CGj finds that changes to both recruitment practices and corporate culture will be required if companies hope to adapt to the new higher expectations regarding diversity and inclusion performance.

Companies’ diversity and inclusion (D&I) policies and practices are increasingly under scrutiny by investors and subject to tougher regulatory requirements, both globally and here in Hong Kong. In the context of this growing regulatory and reputational imperative for better D&I, how can companies adapt their recruitment practices to broaden the diversity of both their boardroom and workplace in general? Moreover, what lessons need to be learned regarding the ways in which corporate culture can help companies get the real benefits of increased diversity? CGj looks for some answers.

The regulatory imperative

Companies’ D&I performance has become a standard component of good environmental, social and governance (ESG) practice. This is reflected in the increasing diversity-related compliance requirements listed companies are subject to. The latest amendments to Hong Kong’s Listing Rules and Corporate Governance Code (the Code), for example, tighten the requirements relating to board diversity. 

The amendments, which became effective 1 January this year, focus primarily on gender board diversity. While D&I is not of course solely concerned with gender diversity (see ‘Looking beyond gender’), this is a good barometer issue for diversity more generally. For one thing, gender diversity is easy to measure and the statistics for Hong Kong do not
look good. 

Currently (figures as of May 2022), more than 700 of Hong Kong’s 2,567 listed companies (28.8%) have all-male boards. While the rest have at least one woman director, the number of women directors on Hong Kong boards generally remains low. Across the 2,523 primary listings in Hong Kong, as of 2020, women occupied only 14.6% of board seats. Moreover, data collected by activist investor David Webb shows that, at the end of 2020, among the 553 people who served as directors for Hang Seng Index companies, just 74 (13.9%) were women.

Hong Kong Exchanges and Clearing Ltd (HKEX) has made it clear that single gender boards are not considered diverse. Listed companies with single gender boards must appoint at least one director of a different gender by 31 December 2024. Moreover, IPO applicants with single-gender boards filing listing submissions on or after 1 July 2022 must identify a director of a different gender, whose appointment will be effective upon listing.

‘Around the world, different markets have different needs and circumstances they have to consider,’ says Bonnie Chan, Head of Listing, HKEX. ‘Some markets aim to arrive at a quantitative target for gender diversity, but mostly on a comply-or-explain basis. We will end single gender boards on a mandatory basis and we will be the first international exchange to do this.’ 

In addition to the new rules on gender diversity, HKEX is keen to improve transparency regarding companies D&I policies and practices generally. Listed companies have to disclose their diversity policies. Boards are required to monitor implementation of these policies and keep them under review annually to ensure they remain effective. Crucially, these policies should include measurable objectives for their implementation – in other words, companies have to have quantifiable measurements of their diversity and targets for improvement.

The revised regulatory regime also requires listed companies to disclose the gender ratios in their workforce by categories of employees. HKEX now publishes listed companies’ diversity data on its website, enabling stakeholders to keep track of their D&I performance. 

Can the pandemic be a catalyst for change?

At a time of increased uncertainty due to Covid-19, having a strong corporate governance regime with good D&I is an important part of corporate resilience. ‘In the last couple of years, the world has had to tackle the challenge caused by the pandemic. Having a diverse board will put companies in a better position to think about risk and different perspectives will go into the equation when you deal with new challenges every day,’ Ms Chan says. 

Mohan Datwani FCG HKFCG(PE), Institute Deputy Chief Executive, adds that, as companies rebuild themselves coming out of the pandemic, they are having to adapt to changed employee expectations of what constitutes a desirable workplace. 

‘Talent retention is a big issue right now globally,’ he says. ‘For the younger generation, they want to feel that they are contributing to society so they are increasingly looking at companies’ performance in ESG and diversity. They want to be doing the right thing so they are looking at a range of issues – climate change, anti-corruption, supply chain management – to ensure companies are handling these issues properly. They also look at whether an organisation is open to different viewpoints and includes different perspectives.’ 

Ms Chan points out that the pandemic has also brought on technological changes that help companies make their boards more geographically diverse. ‘The silver lining of Covid-19 is that it’s now easier for people to conduct meetings virtually. In the past you would consider the location of your board members, but this is becoming less of a concern because you are not geographically confined. A lot of hard habits have been broken,’ she says. 

Changing mindsets

While, as explained above, D&I has become a compliance issue, respondents to this article emphasise the need to take a strategic approach to improving D&I. In addition to attracting and retaining talent, good D&I improves innovation and decision-making. Bonnie Chan emphasises that this is a crucial factor when it comes to board effectiveness. 

‘Having diversity means that you can avoid groupthink, since more perspectives and views will be brought to the board,’ she says. For this reason, she adds, diversity should be considered as a fundamental aspect of good corporate governance.  

These benefits do not automatically follow, however, from increased diversity and this is where inclusion comes in. Fiona Nott, CEO of The Women’s Foundation, points out that the importance of inclusion is very apparent in terms of gender diversity issues. Although global mindsets are shifting to be more progressive and inclusive, she says, persistent gender stereotypes still exist in Hong Kong’s workplaces. 

Women experience negative bias from employers for being working mothers, for example. A survey commissioned by the Equal Opportunities Commission and carried out in August 2018 by the Center for Chinese Family Studies, Hong Kong Institute of Asia-Pacific Studies, The Chinese University of Hong Kong (A Study on Family Status Discrimination in the Workplace in Hong Kong) found that less than 50% of firms would hire women with children. Women also face familial pressure to take up the majority of childcare, eldercare and household duties – all of which have been exacerbated by the pandemic. 

Women also may lose out on promotion opportunities because the managers they report to do not know them well, or incorrectly evaluate their ambitions and underrate their job performance. ‘This limits their professional advancement and may help explain why senior leadership remains overwhelmingly male across industries,’ Ms Nott says. ‘However, when women try to make themselves more visible, they may face backlash for violating social norms on how women are expected to behave and risk losing their hard-won career gains.’

The challenges women face in the workforce are translated to the boardroom. ‘For too long there has been a lack of commitment in Hong Kong at board level to advance board gender diversity. Together with a tendency to appoint directors from within existing, primarily male-dominated, networks, this has contributed to Hong Kong’s low level of female board representation,’ Ms Nott points out. 

‘With the new regulatory changes relating to diversity, it’s now up to boards to play a more active role in succession planning, setting targets for and identifying diverse candidates, and transparently evaluating the board’s needs and performance to boost the number of female directors. Wholesale targets for greater female representation in workforces and at management level are also needed,’ she adds. 

Looking ahead

Companies with more diverse and more inclusive boardrooms and workplaces will have a significant competitive advantage in the post-pandemic world. While this is generally accepted, changes in recruitment practices have been slow to follow.

‘I don’t think people disagree with diversity, it’s how we get there. With Hong Kong, the issue we have to tackle is that we have directors who are very long serving. It’s very difficult to start the turn and bring up the topic – it hurts feelings. We respond to the consultation feedback so that once we start to put it into the regulations, the reasons are clear why companies need to get on with this,’ Ms Chan says. 

Once again, a key component here is the change needed in mindsets – in particular, changing the existing conception of the ideal candidates companies are looking for.

‘A lot of people say there’s no supply of properly qualified women,’ Mr Datwani says. ‘That is a big shock to me – maybe people are just not looking hard enough for the right candidates.’ He points out that the governance professional industry is made up of about 70% women and offers companies many suitable board candidates. 

He adds that the Institute has been assisting its members with training to help prepare them for board roles. ‘We want to continue the debate; we want to put this on the agenda,’ he says. ‘This is an issue that goes to ESG, sustainability and business purpose, so it is a relevant issue to government professionals and stakeholders.’

Ms Nott agrees that Hong Kong’s poor record when it comes to board gender diversity is not down to a paucity of appropriately qualified women. ‘We urge boards and companies to support first-time female executive and non-executive directors and to look beyond the typical candidate profiles, and also consider women outside the city,’ she says. 

She adds that the latest regulatory changes will hopefully bring new and promising opportunities to both employers and employees in Hong Kong. ‘Given that one third of listed companies have no women on their boards, together with the pace of new listings in Hong Kong, there will be at least 1,350 board appointment opportunities for women in the next three years. This represents considerable opportunities for women leaders who are qualified to become board members,’ she says.

She adds that the new regulatory regime also presents companies with an opportunity to empower their own female executives to serve as independent non-executive directors on other boards.

Hsiuwen Liu



SIDEBAR: Looking beyond gender 

Respondents to this article urge companies to take a broad view of D&I. ‘Diversity is not just about gender,’ says Mohan Datwani FCG HKFCG(PE), Institute Deputy Chief Executive. ‘Diversity is really open ended; it is about skills, expertise, knowledge and other issues, and it really depends on the company’s specific circumstances,’ he says.

He points out that having a director who is physically disabled will be beneficial for a company in a relevant industry. Such a director would be able to contribute valuable knowledge and insights about what the market needs. Similarly, a gaming company might want a young gamer on its board, or at least in some capacity to contribute to the board’s discussions. 

‘Companies should look at how they can get more complementary skill sets that match their purpose and go out to look for those. It’s almost like game analysis – look at what areas you need strengthening and look for that in particular,’ Mr Datwani says. 

Fiona Nott, CEO, The Women’s Foundation, agrees with this broader approach to diversity issues. In the workplace, she points out, an individual’s experience and expertise will be influenced by a wide range of factors, including their age, ethnicity, sexual orientation, religion, etc. A diverse and inclusive workplace cannot therefore be actualised unless other areas of diversity, in addition to gender diversity, are comprehensively addressed.

Despite Hong Kong being home to an estimated 570,000 people with disabilities, for example, only 0.02% of listed companies employ people with disabilities. A survey on building inclusive workplaces for lesbians and bisexual women in Hong Kong’s financial services industry also noted 33% of respondents felt disadvantaged in their career for being identified as LGBT+.

‘All of these issues can be compounded by gender and represent only a small snapshot of the many diversities that should be considered in creating measures and actions to create a more diverse and inclusive workplace,’ Ms Nott says.