Introduction
Diversity & inclusion remains a priority for many businesses, even during these challenging times. A large part of recent conversation concerns encouraging greater female representation on corporate boards – it is not disputed that board gender diversity brings a wider range of perspectives for decision making, and arguably contributes to a better bottom line.
Companies in the Asia-Pacific region overall have made less headway in increasing boardroom gender representation compared with those in Europe. However, recently more and more countries in Asia have introduced gender quotas, or targets, to increase female participation on boards of listed companies. Join us as we take a look at the impact of these measures and the progress made so far.
What have APAC countries done to include women on corporate boards of listed companies?
The focus has been mainly implementing gender quotas. Hong Kong has recently taken steps to phase out single-gender boards. From 1 January 2022, IPO applicants are prohibited from having single-gender boards. All existing issuers with single-gender boards have until 31 December 2024 to appoint a director of a different gender. Beyond quotas, there are other reporting obligations – disclosures must be made on gender ratios in the workforce, and listed companies must set numerical targets and timelines for achieving board gender diversity.
Similarly, South Korea implemented mandatory diversity quotas in 2020 requiring at least one female on the board of public companies – however, this requirement only applies to those listed companies with assets of at least 2 trillion won (USD 1.77 billion) and there are no sanctions for non-compliance.
Quotas have been embraced by India for a relatively longer period. Since April 2015, all listed and certain unlisted public companies have been required to have at least one female director, with financial penalties if they fail to do so. Further, a 2018 regulation requires the boards of some listed companies – being the largest 1,000 listed companies by market capitalization only – to have at least one female independent director.
In the middle of the spectrum are those countries with voluntary targets or quotas. Japan pledges to have women in 30% of all executive positions of listed companies on the prime market. Disclosure of “efforts” to appoint women is mandatory – listed companies are required to adopt voluntary targets promoting diversity in senior management (including appointing women), and to disclose the percentage of women serving on the board in their corporate governance reports.
In Singapore, the voluntary target for the 100 largest companies is for 25% of the board to be female by 2025, and 30% by 2030. Listed companies are also required to disclose their diversity policy, targets, timelines and progress in their annual reports, and boards are required to have a suitable mix of skills, experience, gender and age. On a different note, the measure enacted in 2022 to limit the tenure of independent directors to nine years might have a knock on effect of creating more opportunities to appoint women on boards.
On the flip side, there are no targets for boardroom gender diversity in China. Despite this, some listed companies have opted for their own board diversity policies.
What are the impact of the measures – do quotas work?
Mandating quotas has always been controversial, but our view is that quotas can be somewhat useful when trying to change a pattern of behavior or thinking that has been in place for a long time. We see in Hong Kong the percentage of female representation on boards of listed companies rose by 1.5% one year into the quota, after the stock exchange announced the ban on single-gender boards. Likewise, South Korea achieved the same effect: the percentage of female directors has more than tripled since the gender quota legislation was enacted. In India, of the 108 companies surveyed in the MSCI 2022 Progress Report, only two did not have any women on the board. The data shows that there is a positive correlation between gender quotas and getting women a seat at the table, particularly over a short period of time.
However, there are shortcomings. For example, while India has undoubtedly significant female representation on its boards (there has been an increase of over 4% between 2018 and 2022), this needs to be examined more closely. The enactment of the 2015 regulation led to a frantic rush to comply with the law and what subsequently ensued was board members appointing female relatives with limited professional experience to the board. These events ultimately led to the 2018 requirement of appointing one independent female to the board. This demonstrates that quotas introduced without a sufficient pool of female executives (and a pipeline of talent), and/or a lack of awareness of the pool of female executives, leave a question mark over the quality of talent on the boards, and whether the spirit of the regulation is truly achieved.
What is interesting is that, despite only having voluntary targets, Singapore has managed to achieve better gender equality on boards, compared with Hong Kong, South Korea, and India (where mandatory quotas are in place), with a marked number of female CFO’s and CEO’s. It is also one of the few Asia-Pacific countries where the representation of women on boards is above 20% in its top 100 companies. Japan (with no gender quota) has also seen a 2.9% jump in female directors from 2021 to 2022. In our view, this reflects a shift in society’s expectations – that corporations should have better corporate governance, and a large part of achieving this is through diversity and inclusion initiatives whereby women must play an important role.
There is also the issue of unconscious affinity bias that might occur on a board of, say, ten men and one woman, which is potentially difficult to avoid and may lead to less favorable treatment of the female. Further, as a minority, they might be/feel marginalized and find it more difficult to speak up. There is also the possibility that these women will be perceived as simply being there to fill a quota (or worse, that they believe this themselves), which undermines their position and hinders their ability to fully participate.
Conclusion
Our view is that on balance quotas are a useful starting point to boost female representation in the short term. However, they merely address the symptom and not the systemic issue – that the lack of gender diversity in corporations requires much more than just quotas to remedy it.
