To understand market-specific challenges and equip companies with best practices for diversifying boards, we recently conducted an engagement campaign with portfolio companies in markets that have relatively high or low representation of women directors compared to their economic and regional peers. What follows are insights and best practices identified in these engagements.
Through our conversations with portfolio companies, we learned about challenges that boards encounter when recruiting women directors. For example, some companies described how regulatory requirements to diversify boards have led to an increased demand for a limited pool of qualified local director candidates who are women. We have observed that, in response to these challenges, boards have implemented a variety of practices, including:
Having a strong commitment to board diversity as a key element of effective governance;
Thoughtfully planning the optimal board composition;
Creating an inclusive candidate search;
Establishing robust board refreshment processes;
Setting measurable board diversity goals and implementing accountability measures;
Creating and cultivating a safe environment for diverse board members to share their perspectives; and
Preparing new directors to succeed with effective onboarding processes.
State Street Global Advisors encourages greater board diversity through engagements with portfolio companies and through our proxy votes. As described in our Guidance on Diversity Disclosures and Practices, we expect all portfolio companies across the globe to have at least one woman director on their boards. Since the launch of our Fearless Girl campaign in 2017, 948 (more than 60%) of the 1,548 companies we identified in major indices with all-male boards have added at least one woman director.1
However, some portfolio companies have not made sufficient progress toward our expectations. We recently conducted a proactive engagement campaign on this topic with portfolio companies in markets across the world. We spoke to companies in the Gulf Cooperation Council (GCC) countries, as detailed in our recent paper, as well as to companies in six other markets that have either relatively high or low board gender diversity levels compared to their economic and regional peers.2 These markets included:
of listed companies in Canada have more than 30% of women directors³ on their boards, which is lower than peers such as the United States, which is at 27%.
of listed companies in Colombia have more than 30% of women directors on their boards, which is higher than most South American markets, which are generally around 3% to 9%.
of listed companies in Mexico have more than 30% of women directors on their boards, which is at the low end of Latin American markets.
Hong Kong 11%
of listed companies in Hong Kong have more than 30% women directors on boards, which is at or below the level of developed markets in the APAC region (for example, Australia at 25% and New Zealand 32%).
of listed companies in Singapore have more than 30% women directors on boards, which is lower than its peers in developed markets in APAC and relative to Southeast Asian countries such as Philippines (20%), Malaysia (23%) and Thailand (22%).
South Korea 2%
of listed companies in South Korea have more than 30% women directors on boards, which is significantly lower than emerging market peers like China (11%), India (12%) and Southeast Asian countries.
We reached out to both leaders and laggards within each market, as measured by the percentage of women directors on the board. Our engagements were primarily with leaders in the six target markets, as they tended to be more responsive and showed interest in learning about investor expectations and sharing best practices. (Please see the Appendix for the list of companies engaged.)
Insights From Market Leaders
What follows are best practices surfaced in our engagements with companies in the markets mentioned above.
Commitment to Board Diversity
Leading companies we spoke with genuinely believe that having gender diversity on the board is a good corporate governance practice. In comparison, we observed that most laggards view diversity as an burdensome requirement from regulators and the investment community, as an inconvenient “issue” they need to resolve. Leaders think inclusiveness in the search process ensures fairness and provides access to a larger pool of qualified candidates, whereas most laggards appear to perceive the consideration of gender diversity as something that could compromise board quality and disturb the status quo.
We saw that a fundamental belief in the benefits of diversity can underpin market leaders’ success. As they approach diversity efforts with careful planning and thoughtful execution, they attract qualified women candidates who are highly sought after, particularly in markets that have a limited pool of available women candidates given increasing regulatory requirements regarding diversity.4
In order to demonstrate their commitment to board gender diversity, many leaders published board diversity policies that outlined diversity-related practices, quantitative goals, and governance surrounding the recruitment process. This transparency demonstrates the company’s commitment to diversity and helps attract women director candidates. For example, Fortis Inc., a Canadian utilities company, had key stakeholders physically sign a pledge to the firm’s commitment to diversity, reinforcing the company’s belief that diversity is a “collective, important commitment.”
These strong commitments create a self-fulfilling prophecy that confirms leading companies’ beliefs in the value of diversity. On the other hand, laggards’ reluctance discourages them from devoting sufficient resources to recruiting qualified women candidates, and they are thus unable to realize the benefits of board diversity, reinforcing their negative view.
Thoughtful Board Composition Planning
Leaders on board gender diversity avoid taking shortcuts and do not bring in women directors only to boost the gender diversity of the board. Instead, they rigorously consider the suitability of the candidate’s background and experiences for the board and the development of the firm. As they aim for the right mix of knowledge, skillsets and experience on the board, leaders carefully plan for the right board composition to effectively monitor and manage potential future risks that arise for their businesses. For example, CLP Holdings Ltd., a Hong Kong utilities company, established a forward-looking and dynamic planning process to map out the expertise and skillsets needed on the board to help the firm navigate emerging trends. The board monitors market developments, forecasts future challenges the firm might encounter and identifies relevant criteria for director candidates. Such thoughtful planning helps companies bring in different perspectives needed to strengthen board oversight in a rapidly evolving marketplace.
Inclusive Candidate Search
With specific criteria established during the planning phase, leaders perform inclusive director searches. They consider candidates of different gender, professional and cultural backgrounds, instead of relying on existing directors’ personal networks, such as their “golf buddies,” as one Hong Kong company described, or their “hockey team,” as one Canadian company put it. Most leaders have observed that it was not difficult to find qualified women candidates in their region – they simply needed to cast a wider net. They took some of the following approaches to diversifying their candidate pools:
Hired director search firms: Some leaders found it helpful to work with specialized director search firms as part of their candidate search. During our engagement with Fortis Inc., we learned that in addition to search firms that focus specifically on diverse candidates, more mainstream search firms are also focusing on diversity in response to increasing client demand. Fortis also observed that its focus on diversity helped the board identify more suitable director candidates, because it worked harder to find directors in places that it might have overlooked previously.
Increased diversity in personal network searches: For smaller markets with tightly-knit business communities, such as Singapore and Hong Kong, market leaders we spoke to do not rely on third-party search firms, because potential board candidates are likely well known in the region already. We saw leaders trying to making personal network search processes more inclusive. For example, instead of agreeing to the first qualified candidate recommended to them by their trusted connections, they proactively consider additional candidates with different backgrounds and then select the best one from that pool.
Sought directors with diverse professional backgrounds: Leading boards are thinking beyond the traditional types of candidates (such as ex-CEOs and ex-board chairs) and considering candidates who might not have prior CEO or chairperson experience, but who can still contribute to the board’s oversight of the firm’s strategy. Boards shared that they found more diverse candidates when they expanded their search to look for people with professional backgrounds that might not be explicitly connected to the company’s industry, but that could bring a unique skillset — for example, individuals with expertise in human resources. With a focus on diversity, the board can also take a broader view of directors’ complementary skillsets, and measure competency and subject matter expertise beyond the number of years the candidate previously served on a different board.
Recruited internationally: Many leaders (especially those with international operations or a desire to expand globally) recruited candidates from different regions, effectively increasing the diversity of their search pool to include candidates with diverse backgrounds and expert knowledge of regional nuances.
Effective Board Refreshment Process
Many leaders increase the diversity of their boards by refreshing the board more often. In markets that tend to have long board tenures and/or founders on boards, some leaders have established limitations on director age and tenure to ensure that new perspectives are added to the board regularly. This approach is particularly impactful in markets where many public companies started out as family businesses, where the lack of gender diversity can be partly attributed to the historically paternalistic and hierarchical family corporate culture. Refreshing the board in these cases can allow a new generation of directors to serve that might have a greater appreciation for the value of diversity, as we saw at one majority family-owned business in Mexico, for example.
Goal Setting and Accountability
Many leading companies actively participate in initiatives such as The 30% Club and other regional gender diversity organizations, which often have diversity goals that are more aggressive than local regulatory requirements. We also observed that some market leaders implement internal accountability measures. For example, Grupo Argos SA, a Colombian materials company, measures whether the board’s “composition guarantees diversity of knowledge, skills, and opinions” in its annual assessment.
Cultivating Inclusive Board Discussions
A diverse board is not just about the numbers, but also about leveraging the diversity of perspectives and backgrounds to strengthen oversight of the company’s long-term business strategy. Fortis, Inc. described how a diverse board requires the chairperson to proactively cultivate an inclusive environment for all candidates to confidently share their perspectives. Several market leaders shared that their chairs are learning to navigate a more diverse board dynamic than in the past when the directors were more homogenous. For example, FIBRA Macquarie shared that the chair of the board sometimes explicitly states that “this is a safe environment” at the beginning of meetings to encourage directors to voice their opinions. Some leading boards also implement ongoing external board reviews that provide them with helpful feedback on inclusion and empowerment within the boardroom.
Preparing Directors to Succeed
Many leaders onboard women directors effectively and thoughtfully by bringing them up to speed on the key issues the firm is facing. CLP Holdings Ltd. also suggested that women board members should have defined roles on board committees to deepen their leadership and help them better understand the business, making their opinions more valuable and respected. Parkway Life REIT, based in Singapore, also shared that when the candidate search process is rigorous, a new director’s expertise will help them establish a positive reputation in the boardroom.
Insights for Emerging Directors: Spotlight on Singapore
In addition to the insights for boards outlined above, we also gathered insights for emerging directors from the Council for Board Diversity (CBD), an organization in Singapore that promotes gender diversity on boards:
Develop board experience outside the private sector
Given that many public company boards require prior board experience, CBD suggests that young women candidates should first serve on government statutory or other non-private sector boards in order to gain valuable board experience and build their networks and reputations.
Improve visibility through sponsorship
CBD helps women candidates increase their visibility in the search process by encouraging well-respected business figures to recommend and “sponsor” them. In the tight-knit business community of Singapore, board members likely already know the sponsor who can endorse the candidate’s qualifications, raising the candidate’s profile in the search process.
We remain focused on our fiduciary duty to maximize the long-term risk-adjusted returns of our clients’ investments. We believe that gender diversity on boards promotes a diversity of perspectives and experiences that can drive the long-term success of a firm. Please reach out to our Asset Stewardship team at GovernanceTeam@ssga.com as we look forward to engaging with you on this important topic.
Appendix A: Companies and NGOs Engaged as Part of Targeted Gender Diversity Campaign
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information.
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