Over a decade of increasing regulatory requirements and lobbying by advocacy groups has failed to significantly improve the gender diversity of Hong Kong boards. A new report published by The Hong Kong Institute of Chartered Secretaries proposes a way to upgrade the regulatory response to this problem without resorting to mandatory quotas.

When it comes to the issue of gender diversity on Hong Kong boards, there are two areas of broad agreement. Firstly, the statistics, both in terms of the current level of female representation on boards and the rate at which gender diversity is improving, are appalling. Currently, only one in seven directors of listed companies in Hong Kong, or around 14%, are women, and nearly one-third of listed company boards include no women at all. Moreover, the proportion of female directors on Hong Kong boards has barely increased with each passing year – since 2011, from a low base, female board representation has risen by only around 4%.

The second area of agreement is that the absence of female participation on Hong Kong boards is not a good thing, not only for the boards concerned but also for the women being overlooked in the talent pool and for Hong Kong itself – particularly its reputation as an international financial centre with high standards of corporate governance.

Given this broad consensus, it might seem strange that board gender diversity remains so low in Hong Kong. This has not been for a lack of effort on the part of regulators, professional bodies such as The Hong Kong Institute of Chartered Secretaries (the Institute), institutional investors and the many advocacy groups working to change mindsets on this issue. While the regulatory measures adopted by Hong Kong Exchanges and Clearing Ltd (HKEX), especially in relation to new initial public offerings (IPOs), and the advocacy of stakeholders have certainly raised awareness of the need for change, it has not had the desired impact on board recruitment practices.

Into this picture comes a new review report, published by the Institute on 9 February – Missing Opportunities? A Review of Gender Diversity on Hong Kong Boards (the Review) – authored by Institute Technical Consultation Panel member Peter Greenwood FCG FCS and Institute Deputy Chief Executive Mohan Datwani FCG FCS(PE). This article highlights the findings and recommendations of the Review – in particular the case it makes for gender diversity, its assessment of the reasons for the persistence of male-dominated boards and its recommended way forward for Hong Kong.

The case for gender diversity

The Institute is well placed to be a forceful advocate for gender diversity on Hong Kong boards. The Review points out that women are strongly represented, both as members and amongst the leadership of the Institute and, as Hong Kong’s only qualifying body for Chartered Secretaries and Chartered Governance Professionals, the Institute has promoted gender diversity both on the grounds of general fairness and equality of opportunity, and also in terms of good governance.

Put simply, greater board diversity contributes to better decision-making by the board. Amar Gill, Managing Director and Head of Investment Stewardship, APAC, BlackRock, points out in the Review that outdated notions of what a board is and does still persist and contribute to the persistence of male-dominated boards in Hong Kong. ‘The archaic concept of the board is as a group of friendly faces whose primary responsibility is to serve as ambassadors in reaching out to other groups to expand business opportunities,’ he says.

This concept of the role of the board represents a major red flag for investors. Investors need to have confidence that the board will effectively carry out its key functions – setting strategy, overseeing management and identifying, addressing and monitoring risk. A board is much more likely to be effective in these roles if it includes a diversity of perspectives. This not only guards against the dangers of ‘groupthink’ and ‘tunnel vision’, but a board comprising individuals that fairly represent the diversity of the organisations’ stakeholders and the community in which it operates will also be better able to remain in touch with the interests of its stakeholders and the wider community.

‘The inadequate representation of women on Hong Kong boards means that our companies are missing the opportunities for enhanced board effectiveness that greater diversity would bring,’ Institute President Gillian Meller FCG FCS points out in her foreword to the Review. She adds that the ‘missing opportunities’ of the Review’s title also refers to the fact that women being passed over in the talent pool are missing the opportunity to develop their careers and serve the Hong Kong corporate community, and that Hong Kong itself is missing the opportunity to boost its credentials as an international financial centre with high standards of corporate governance. ‘We are lagging conspicuously behind global governance standards and the gap is widening,’ Ms Meller points out. 

This is not just a question of status and reputation – international and institutional investors are increasingly taking board diversity into account in their investment decisions, so perceptions of Hong Kong’s standing in this respect have direct consequences for the stability and liquidity of its financial markets.

The barriers to increased gender diversity

Many local stakeholder groups have been highly vocal on the need for greater female representation on Hong Kong boards. These groups, including the 30% Club, The Women’s Foundation, Community Business and The Board Diversity Hong Kong Investors’ Initiative, have endorsed and contributed to the Institute’s Review.

This advocacy has certainly raised awareness of the issue. ‘Few shareholders, chairmen, directors, senior managers or policy makers would now contend (and perhaps none publicly) that more women on boards was a bad thing’, the Review points out. Nevertheless, male-dominated boards persist in Hong Kong and the Review acknowledges that there continues to be wider societal reasons for this. In common with many other jurisdictions around the world for example, women are not attaining the same proportion of higher-level positions as men. To combat this, the Institute, along with other advocacy groups, have been actively supporting initiatives to build the pipeline of women in executive and non-executive roles.

Many contributors to the Review, however, cast doubt on the argument that the lack of gender diversity on Hong Kong boards is due to the lack of suitably qualified women to take on board roles. ‘There are many women in very senior leadership roles in Hong Kong and yet we continue to hear that there is a lack of suitable, qualified women when it comes to board positions. This is simply not true,’ Pru Bennett, Partner, Brunswick Group, points out in the Review. She believes the problem is not so much the dearth of potential female directors but the need for a different approach to the identification of suitable candidates.

The way forward for Hong Kong

The regulatory response so far

The regulatory approach taken in Hong Kong to promote greater female representation on boards has followed a path seen in many other jurisdictions. As the Review points out, ‘a requirement for public disclosure of diversity levels has been a common first step, sometimes or later accompanied by an obligation to explain a company’s underlying diversity policies and objectives’.

This is largely where we are currently in Hong Kong. The code provision in Hong Kong’s Corporate Governance Code requiring (subject to comply or explain) issuers to disclose their diversity policies became effective in September 2013 and was upgraded to the status of a Listing Rule, and therefore a mandatory requirement, in 2018. Since 2019, companies with a single-gender board planning an IPO need to disclose and explain:

• how and when gender diversity of the board will be achieved after listing
• what measurable objectives have been set for implementing gender diversity, and
• what measures the company has adopted to develop a pipeline of potential successors to the board that could ensure its gender diversity.

The HKEX Guidance for Boards and Directors, issued in July 2018, also emphasises the importance of gender diversity and makes it clear that a listed company’s diversity policy and the progress made to meeting measurable objectives, which that policy must include, must be disclosed in the annual Corporate Governance Report.

The Review’s recommendation

The fact that Hong Kong has made so little progress on board gender diversity over the last decade, despite the above regulatory measures, indicates that it is time to consider upgrading the regulatory response to this problem. The Review assesses the different regulatory measures Hong Kong might consider going forward.

Should it follow the example of jurisdictions that have set mandatory quotas for gender diversity? Norway and France set quotas of 40%. Germany and Italy have quotas of 30% and 33%, respectively, and India mandates that at least one board seat should be held by a woman. One contributor to the Review, Teresa Ko BBS JP, Former Chairman of the Listing Committee of The Hong Kong Stock Exchange, Partner and China Chairman of Freshfields Bruckhaus Deringer, supports the imposition of a 40% quota within six years.

The Review concedes that this would certainly be the fastest way to raise the percentage of women on boards, but it also highlights the potential downside of taking this route. Previous consultations on the issue of board gender diversity by HKEX indicate that the imposition of mandatory quotas would not have widespread support in the market. Moreover, experience overseas indicates that progress can be made through a voluntary approach. The Review cites the Hampton-Alexander Review of 2019 in the UK. ‘There remains a question to be answered with the passage of time, as to the trade-off between a swifter pace of change, over arguably slower, but more sustainable change which seeks to educate and embed learnings in the business,’ the Hampton-Alexander Review states.

The Institute’s Review emphasises that, to be successful, any solution must have the broadest possible support. It therefore attempts to steer a course between potentially unpopular mandatory quotas and voluntary targets that are largely ignored. It calls for Hong Kong’s Corporate Governance Code be amended to include a target of a minimum 30% female representation on boards. To allow boards to adjust to this target a six-year transition period would be set. The target would be voluntary but subject to a ‘comply or explain’ regime – companies that do not comply would be obliged to disclose the specific reasons for this and the steps they intend to take to achieve compliance.

The Review believes that this proposal will have a good chance of getting broad-based stakeholder consensus in Hong Kong. It emphasises that a greater role for women in Hong Kong boardrooms is not something that can be successfully introduced and implemented through a purely top-down process of direction and compulsion. ‘In the end, the way forward will be paved by a shared consensus, common goals and collective action,’ the Review states.

It adds that the imposition of such a target should not be regarded as a silver bullet to the problem of low gender diversity on Hong Kong boards. It emphasises that whatever regime emerges from further debate on this issue will require the contribution of all stakeholders in order to achieve meaningful success, both in meeting targets and in building a greater pool and a sustained pipeline of well-qualified female board candidates.