Mind the gap Half of Asia’s boards have no women, a risky position for governance and growth by Alicia Yi
July 2011 Asian companies lag far behind Europe, North America and Australia in the number of women on boards and the scope of their roles. Companies could quickly boost diversity, beef up corporate governance, and better connect with the region’s consumer markets by appointing more female directors. A formal director selection process is one step towards making that happen.
Women hold very few seats on Asia’s corporate boards, and nearly half have no women directors at all. This gender gap poses real bottom-line risks to companies that want to leverage the growth trajectory of these fastchanging economies. Just 8.6 percent of company directors in Hong Kong, 8.1 percent in China, and 7.8 percent in Malaysia are women, according to the first round of data from Korn/Ferry International’s 2011 Asian Board Diversity study. These figures drop to 6.4 percent in Singapore and 4.7 percent in India. More than 70 percent of boards in six countries – China, Hong Kong, India, Malaysia, New Zealand, and Singapore – have no female independent directors. Boards with three or more female directors were rare, and boards with three or more female independent directors were almost nonexistent. Korn/Ferry’s Asia board diversity study examined the largest 100 domestic companies by market capitalization in Australia, China, Hong Kong, India, Malaysia, New Zealand, and Singapore. While under representation of women was not a surprise, the imbalance was stark compared to Europe and North America.
Gender imbalance globally The percentage of women on boards in most Asian countries is about half that in Europe, Australia, and North America. The percentage of women on FTSE 100 boards is 12.5 percent, according to the Female FTSE Board Report, an index published by Cranfield School of Management. The Korn/Ferry Market Cap 100 report for 2010 showed that, among the 100 largest U.S. companies, women held 16 percent of American board positions.
The dearth of women on corporate boards has come under the spotlight in many countries, especially in Europe, since 2009. A number of countries have addressed the imbalance by changing corporate governance codes or implementing quotas. Finland, Sweden, the Netherlands, and Denmark all introduced measures that led to a rise in the number of women on boards. About Korn/Ferry’s Asia Pacific Board Diversity Study The study was led by Associate Professor Mak Yuen Teen of the NUS Business School at the National University of Singapore, a recognized authority on corporate governance in Asia. It covered the largest 100 domestic companies in seven industrialized and emerging Asia Pacific economies: Australia, China, Hong Kong, India, Malaysia, New Zealand, and Singapore. The companies operate in a wide range of industries. A total of 5,793 directors holding 6,538 directorships in these companies were included in the study.
Last year, Australia also changed its national corporate governance guidelines to require boards to report their level of gender diversity. This change, which came into effect on January 2011, has already sparked a rise in the number of women appointed to corporate boards. Women comprised 25 percent of all new appointments to boards of companies listed on the ASX 200 in 2010, compared to just 5 percent in 2009.
Women are piloting Asia’s growth Asia’s economies are at a turning point, and companies that fail to bring women onto their boards to provide advice and direction are taking several major risks. They risk overlooking qualified director candidates in a market that’s drastically short on such talent, they risk missing an opportunity to improve corporate governance by increasing the diversity of voices and views, and they risk the opportunity to better connect with the very people piloting Asia’s boom — women. Consumption, not production, is now fuelling economic growth in this region — and Asian women are increasingly making more of the spending decisions. Women have control over spending in 64 percent of Asia’s households in 2011, up from 53 percent in 2009, according to Mastercard’s Index of Women’s Advancement. In China, a notable 75 percent of women said they controlled household spending.
Figure 1
Women’s representation on boards by country and by role Australia
China
Hong Kong
India
Malaysia
New Zealand
Singapore
Directors
11.2%
8.1%
8.6%
4.7%
7.8%
7.5%
6.4%
Executive directors
3.3%
4.9%
9.4%
2.1%
7.6%
3.4%
8.7%
Independent nonexecutive directors
17.7%
12.3%
8.4%
4.5%
7%
8.5%
5.2%
Non-executive directors
2.6%
7.6%
10.9%
8.2%
11.6%
11.4%
9.9%
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Young women across Asia, meanwhile, are fast becoming more educated than their male peers and will take on a greater role in the economy. There are now more women than men enrolled in tertiary education institutions in most Asian countries, including Australia, Philippines, New Zealand, Hong Kong, Thailand, Malaysia, Taiwan, China, and Vietnam, according to Mastercard’s report. Malaysia is particularly interesting: there are 36 percent more women than men in tertiary institutions. Women will soon constitute a larger proportion of Asia’s professional workforce as they continue to out-graduate their male peers. That means Asian women will earn more, spend more, and play a greater role in the business community. The lack of women on Asia’s boards should ring a warning bell for corporate leaders. The composition of a board should reflect that company’s market — and its customer base. Companies that rely solely on men to make strategic decisions on products, innovation, and growth are shortchanging themselves on new ideas and different views on how to address their market.
Half of boards have no women at all Korn/Ferry’s study found that 348 of 700 boards have only male directors —meaning almost half have no female representation at all. Only 22 of the 700 boards in the study have more than two female directors in either the executive or independent non-executive director role. Figure 2
Asian boards’ level of female representation 70% 65% 60%
59%
57%
No women
56% One female director Two female directors
50%
Three female directors
44%
43%
30%
Four female directors
39% 39%
40%
31%
29%
30%
30%
26%
26%
23%
20% 20% 14% 10%
13%
11%
10%
7% 4%
0%
13%
1% 0%
1%
2%
4% 0% 0%
1%
1% 0%
1%
0%
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Australia has the best track record in this region: just 29 percent of companies surveyed have all-male boards there, and 26 percent have two female directors. New Zealand, Singapore, and India fared the worst: 65 percent of companies surveyed in New Zealand have all-male boards, 59 percent in Singapore, and 57 percent in India. Malaysia is right behind with 56 percent of companies surveyed having only men on their corporate boards. In those four countries, the number of companies that have two female directors ranged from 10 to 13 percent — a tiny fraction. Even Asian companies that do appoint female directors often fail to give them leadership positions. None of the companies we studied in New Zealand had a female chief executive. The numbers were equally low elsewhere: 2 percent in Hong Kong, 3 percent in Australia and 5 percent in Singapore had female CEOs. China came out best, but even there, just 7 percent of the companies had a female chief executive. Female chairpersons are also in short supply. Just 4 percent of the Australian, Chinese, and New Zealand companies we studied had a female board chair, with smaller figures in the other countries: 2 percent in India, 2 percent in Malaysia, and 3 percent in both Singapore and Hong Kong. The situation was the same for female committee chairs. Consider Hong Kong. There, women chair 1.1 percent of audit committees, 4.2 percent of remuneration committees, and 4.8 percent of nominating committees. Low figures like these were typical across the region. The exception –11.8 percent of audit committees in China, 13.1 percent of remuneration committees in New Zealand, and 16.7 percent of audit committees in Australia are chaired by women.
Figure 3
Percentage of board leadership positions held by women Australia
China
Hong Kong
India
Malaysia
New Zealand
Singapore
CEO*
3%
7%
2%
2%
6%
0%
5%
Chair
4%
4%
3%
2%
2%
4%
3%
Chair of Audit Committee
16.7%
11.8%
1.1%
1%
4.1%
4.9%
5.6%
Chair of Nominating Committee
8.8%
4%
4.8%
0%
1.2%
5.3%
4.5%
Chair of Remuneration Committee
12.2%
5.3%
4.2%
1.5%
1.2%
13.1%
5.6%
*Companies in China tend to have presidents instead of CEOs
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Boardroom shortfall part of larger talent gap The quick evolution of Asia’s economies has left companies looking for a new kind of leader that is in desperately short supply. Over the last 20 years, when Asia was a low-cost manufacturer or backoffice to the West, success depended on only a single-minded “plan, execute, and task” management strategy. Today’s corporate leaders must be able to design and innovate products for Asian consumers, and create strategies for multiple fast-changing Asian markets. Asian companies frequently complain about the shortage of good, experienced leaders and directors who have the skills to meet these new Companies across Asia are struggling with a challenges. Broadening the search to massive talent gap that extends all the way include women could immediately widen the talent pool and bring more up to the boardroom. than just gender diversity to the table. Our gender survey shows that the existing women directors are, on average, three years younger than their male counterparts and from a more diverse range of backgrounds. While about the same percentage of male and female directors have a business education, female directors are more likely to have an accounting or law background. Men are more likely to have an engineering background, which may decrease in relevancy as Asia moves beyond being the world’s workshop. In India, almost half the female directors have educational backgrounds outside the traditional businesses of accounting, engineering and law, but instead have degrees in political science, public administration, and medicine. Meantime, in the wake of the global financial crisis, companies across the world are working hard to improve corporate governance. Increasing the diversity of their corporate boards helps achieve their objectives of boosting shareholder value and representing stakeholders, including customers, employees, and business partners. A diverse group of directors is more likely to raise questions, challenge the status quo, or spot new opportunities. Hiring women from different ethnic, age, and national groups can immediately add multiple diversity facets to the oversight lens. Additionally, as the marketplace has become global, Singaporean companies are not just serving Singaporeans; Korean companies are not just serving Koreans. Both are competing for global consumers – of which women form a significant proportion.
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Bigger companies appear more inclined to bring women onto their boards – which indicates that leaders of larger, more complex operations find value in board diversity. Our research shows that companies with two or more women on their board tend to have a larger market capitalization and larger board size. Smaller companies could learn from their larger peers.
Figure 4
Market capitalization of companies with two or more female directors vs. all companies ($B)
Figure 5
Board size of companies with two or more female directors vs. all companies
$B 25 22.4
20
18.2 15.4
15
Average market capitalisation of companies with 2 or more female directors
25
Average board size for companies with 2 or more female directors
Average market capitalisation for all companies
20
Average board size of all companies
15.3
15
13
12.7
12.4
11.6
10
8.9
10
9.6
11.3
12.3 10.7
10.3
9.2
5
7.7
8.4
5.9
6.6
6.4
9.2
8.9 7.8
3.5
5
2.6 2.6
0
0.6 0.4
0
Formal director selection process addresses diversity issue Many multinational companies have a professional, rigorous selection process in place designed to increase both ethnic and gender diversity on boards of the Asian branches of their operation. But many Asian companies don’t; instead they tend to select directors from the same group of well-known corporate leaders who already sit on other boards. Consider Singapore. It ranked second lowest in female board participation in the study, after India. To be sure, some Singaporean companies lead the way when it comes to gender diversity at the C-suite and board level. SingTel has both a female CEO and a female chair of its audit committee; SMRT also has a woman at the helm and one female independent director. But by and large, many corporations, including those in the city-state, tend to fish from the same pool of male executives and civil servants when it comes time to add directors to their boards.
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Companies could improve matters by examining their selection process for directors, and putting the same kind of rigorous, thorough search guidelines and procedures into place that they do for their top executive candidates. A formal, professionally managed selection process that is designed to gather the widest variety of candidates, including women, for consideration is more likely to produce a more diverse, better functioning board. Women are big business drivers, both as consumers and workforce talent. Asian companies need to hold this in mind as they map out their growth strategies. The world has changed, but Asia’s boardrooms have not caught up. The time for action is now.
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Alicia Yi is Managing Director, Client Director Services and Co-Lead of the Asia Pacific HR Center of Expertise for Korn/Ferry International. Based in Singapore, she can be reached at alicia.yi@kornferry.com.
About the Korn/Ferry Institute The Korn/Ferry Institute generates forward-thinking research and viewpoints that illuminate how talent advances business strategy. Since its founding in 2008, the institute has published scores of articles, studies and books that explore global best practices in organizational leadership and human capital development.
About Korn/Ferry International Asia Pacific Korn/Ferry International, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East, and Africa, is a premier global provider of talent management solutions. Korn/Ferry was the first major global executive search firm to operate in Asia Pacific when it opened its doors in Tokyo in 1973 and today has 18 offices in key business centers throughout the region. Based in Los Angeles, the firm delivers an array of solutions that help clients to attract, deploy, develop and reward their talent. Visit www.kornferryasia.com for more information on the Korn/Ferry International family of companies, and www.kornferryinstitute.com for thought leadership, intellectual property, and research.
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