Date: 13 January 2016, Wednesday
The Diversity Action Committee (DAC) partnered the Investor Relations Professionals Association (Singapore) (IRPAS) to organise a forum attended by over 100 IRPAS members and guests. This event follows the launch of the NC Guide, aiming to highlight the importance of communications around board diversity, take stock of where Singaporean company boards currently are, and discuss ways to improve diversity going forward.
Currently, many companies do not prioritise communicating the quality of their board to investors, despite increasing interest from stakeholder groups. In response to the call for greater disclosure, transparency, board diversity and independence, the Singapore Institute of Directors recently launched the Nominating Committee (NC) Guide which outlines the regulatory and practical aspects of the NC’s responsibilities. This event aimed to highlight the importance of communications around board diversity, take stock of where Singaporean company boards currently are, and discuss ways to improve diversity going forward.
Jonathan Kuah, IRPAS Director, summed up his thoughts on the true value of board diversity:
“I have personally experienced a change in mindset towards women on boards over the years. While women on boards had in the past been perceived as a women’s rights agenda, greater exposure to the topic over the past year and especially this discussion with the panelists have given me greater appreciation for the importance of gender diversity to investors and companies. I truly believe that gender diversity is integral to board diversity, and having women on boards is fundamental to widening the talent pool.”
Presentation by Shinbo Won of ISS
The session began with a presentation from Mr. Shinbo Won, Vice President, Head of Asia ex-Japan, Research ISS, on Board Diversity and Director Nomination, based on ISS research coverage data. Mr Won discussed the profile of boards in Asia and examined Nomination Committee profiles and policies, including those around diversity. He then highlighted trends on targets around women on boards in both developed and emerging markets, and covered the five key elements of disclosure.
Key takeaways of the presentation include:
- As companies tend to adhere and stick to regulatory requirements, the role of the regulator in promoting board diversity is critical.
- Average age of the Board Directors in Singapore is 65 compared to 60 across Asia; average tenure for Directors in Singapore is more than 11 years compared to less than 9 years across Asia.
- Longer tenures and higher age range are not necessarily bad, as factors such as the relevant experience and expertise of candidates should also be considered with regard to their potential contribution to the Board.
- However, long tenures are thought to impact level of independence; a board that does not overly rely on a certain age group or individuals may benefit from smoother succession and increased dynamism.
- Many companies still use gender diversity as a measure of board independence and diversity; Europe is generally ahead of Asia in this aspect.
- A clear narrative on how the Board is structured and assessed with measurable performance indicators is key to a good disclosure policy.
This was followed by an insightful panel discussion and Q&A session moderated by Mr. Jonathan Kuah and guest speakers
- Pru Bennett, Director, Head of Asia Pacific, Corporate Governance and Responsible Investment, Blackrock
- Suken Bhandari, Head of Consulting Services, ISS Corporate Solutions
- Max Loh, Managing Partner for Asean and Singapore, Ernst & Young
- Tan Boon Gin, Chief Regulatory Officer, Singapore Exchange
Key takeaways from the panel discussion include:
- Having a diverse board is important, as diverse boards perform better and make better decisions due to the wider skillset of their members.
What investors want
- Investors, in their evaluation of companies as potential investments, take a close look at disclosures made. Investors want to understand the skillset and experience that each board member brings to the Board, the succession plans to ensure that the Board has the required skillset, experience and diversity to drive better decisions.
- Investors and corporate governance professionals are concerned about diversity of boards and diversity around organisations. However, the investor community has not clearly communicated this to companies, although they look at annual reports and corporate governance disclosures as a litmus test as to the quality of the Board. Boards that do disclose, in a comprehensive way, about their policies and what they’re doing are rated higher in their models compared to those that don’t. Those who do not make disclosures are simply assumed to not have any policies, and that could have implications on various investors’ valuations.
- Companies should provide disclosures regarding the Board in three key aspects: the company’s director selection process; explain the diversity of the Board members in terms of their skillsets, experience, gender and understanding of the company; as well as steps the company is taking to ensure balance and diversity in the Board. Instead of making disclosures just to meet requirements, companies should seek to communicate to investors why the company’s board is suitable and include a skills matrix disclosure.
- On whether a prescriptive approach towards board gender diversity, such as quotas, should be the way to go, as there are downsides including removing meritocracy from the process. Interim steps such as targeting and improving the search process, e.g. requiring half the candidates to be female or having at least one female interviewed, would be more effective and equitable.
- SGX’s Corporate Governance Disclosure Guide released in 2015 includes 3 explicit questions on diversity that companies should answer in the corporate governance section of their annual reports: (1) to state diversity policy of the company, (2) to state whether the composition of the Board provides for diversity in skills, experience, gender and knowledge of the company, and (3) state the steps the company is taking to achieve diversity. KPMG, on behalf of SGX, will be undertaking a review of listed companies’ corporate governance disclosures in their annual report, including diversity disclosures. The results as well as areas of concern and boilerplate answers that do not meet the comply-or-explain requirement will be published (on a no-name basis). Companies that fall short in diversity disclosures and reporting will be engaged privately to discuss how they could improve their disclosures. SGX is also obtaining feedback on whether diversity should be considered a primary component for Sustainability Reporting.
Other forms of diversity
- Tenure diversity should not be overlooked, and companies should justify Directors with longer tenures, including a rigorous review of how effective their board contribution is.
- Board diversity can extend beyond gender to include age and race; similar to investments, it is prudent to identify concentration risks in a board and manage the risk of groupthink and of being out of touch.
What companies should do
- When it comes to improving board diversity:
- Know the key issues which are important to you as a company, and where you stand
- Understand your aspirations
- Outline a plan to get there
- Widen the search process when recruiting new board members to promote diversity, and robust disclosure will yield better results in attracting the right talent.
Beyond board diversity
- While board diversity is important, this should also be reflected at the executive and employee level as a matter of talent retention. Culture is an important factor in this, and the CEO and Chairman must drive the change. Investors, especially, will look for this. A diverse executive will create pipeline of supply for boards.
This post-event write-up was contributed by the Secretariat of Investor Relations Professionals Association (Singapore).