Why diversity in the boardroom matters for business

Despite its diverse workforce and broad talent pool, Singapore’s boardrooms remain largely male-dominated, ethnically-homogenous bastions, leaving the city-state lagging behind many of its regional and global peers in the diversity of its corporate leadership.

According to the fourth annual Singapore Board Diversity Report, co-authored by NUS Business School, only 7.7 per cent of the boards of Singapore listed companies could be considered diverse.

This despite mounting evidence that diversity is a key factor in delivering better business results.

Indeed, the report found that firms with boards that met the criteria for diversity performed nearly five times better than those that did not.

Singapore itself is a very diverse place, we have a variety of ethnic groups, a large and talented female workforce. But in most cases this ratio is not reflected in the corporate boardrooms.

Dr Qian Meijun,
Co-Author of Singapore Board Diversity Report

For the first time the study expanded its scope to include age and ethnic make-up as well as gender in analysing the boards of firms listed on the Singapore exchange (SGX).

First launched in 2011, the report is a joint initiative between the Centre for Governance, Institutions and Organisations (CGIO) at NUS Business School and BoardAgender, an initiative of the Singapore Council of Women’s Organisations (SCWO), and supported by SGX, UBS bank, and ACCA.

“The message we want to send is shown in the data, which really speaks for itself and shows the impact of diversity on industry results,” NUS Business School’s Dr Qian Meijun, one of the authors of the report, said.

“Singapore itself is a very diverse place, we have a variety of ethnic groups, a large and talented female workforce. But in most cases this ratio is not reflected in the corporate boardrooms.”

The findings were especially surprising, she said, given the growing number of studies that show diversity is closely tied to better business performance.

The study looked at publically available data from 676 firms listed on the SGX, with criteria for diversity including having representation by both genders, at least two ethnic groups, and from at least two generations.

Looking at gender representation only, female presence on Singapore boards increased marginally to 8.3% from 7.9% in 2013, lagging well behind regional counterparts such as Hong Kong, Malaysia, Indonesia and China.

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At that pace, the report said, Singapore would only reach a level of 15% female directors – a level comparable to that of other developed nations – by 2030.

Business benefits

The report found that more than half – 56 per cent – of the SGX-listed company boards are all-male, while the number of female directors in the database for the research increased by only 8 from last year (343 female directors, up from 335).
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With the expansion of the research to include age and ethnicity, the empirical evidence continues to grow showing the business benefits to be gained by companies having diverse boards.

For instance, the research showed that boards with gender diversity have an average Return on Assets (ROA) of 3.3% versus 0.3% of those without. Similarly, boards with age diversity have the same ROA of 3.3% compared to 0.6% of those without. Those boards with ethnic diversity saw an ROA of 2.9% compared to 0.8% for those without.

Dr. Marleen Dieleman, Associate Director of CGIO and lead researcher for the report noted that companies operating in complex and diverse environments should also match that diversity internally.

“There’s a thing called the law of requisite variety, meaning if you are in a situation where your environment is diverse and complex, you need to also have diversity in your organisation in order to deal with that complexity.”

‘Pointed questions’

report280Click here to download a copy of the full reportMuch debate has taken place within Singapore and around the world on how to increase boardroom diversity – either by regulations in the form of quotas for diversity, thereby forcing companies to change; or by the softer tactics of persuasion and encouragement for business to see the benefits of greater diversity.

So far Singapore regulators have opted to avoid the quotas route, although some suggestions have been made on steps regulators and companies could take regarding how diversity policies are disclosed.

Speaking at the report launch event, Grace Fu, Minister in the Singapore Prime Minister’s Office, said Singapore had chosen for the time being to take “the path of encouragement and perhaps gentle prodding from time to time.”

But she added that she had herself suggested to the Monetary Authority of Singapore (MAS) that the regulatory body could make changes on reporting requirements.

“I have already suggested to MAS that our code of corporate governance should require companies to disclose their gender diversity policy.”

Fu said investors also could take a more active role and ask “pointed questions”, especially given evidence of the impact improved diversity has on business performance. She said this was especially important for large insitutional investors.

“After all, it makes good business sense for potential investors to query companies about the rigour of their board nomination and selection process.”

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