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Frequently Asked Questions + Working Towards the Targets

Case for Women on Boards

While gender is just one aspect of diversity, it is an important and visible one, widely tracked by institutional investors, government and interest groups.

Diversity is a widely recognized proxy for a well-managed board that is forward-looking, uses talent pool effectively and manages risks. An example of investors that are using gender diversity in their assessment of investments is CalPERS (The California Public Employees’ Retirement System). Blackrock has also put its votes to get more women onto boards.

  • More assurance of relevance in a fast-changing business environment
  • Add fresh talents, reduce groupthink & enhance decision-making
  • Deliver richer customer insight, as a gender diverse board is likely to understand the perspectives of its female customers and workforce better
  • Attract investment – Investors increasingly recognise diversity of skills, experience and gender as a key indicator of the robustness of a company’s processes and hence future business performance

While causality is difficult to prove, the most recent study (issued on 29 June 2018) by the National University of Singapore (NUS) Business School, using econometric techniques, established a relationship between board gender diversity and company’s financial performance, acting through corporate governance.

The establishment of a relationship is a necessary condition towards establishing a definitive causality between these two aspects. The study found that women independent directors, in particular, have a positive direct effect on financial performance (on average, adding one woman independent director is expected to improve financial performance by 11.8%).

Although causality has not been established, Board chairmen from leading companies in Singapore agreed that the benefits of gender diversity on boards are not measured in a quantitative manner but the qualitative benefits of having a diverse board are clear.

Read more about what corporate leaders say about the NUS Business School’s findings here.

Before the release of the most recent study (issued on 29 June 2018) by the National University of Singapore (NUS) Business School that established a relationship between board gender diversity and financial performance, acting through corporate governance, there were other studies that found that having women on boards does not impact financial performance. One of the more recent studies was from Wharton University in May 2017, titled “Does Gender Diversity on Boards Really Boost Company Performance?
The report suggests that the lack of impact of women on boards to financial performance were likely to be because:

  • the women added to boards may not differ much in their values, experiences, and knowledge from the men who already serve on these boards; and
  • women, being the minority, lack the influence to change the board’s decisions.

To avoid the situation where adding women makes no difference to a company’s performance, DAC encourages companies to:

  1. Look beyond the pool of same-old same-old candidates (even if they are females) with a view that the true benefits of diversity can be better harnessed from people who are outside their usual circle. Women, many of whom are not on the boards now, can bring the much-needed fresh perspectives.
  2. Have at least 2-3 women directors so that they will not be seen as a minority by the rest of the board members, and be able to contribute more effectively to the board.

The preference for known candidates, men or women, is common and convenient, citing better board harmony. But in practice, new board members are particularly conscious of sensitivities and are often more ready to put their points across in a non-challenging but useful manner. Most women are also good at seeking and building friendships with others they do not know on a new board.

Even among the old establishment of various markets, many boards that have added women, spoke about their positive experience.

When things are new, more encouragement is required to convince people to change their existing way of doing things. DAC found in 2016 that the key reasons for low representation of women on boards was due to the following reasons.

  1. Boards have no impetus to change because governance is generally good and companies are not required to disclose board processes or diversity practices.
  2. Boards seem to have a preference for men, whether experienced or otherwise.
  3. Boards claim to perceive a shortage of qualified women, possibly caused by their preference to fill board seats through recommendation from their personal networks (of men). Qualified women in Singapore are comparable to Australia, US and UK but their representation on Singapore boards are half of these countries’.
  4. Few vacancies for new director appointments, including women. More than 22% of independent directors stayed longer than 10 years and 9% more than 15 years. Having one long-serving independent director for a while can contribute continuity. More than that raises questions whether there are sufficient fresh perspectives and succession planning to take the company forward.
  5. Companies may also be limited by their definition of a suitable board candidate (e.g. only those with CEO experience or those with board experience).

If female participation remains at current levels, companies risk their leadership being viewed as less competitive on the global market, especially with investors who measure a company’s future performance by the perceived quality of its board and management.

Case for Setting Targets for Women on Boards

Large companies typically have more resources to be mobilized immediately to look into policy needs, processes and implementation. Hence board assessment, search and renewal is something larger companies would tend to be able to effect whenever they decide to.

The need to face the diversity issue is also more immediate for large companies. Large companies are more exposed to international investor scrutiny and board diversity is increasingly being viewed by global investors as an indicator of stewardship and governance. Gender equality is one of the Sustainable Development Goals set by the United Nations and observed by asset owners who sign up to the Principles of Responsible Investment which accounts for USD60 trillion.

The experience of large companies in searching for and appointing women directors will bring more public attention to the matter and contribute momentum for other companies to follow.

DAC has done a feasibility study before setting this target. It is achievable if every participant actually participates.

DAC’s target is ambitious but attainable. 20% by 2020, and if more build-up of momentum is needed, then we can do more over a longer haul to achieve 25% by 2025. We have also allowed for a less steep trajectory of 30% by 2030, but we expect that by 2030 the rest of the world will have raised the bar further, probably to 35 or 40%.

As at June 2017, women held 12.2% of board seats on Top 100 primary-listed companies on the SGX. If 70 board seats were replaced with women in the Top 100 primary-listed companies, they would achieve 20% women on boards. Based on DAC’s study, this can be achieved if every all-male board and board with 1 woman appoints 1 woman director.

It would. But DAC is interested in women on boards for the benefits that brings. Meeting the numbers does not guarantee that benefits follow. DAC is investing the effort to convince company owners, Chairmen, CEOs and other market participants that their companies do better when they have diverse boards. In harnessing opportunities and managing risk, it is incontrovertible that diversity beats tunnel vision hands down.

If companies continue ignoring the voice of reason, who knows that the forces of international opinion deprecating the standard of Singapore’s governance or the increasing appointment of Singapore women to international boards overseas may cause more forceful measures to be taken by regulators.

While both targets and quotas are specific measurable objectives with discrete timeframes in which they are to be achieved, there are key differences between the two:

  • Targets are voluntary and set by an organisation at their own discretion, with discrete timeframes in which they are to be achieved. Consequences for not meeting a target may be set and enforced as the organisation sees fit.
  • Quotas are mandatory and usually set externally by a body with authority to impose them on organisations (for example, the Parliament). Establishing quotas usually includes setting penalties for failing to meet them. These are enforced by a body external to an individual company and are non-negotiable by individual organisations.
Adapted from: Australia’s Workplace Gender Equality Agency

Working Towards the Targets

The following are the advice from business leaders interviewed by DAC:

Most companies tap on their rich personal networks to search for board candidates. But companies need not be confined to these existing networks. They can tap on

  • business networks including women’s business groups e.g. International Women’s Forum, Women Corporate Directors, and business associations e.g. Singapore Business Federation and Singapore Chinese Chamber of Commerce & Industry.
  • executive search firms and organisations offering board matching services (e.g. Singapore Institute of Directors) to widen their search.

The broader choice raises the probability of finding board candidates with skillsets, experience and personality fit to best suit their company.

Regardless of the avenue used in searching for board candidates, companies should specifically request for women in their search criteria. The Executive Search Firms who have signed up to DAC’s Statement of Good Practice in Executive Search for Board Directors have committed to include, where given the mandate, women candidates of such quality as to achieve one woman candidate interviewed.