Is it time to compel listed companies to have more women directors?

THERE can sometimes be a yawning gap between policy and practice, and it’s usually because the former relies on persuasion and encouragement rather than the weight of the law.

Here’s an example. By next year, women should fill 30% or more of the decision-making positions in corporate Malaysia. Prime Minister Datuk Seri Najib Tun Razak announced that target in June 2011, shortly after the Cabinet had approved it.

Although Pemandu says this applies to top management roles and board seats in all public companies, including unlisted ones, the main barometer has always been the number of women directors of listed companies.

The emphasis on gender diversity in the boardrooms was evident even before Najib’s announcement of the target. In his Budget 2011 speech in October 2010, he said, “I urge the private sector to provide opportunities for more women to hold post at decision-making level, particularly as board of directors and chief executive officers.”

A year later, in the Budget 2012 speech, he explained that the 30% target was introduced because the Government recognised the potential of women in leadership and managerial skills.

“The Government will organise advanced management programmes for women with potential to become members of the board of directors, intensify advocacy activities for greater participation of women in the corporate sector and develop a database of potential women directors,” he added.

Budget 2013 allocated RM50mil to support women in “raising happy families as well as contributing towards economic development”, including training 500 of them as board members under the Women Directors Programme.

So, almost four years after the 30% target was made known (and 20 months before 2016 is over), does it look like we’ll hit it? That depends on how you interpret the related figures in the Economic Transformation Programme’s latest annual report.

It says the percentage of women on the boards of listed companies rose from 7.9% in 2012 to 10.2% as at the end of last year. That exceeded the programme’s 2014 target of 10%. “This was partly due to the increased awareness on the issue and initiatives implemented in 2014,” Pemandu explains.

Nevertheless, that’s a long way from 30%. And what about that the fact that as of 2014, of the 932 women who have been trained under the Women Directors Programme to be board-ready, only 17 – less than 2% – have been appointed as directors?

Pemandu acknowledges that there are stumbling blocks. “The main challenge faced is obtaining buy-in and shifting mindsets on the case for placing more women in decision-making positions, especially on boards. There is not yet a burning need for change and much of the work in 2015 will be centred on educating business leaders on the growing global significance of this agenda,” it says.

Indeed, go through the listed companies’ recent annual reports and you’ll see that few of them have embraced the diversity agenda to the extent of making public their exact plans to meet the 30% target. However, thanks to the Malaysian Code on Corporate Governance and Bursa Malaysia’s listing requirements, we can at least have a sense of how seriously each of them views the target.

Published in July 2011, the Securities Commission’s Corporate Governance Blueprint recommended that the formulation and disclosure of gender diversity policies and targets for boards be made mandatory.

That didn’t go through. Instead, the essence of it was incorporated in the 2012 version of the Malaysian Code on Corporate Governance, which merely urges companies to do more than what the regulations prescribe.

Companies aren’t penalised if they don’t observe the Code, but the listed ones have to disclose in annual reports the extent of their compliance with the Code.

As a measure to strengthen board composition, the Code recommends, “The board should establish a policy formalising its approach to boardroom diversity. The board through its nominating committee should take steps to ensure that women candidates are sought as part of its recruitment exercise. The board should explicitly disclose in the annual report its gender diversity policies and targets and the measures taken to meet those targets.”

In addition, Bursa Malaysia requires a listed company’s annual report to include a statement on the activities of the board’s nominating committee, including the board’s gender diversity policy.

The spectrum of compliance with these rules and recommendations is broad.

On one end, you have annual reports that don’t at all discuss gender diversity as part of the companies’ policies on board composition. For that matter, Astino Bhd’s Annual Report 2014 doesn’t even mention such a policy or gender diversity, although funnily enough, its cover has this tagline: “Sustainability, Enduring Diversity.”

WZ Satu Bhd is also silent on these matters in its latest annual report. On the composition and balance of its board, it says, “The board has noted the various policies and best practices recommended in the Code and would adopt relevant policies in due course in order to further strengthen its governance functionality.”

Occupying the other end of the range are a handful of large government-linked companies (for example, Malayan Banking Bhd, Telekom Malaysia Bhd and Bursa Malaysia) that have articulated well their diversity policies, including in-house targets.

In between is a thick hotchpotch of earnestness, acquiescence, vagueness, disregard, and of course, lip service.

Gender diversity

Via annual reports that have come out this year, here are some of the interesting things that some companies have to say about gender diversity in the boardroom:

Wellcall Holdings Bhd: “With regards to board gender diversity, the board through its nomination committee will review the suitability and competency of women candidates for the board.”

Malaysian Bulk Carriers Bhd: “The board believes that appointment of board members, regardless of gender, should be based on experience, character, integrity and competence as these are the essential criteria for an effective board.”

EITA Resources Bhd: “The company does not have any boardroom diversity policy and targets and no measures have been taken to meet the targets. However, the board takes cognisant of the recommendation on boardroom diversity published in the Code and acknowledged the need for the company to establish a diversity policy which should cover gender, ethnicity and age for board in addition to skills, competences, knowledge, experience and integrity in relation to the appointment of prospective board member. This is in view that diversity, if well managed, can drive performance and strengthen governance.”

Sentoria Group Bhd: “The board has every intention of meeting the Corporate Governance Blueprint 2011 issued by the Securities Commission on increasing women participation on boards to reach 30% by 2016. However, the board believes that it is more important to have the right mix of skills at the board instead of the percentage itself in order to enable the board to carry out its duties effectively.”

Petronas Chemicals Group Bhd: “The company does not have a written gender policy. Nonetheless, currently, there are two female directors on the board representing 25% of the board composition.”

Concrete Engineering Products Bhd: “As board diversity is concerned, the board does not intend to develop any specific policy on targets for women directors. The board believes that the on-boarding process of directors should not be based on any gender discrimination. As such, the evaluation of suitable candidates is solely based on the candidates’ competency, character, time commitment, integrity and experience in meeting the needs of the company, including, where appropriate, the ability of the candidates to act as independent non-executive directors.”

Given that many of Malaysia’s listed companies are still unenthusiastic about meeting the 30% target, it is time for the Government to review how hard it wants to drive the diversity agenda.

The reality is, rare is the controlling shareholder who will allow the board line-up of his company to be revamped because he’s told that having more women directors is a good thing.

Yes, the education efforts must go on and the pipeline of suitable women candidates for board seats must be properly developed, but at times, people need to be nudged into doing what’s right.

That’s easier to do when the policy is implemented with utter conviction, political will and a sturdy game plan. Are we there yet?

Executive editor Errol Oh knows mandatory quotas can be problematic, but without them, we may never know how much good flows from board diversity.

Source: The Star Paper