers of the company.”
Danny Ho agrees: “Qualified accountants are able to understand the ramifications of business decisions on a multitude of angles, be it profit and loss, financial position, cash flow, controls, risk, compliance and data management, and hence are very well placed to act as caretakers of the company.” He adds that extending the role beyond independent non-executive directors (INEDs) or non-executive directors enables the qualified accountant to be involved in the daily operation and strategic planning of the business and follow through on matters identified and discussed at the board.
Ling agrees on the value of involving qualified accountants on boards, adding that many of CLP’s INEDs have professional accounting qualifications. “Given the increasing complexity of financial and sustainability reporting, it is important that our board members have accounting knowledge, so that they can inform the company of the latest standards and what they entail,” he says.
At Baguio, two of the company’s executive directors are Institute members. Ng points out that as laws and regulations change, qualified accountants can obtain relevant updates through their professional channels, such as the Institute. “They can also assist with the introduction and translation of relevant detailed professional guidelines, such as professional terms, into simple steps for the company’s internal operations,” he says.
But despite these benefits, the Institute’s research found that around 20 percent of companies have a qualified accountant on their board who is an executive director, and among the 321 companies which do not have board members who were qualified accountants, only 24 percent of CFOs/finance directors held the qualification.
Previously, the Listing Rules, for both the Main Board and the Growth Enterprise Market, required companies to have a qualified accountant as a member of the senior management and preferably on the board. However, this requirement was removed in 2009.
Improving diversity
For companies looking to increase their board diversity, Danny Ho suggests establishing a board diversity policy setting out the framework for achieving board diversity in the company. “It is a good practice to review the policy periodically to ensure it remains relevant to the company’s needs and reflects both regulatory requirements and good corporate governance practices,” he says.
When it comes to gender diversity, he adds that companies should also take a longer-term approach and invest in building a steady pipeline of female candidates who are ready to compete for board seats. “Diversity does not start with or end with the board. Diversity and equal opportunity, run through the fabric of Sa Sa and exist at core management team level and below,” Danny Ho says.
Ng suggests a good starting point is creating a board culture that respects different views and ideas, encourages open discussion and honest feedback, and is open-minded to accept others with different views. “The company also needs to set medium- and long-term development directions and goals in order to maximize the effectiveness of corporate governance,” he says.
“Do look for what value a prospective director can bring to the board and the organization, rather than bringing on a director just to make the board look more diverse.”
Healy suggests companies start by looking at board strategy. “Their strategic objectives will likely create impetus for increasing board diversity, and importantly that of your talent pool.” He adds that to increase diversity, companies may need to look beyond the traditional director searching grounds of former CEO and CFOs, and think about skillsets and the potential to add value in a more holistic manner.
Ling agrees, pointing out that when looking for new board members, current directors often tap into their own networks, which tend to be made up of people with a similar background. He also stresses that there are various aspects to board diversity, from gender, nationality, age, length of service and capacity. “In seeking to build a diverse board, do look for what value a prospective director can bring to the board and the organization, rather than bringing on a director just to make the board look more diverse,” he says.
Recognizing success
The Institute recognizes companies with the highest standards of corporate governance through its annual awards, which were in 2021 renamed the Best Corporate Governance and ESG Awards to reflect the growing importance of ESG. The awards also recognize the companies and organizations that have achieved outstanding performances in both corporate governance and ESG through the Most Sustainable Companies/Organizations (MSCO) Awards.
Swire Properties is an awardee of the ESG Awards in the non-Hang Seng Index (Large Market Capitalization) category. Patrick Ho says the award not only underlines the commitments which Swire Properties has made to implementing its Sustainable Development 2030 Strategy but is also confirmation that it is on the right track. “This motivates us to do more to achieve even greater positive sustainability impact for the company, and for the society and the environment,” he says.
Danny Ho says receiving one of the awards recognizes and reaffirms Sa Sa’s continuous efforts in maintaining high standard of corporate governance. It was given a special mention in the Corporate Governance Awards in the non-Hang Seng Index (Small Market Capitalization) category. “It is a great privilege, and we are thankful for this acknowledgement of our ongoing efforts in strengthening our corporate governance practices.”
Baguio, a new awardee, received a Commendation on Progress in ESG Practices in the Self-Nomination Awards. “It is the driving force for the company to continue to promote sustainable development. The company stands out in the industry in terms of corporate governance and ESG,” says Ng.
Link REIT is a winner of the MSCO awards, receiving a gold award in the Hang Seng Index category. For Healy, the award is a validation of all of the hard work and effort of not only the Link board but also the entire organization. “It is also important to recognize the value in these awards beyond any one team or organization in that governance and ESG will be central to creating sustainable organizations for all of our futures,” he says.
CLP is also an MSCO awardee, winning a platinum award in the Hang Seng Index category. Ling says CLP is “honoured and humbled” to receive one of the awards. “It certainly speaks to our strong commitment to corporate governance and the credit goes to my CLP colleagues who have showed strong dedication and hard work in maintaining our corporate governance standards and constantly challenging ourselves on how corporate governance could serve our organization better.”
CLP places a strong emphasis on integrating ESG and corporate governance, and is one of only a few companies in Hong Kong that produces an integrated report. “At CLP, sustainability governance has been embedded in the corporate governance structure throughout the group – from board-level committees to management-level group functions and business units. A strong governance framework is key to ensuring that the ESG issues CLP faces are incorporated into the corporate agenda,” Ling says.
He adds that a key principle behind the company’s integrated reporting is the value creation process and how that story is told to investors and stakeholders. Ling says: “To articulate the value creation process for CLP, there are a number of important and inextricably linked parts and these start with purpose, corporate strategy, and how the strategy is, or can be delivered while managing our ESG issues, and the role that ‘G’ (corporate governance) plays in facilitating management to deliver the desired strategic outcomes, financial performance and positive impacts or minimizing the negative impacts on the areas of ‘E’ and ‘S’.”
While around 70 percent of companies had at least one female member on their board, overall women accounted for just 14.3 percent of board members at companies – significantly below the international benchmark of 30 percent, according to the Institute’s board diversity research report. The report looked at the board diversity status of 1,844 December year-ended listed companies for 2021.
