Hong Kong businesses are rethinking the makeup of their boards amid mandated rules by the Hong Kong exchange and increased pressure of investors on listed companies, a new report has found.
In 2021, a record 30% of seats were held by women, compared with 24% in the previous year, according to the Heidrick & Struggles’ 2022 Board Monitor Report, which was released on Monday (July 18).
The report also found that 53% of board seats went to directors with no public board experience in 2021 – a record high. Last year also marked the lowest proportion (17%) of seats going to directors with chief executive officer experience, which reflected a slant towards candidates from diverse backgrounds.
Heidrick & Struggles
“Given the recent disruptions in Hong Kong, businesses are shifting their priorities,” Liza Sze, partner at Heidrick & Struggles Hong Kong, an executive search firm, told AsianInvestor. “Leading companies are looking to infuse new perspectives, rethinking the profiles of directors they need around the table, and bringing on more women to the mix.”
Firms have also been forced to act after the Stock Exchange of Hong Kong (HKEX) required all publicly listed companies to have at least one woman on boards by 2024.
Institutional investors have also been ramping up pressure on portfolio companies to improve representation across all levels of the business.
“There’s now a clear expectation from investors and consumers alike that companies take a stand on social issues like diversity. Increased pressure from investors and stakeholders, alongside increasing regulatory demands means that diversity on boards is an issue that is now table stakes,” Sze said.
State Street Global Advisors, for instance, has voiced its commitment to exercising voting rights globally and in Hong Kong if firms do not have at least one female board member.
“The Hong Kong programme started in March 2020 when 11 of the 50 companies in the Hang Seng Index did not have any woman on their boards. Now out of the 11 companies, 7 of them have added a woman on their boards,” a spokesperson said.
Some investors, however, have lamented that efforts by Hong Kong firms are not enough. Dutch pension fund APG, for instance, requires female board representation to be 30% - far higher than the minimum required by the HKEX.
Gender diversity in Asia has generally lagged the more advanced economies, and the asset management industry globally has struggled with attaining gender balance.
Despite the report’s finding that a record 30% of seats were allocated to women, Sze said that those seats went to a small number of Hang Seng-listed companies – half the number of companies that appointed new directors last year did not appoint women.
However, the silver lining is that there are more indicators that listed firms have been exploring diverse candidates for their boards. The average age of board members fell to 57 in 2021, from 58 the previous two years, “which is largely driven by the increased share of women and those with first-time public board experience,” Sze said.
“Throughout the pandemic, we have seen a large increase in demand for leadership in companies that understand, and can lead the digital transformation from the front,” she added. “The women we see being placed on boards are on average much younger than the men, less likely to have CEO experience, but more likely to be active, and have experience and skills when it comes to social media, digital and cyber security.”
But there continue to be challenges that companies need to overcome when it comes to hiring diverse boards. “In Hong Kong, the increasing challenge will be to hire directors who understand the intricacies of geopolitical trends and their local implications, given the high exposure of an economy that is highly reliant on its status as a global financial centre,” Sze said.
Companies will need the buy-in from boards and their chairs, as well as support from regulators. In addition, “improved succession planning strategies and the missions of the different Boards of Directors are all things that could impact and improve diversity on boards in Hong Kong”.
The payoff is that diverse boards can build agility and a readiness to deal with unexpected events, “as well as even a certain level of foresight, while integrating fresh perspectives into their leadership teams,” she added.