Business Case For Board Diversity: Correlation To Company Performance

Corporate Governance

Business Case For Board Diversity: Correlation To Company Performance

  • Business Case For Board Diversity: Correlation To Company Performance Why we should expand the definition of board diversity beyond just gender to cover board independence, as well as age, tenure, culture and expertise.
  • Date: Apr 27, 2021
  • Category: Corporate Governance
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Diversity on boards has been a topic of growing interest today. The ambition for more diverse representations in boardrooms has been championed by many, including the 30% Club Malaysia which was launched in 2015 to inspire sustainable business-led voluntary change to support gender diversity on boards. With this effort, there was a slight improvement in the number of companies with at least 30% female directors on boards – from 9% in 2016 to 19% in 2019.

However, true board diversity goes beyond just gender. Companies must meet the needs of various stakeholders, including shareholders, employees, customers, supply-chain partners, communities and the environment. The ideal way to represent a diverse group of stakeholders is a well-constituted governing board comprising directors who provide diversity of thought, experiences, and perspectives. In this regard, it will be meaningful to expand the definition of diversity to cover board independence, as well as age, tenure, culture and expertise.

In the recent Malaysia Board Diversity Study conducted by the Institute of Corporate Directors Malaysia (ICDM) with Willis Towers Watson (WTW), researchers examined over 300 top companies with primary listings under Bursa Malaysia (“Bursa”) against these multiple dimensions of board diversity.

To assess the business impact of board diversity, the report tested whether companies with diverse boards performed better financially. The premise being that having a diverse mix of non-executive directors (NEDs) may lead to avoidance of group-think, constructive debates, and in turn, better decision making on boards.

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  • Tags : Corporate Governance

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