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Ideas for Leaders #467

Board Diversity Improves Corporate Results: Lessons from Singapore

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Key Concept

Singapore lags behind other nations in diversity on its corporate boards — while evidence mounts that diversity leads to better results, according to a 2014 National University of Singapore (NUS) Business School report on diversity. 

Idea Summary

Singapore is known for the diversity of its population, but you would never glean this from the boards of directors of its companies. A new report, from the NUS Business School's Centre for Governance, Institutions and Organisations working with BoardAGender, shows that Singapore’s boards continue to be overwhelmingly male-dominated and ethnically homogeneous. Based on data from 676 public firms listed on the Singapore stock exchange, the report measured diversity in three areas: gender, ethnicity, and generational. The results are starkly eloquent.

  • Boards were considered diverse if both genders, at least two ethnicities, and two generations were represented. Of the 676 boards studied, only a meagre 7.7% of boards could be considered diverse based on this baseline criteria.
  • More than 56% of boards were all-male. Comparing results from the previous year, the number of female directors increased by a grand total of 8 (from 335 to 343).
  • Approximately 59% of boards had no ethnic diversity.
  • More than 53% of boards consisted of directors exclusively from the same generation.
  • Finally, 17.8% of boards had no diversity in any form: gender, ethnicity or age.

The report not only highlighted the lack of diversity of boards; by comparing results of the companies it studied, the report also confirmed that the lack of diversity dragged down corporate results. For example, boards without gender diversity had an average return on assets (ROA) of 0.3% compared to a 3.3% ROA of boards with gender diversity. Boards with age diversity also had a 3.3% ROA; boards without age diversity had on average an ROA of 0.6%. Finally, boards with ethnic diversity showed an ROA of 2.9%, compared to 0.8% for those without.

Business Application

The evidence is consistent and unequivocal: diversity leads to better results. As a result, business leaders and policy makers across the world are striving to encourage and enable diversity in organizations, and specifically on boards of directors. Solutions and tactics range from mandated quotas to campaigns highlighting the benefits of diversity. In Singapore, it is the latter, less heavy-handed approach that has been chosen: “encouragement and perhaps gentle prodding from time to time,” in the words of one minister.

However, corporations in Singapore and elsewhere should prepare for greater scrutiny of the diversity on their boards. Eventually, policy makers will tire if “gentle prodding” does not lead to real results. In Singapore, for example, companies may soon be required to disclose their gender diversity policy to the Monetary Authority of Singapore (MAS), the nation’s central bank.

However, the most pressure may (and should) come from investors, especially institutional investors with clout. Given the direct links between diversity and business performance, investors will become more vocal in demanding real progress on their boards.

There is no reason to wait for such pressure. Beyond the public relations stain, companies are hurting themselves financially by resisting diversity.

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Institutions

Source

Idea conceived

  • October 2014

Idea posted

  • December 2014

DOI number

10.13007/467

Subject

Real Time Analytics