Enhancing Corporate Governance Through Board Diversity
The impact of diversity on corporate boards and its relationship to value creation for shareholders. Discover research findings supporting gender diversity and its positive effects on company performance.
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Presentation Transcript
Joint ECOWAS ABWA Conference 17th March 2022 Liberia Corporate Governance and Board Diversity: Enhancing Value Creation for Shareholders Isaac Orolugbagbe FCA
Discussion Objectives At the end of the sessions participants will understand: What we mean by diversity management The benefits of diversity management How to manage diversity in our organisations
What are our Interests as Accountants? Assurance Services Performance Management Professionals Management Consultants and Corporate Advisors Executive and Non-Executive Directors
The Central Question What effect does the board s actual makeup and diversity, or lack thereof, have on a company s prospects for creating value over the long term?
Consensus Opinion: Boards are increasingly recognizing that those with members who represent a good mix of age, experience, and background tend to foster constructive debate and decision-making.
Research Results During the six-year period ending in 2011, companies with female representation had better share price performance, higher return on equity, and better average growth than did those with no women on their boards - Credit Suisse Research Institute Report, Gender Diversity and Corporate Performance, 201 2
Research Results A study of 1,000 firms in 12 emerging markets found out that companies in the top quartile for gender diversity on executive teams were 21 per cent more likely to outperform on profitability and 27 per cent more likely to have superior value creation - Mckinsey & Co. (2018)
Research Results Significant positive relationships existbetween a company s value and the contingent of women or minorities on a company s board . - Carter, Simkins and Simpson (2003)
Research Results Greater board diversity correlates with lower stock price volatility, more consistent investment in R&D projects over time, and better performance overall - Bernile, Bhagwat and Yonker (2017)
Research Results For boards with age and gender diversity, the most diverse boards added 3.3% to return on invested capital (ROIC) as compared to their least diverse peers. Gender diversity in particular, companies with the most gender diverse boards outperformed the least diverse in terms of ROIC by 2.6% - Based on a study of MSCI ACWI from 2010 t0 2017 by FCLTGlobal Research (May 2019)
Research Results Countries that are able to make even small inroads in closing the global gender gap could increase their gross domestic product by $5.3trillion in the next seven years - World Economic Forum (2017)
What is Diversity Management?
What is Diversity Management? Diversity management refers to organizational actions that aim to promote greater inclusion of employees from different backgrounds into an organization s structure (Corporate Finance Institute) Board diversity aims to cultivate a broad spectrum of demographic attributes and characteristics in the boardroom. (ACCA Global)
What is Diversity Management? Diversity metrics: Age Diverse Board Experience Ethnicity Education Financial Expertise Gender Religion
Benefits & Cost of Diversity Management
Benefits of Board Diversity More effective decision making Access to a wider pool and better utilisation of talent pool Better customer insights through representation by diversified board membership tends to provide a clearer representation of users and consumers
Benefits of Board Diversity Attract investments Stronger corporate reputation and investor relations by establishing the company as a responsible corporate citizen Improved corporate governance
Cost of Board Diversity Having a diverse board may increase the potential for additional conflicts or frictions between members Appointing directors for diversity only may create tokenism rather than as an opportunity for additional perspectives
Approaches & Recommendations for Diversity Management
Regulatory Imposition of Quotas Increasing use of regulatory quotas: Country % Women Director % Women Director Gender Quota & Year Introduced 2019 2016 Canada 29.1% 22.8% Pending France 44.3% 37.6% Yes, 2010 Germany 33.3% 19.5% Yes, 2015 India 15.9% 12.8% Yes, 2013 Nigeria 23% 20% No Sweden 39.6% 35.6% Yes, 2016 UK 31.7% 25.3% No Africa (SOE) 30% (2015)* n/a n/a Source: Women in Boards, KPMG Nigeria, March 2022, *Commonwealth 2015
Disclosures Using Comply or Explain Approach Corporate Governance Codes mandate diversity management for board appointments with due consideration to the needs, skills and abilities required for the business. Organisations are required to comply, report compliance and if unable to, explain how it plans to comply in the future.
Recommendations for Boards (KPMG Nigeria, March 2022) Develop and welcome an inclusive culture Use company strategies and stakeholders lenses to establish board diversity goals Construct a board matrix that considers multiple dimensions of diversity e.g. skill sets, background and decision-making style. Develop pathways for the board to tap into new, diverse networks of qualified board candidates
Recommendations for Boards (KPMG Nigeria, March 2022) Develop a succession plan to nurture diverse boards Exercise inclusive leadership to harness the full collective intelligence of the board Routinely review an organisational diversity scorecard Hold management accountable for inclusive leadership
Board Skills Matrix The Board skills matrix represents the key skills that the Board has identified as necessary for oversight of the company and the execution of strategy. Experience, expertise or attributes/Directors A B C D E F G H I J General Management or Business Operation CEO Experience CFO Experience Industry Knowledge Technology Risk Management Strategy Development M&A Consumer Marketing Legal & Regulatory Corporate Governance Diversity (Sex, Youth, Religion & Federal Character)
Conclusions Boards with members from different backgrounds, experience and social networks benefit from better understanding of the various stakeholders, provide diverse connections with the external environment and help address stakeholders claims in a more responsive manner. No one director can meet all the requirements. The Chairman and Nomination Committee have a lot to do to attract the right mix of skills and to help new members settle down and be more forthcoming with their perspectives.
Thank You Isaac Orolugbagbe, FCA info@accelstra.com +234-8037815781
