Diversifying the board (四)

ACCA P1考试：Diversifying the board – A step towards better governance

CONCLUSION

Board diversity is justified as a key to better corporate governance. The following extract from academic literature by Conger and Lawler (2001) serves as a good summary of board diversity:

'The best boards are composed of individuals with different skills, knowledge, information, power, and time to contribute. Given the diversity of expertise, information, and availability that is needed to understand and govern today’s complex businesses, it is unrealistic to expect an individual director to be knowledgeable and informed about all phases of business. It is also unrealistic to expect individual directors to be available at all times and to influence all decisions. Thus, in staffing most boards, it is best to think of individuals contributing different pieces to the total picture that it takes to create an effective board.'

In implementing policies on board diversity, both the company’s chairman and the nomination committee play a significant role.

The chairman, being the leader of the board, has to facilitate new members joining the team and to encourage open discussions and exchanges of information during formal and informal meetings. To create such a well-functioning team, the chairman further needs to commit and support mentoring, networking and adequate training to board members.

The nomination committee should give consideration to diversity and establish a formal recruitment policy concerning the diversity of board members with reference to the competencies required for the board, its business nature as well as its strategies. The committee members have to carefully analyse what the board lacks in skills and expertise and advertise board positions periodically. They are strongly encouraged not to seek candidates merely through personal contacts and networks in order to carry out a formal and transparent nomination process.

The most important ingredient to the success of board diversity, however, would most probably be the board members’ changing their mindset to welcome a more heterogeneous board, as well as to place greater trust in one another and work together more effectively.

Eric YW Leung FCCA, lecturer, CUHK Business School, The Chinese University of Hong Kong

References

• The Tyson Report on the Recruitment and Development of Non-Executive Directors, June 2003

• Green Paper – The EU Corporate Governance Framework, 2011

• Women on Boards by Lord Davies, February 2011