Board diversity: a tale of two cities

As Hong Kong and Singapore take different approaches to boost female directorships, both are encountering similar problems, writes ACGA Head of Research Jane Moir

More than one in five Hong Kong issuers have until the end of this year to find a female director to sit on their exclusively male boards. This represents progress: twelve months ago, the figure was nearly one in three.

Since the city’s stock exchange called time on single gender boards two years ago—albeit with a generous transition period—the rate of female directors has inched ahead. By the end of August 2023, 17.3% of directors at listed companies were women, compared to 15.2% the previous year.

Currently 21.4% of issuers still have male-only boards, but a logical assumption is that the figure will show improvement by the end of 2024, the final deadline for compliance. It may even comfortably remain ahead of rival Singapore (where 14.6% of directors at SGX issuers are female).

Both markets consistently lag their global (and some regional) peers on board diversity but diverge on how to tackle it.

Hong Kong took the quota route (although ACGA has argued they should be more ambitious than a quota of one) while Singapore opted to focus on independent director tenure as a catalyst for board renewal. In January 2022 it adopted a nine-year limit on INEDs (who would then be subject to a two-tier vote), hoping issuers would cast their nets in the direction of more female candidates.

It may have reason to be hopeful: a recent report by the Singapore Institute of Directors (SID) shows a slight uptick in female INED recruits to boards during 2022. Nearly a quarter of newly appointed INEDs (24.5%) were female, compared to 21.2% the previous year. In January 2023, Singapore scrapped the two-tier vote on INED tenure, instead requiring all issuers to adopt a hard nine-year limit on tenure and hopefully consider an even wider pool of INED candidates.

Grasping the nettle?

Still, both markets have a long way to go if they seek to elevate their diversity figures to levels more acceptable to investors. And if recent findings by regulators are anything to go by, issuers are underwhelming in taking the initiative themselves on female directorships.

Regulators in Hong Kong and Singapore toward the end of 2023 separately surveyed issuers on their ability to set targets and timelines on diversity. In Singapore, nearly 60% failed to do so. In Hong Kong, the figure was 40%.

Singapore amended its listing rules to require disclosure of a board diversity policy, with targets to achieve diversity, plans and timelines for achieving the targets, and any progress made. The rule applied to annual reports for financial years ending 1 January 2022.

A year down the line, SGX Group and the Council on Board Diversity found only 41% of issuers disclose targets. One in five disclosed their plans and timelines for achieving these targets, while just 11% described progress they were making in doing so.

The report somewhat optimistically referred to issuers as being “in the early stages” of implementing board diversity policies. Over in Hong Kong, 2022 changes to its listing rules required an annual review of board diversity policies, and the setting of targets with timelines. While 60% of issuers disclosed information on targets and timelines, the Hong Kong Exchanges and Clearing (HKEX) review of annual reports noted that in some cases this was merely to cite a goal to appoint one female director by the end-2024 deadline or maintain the current level of female directors on their board.

HKEX added that some issuers did not set measurable objectives as they consider their existing board composition to be sufficiently diverse. Indeed, in our latest CG Watch survey of listed companies we found issuers in Hong Kong with one female director to state that they had ‘achieved gender diversity.’

A policy yes, but credible?

The question we pose in our CG Watch listed company survey is whether issuers disclose and implement a credible board diversity policy, one that is more than a formulaic statement, complete with targets for gender and other forms of diversity, linked to the strategy of the issuer.

We surveyed 15 large cap listed companies in each market. Overall, Hong Kong companies scored just 8.6% for the question on the quality of diversity policies. Singapore fared better, with a more respectable score of 29.3%.

Issuers tended to disclose boilerplate policies which lacked tangible targets or objectives. The key takeaway was that only a handful of issuers are strategizing and disclosing more than the regulatory bare minimum.

Hope springs eternal

There are slithers of optimism: our research into the top 100 listed companies in Hong Kong found that issuers with a female chair of the nomination committee are more likely to have a higher rate of women on their boards. This was also the case with our China research into the largest listed companies.

Overall, in Hong Kong, it appears women are more likely to sit on the remuneration committee than the nomination one: HKEX’s review of issuers found 10% of nomination committees to have female chairs, while the figure was audit committees was 9% and for remuneration committees, 12%.

Still, it bodes well that HKEX is tracking these statistics: ACGA encourages the appointment of women to chair nomination committees, and a policy nudge in this direction could potentially be of great benefit.