Women and the size of HK boards
13 September 2013

During the summer recess, Webb-site has completed a 23-year (and growing) database of the boards of HK-listed companies, including delisted companies and stretching back to 1-Jan-1990. So we have added a look-back function to several pages in Webb-site Who's Who, which allows you to roll back the clock to any date in that period and look at board composition and positions held by individuals.

We hope this will foster a range of independent research by our universities, but to get things started, we'll look at a few simple statistics, starting today with the number and proportion of women on HK boards and the size of boards. Click here to see the distribution of women per company. What this shows is that currently, the average number of women is 0.93 per board, with 622 boards, or 39.6%, having no women at all, and 598 (38.0%) having just one.

But were women always in such a minority? The answer is no, it used to be even smaller. Just plug in the dates and see:

The number of companies has exploded more than 5-fold from a sleepy 292 at the start of the 1990s to 1538 at the start of this year. That is in large part due to the arrival of mainland companies, both state-controlled enterprises and private-sector ones. The good news for feminists is that the average number of women on boards has more than doubled from 0.43 to 0.93. in 1990, 69% of companies had no women at all (and for those that did, many of them were the Chairman's wife); that figure has now dropped to 39.6%, and more than half of companies had a female director by 2000. Also, the proportion with 2 or more female directors has risen from 11.0% in 1990 to 22.4% today.

In another page of Webb-site Who's Who, you can see the distribution of board size at any time since 1990. Board size has increased since 1990 due to the introduction of so-called independent non-executive directors (INEDs) and subsequent changes in those requirements explained below, but still, the proportion of seats held by women has increased from 5.67% to 10.94% today:

Back in 1990, there was no requirement to have any "independent" non-executive directors on boards. That changed in 1993-4. New companies listed after 1-Aug-1993 needed 2 INEDs, and existing companies needed 1 INED by 1-Jul-1994 and 2 INEDs by 31-Dec-1994. Even then, the definition of "independent" allowed professional advisers (mainly lawyers), whose firms sold services to the company, to be called INED, so many listed companies just redesignated an existing director; that practice wasn't abolished until 30-Sep-2004. Still, the average board size did jump by 0.86 people from 7.83 in 1993 to 8.69 in 1995.

Over a 6-year period from 1998 to 2004, average board size shrank from 8.73 to 7.98. This may be due to a number of corporate failures after the dotcom crash; directors tend to resign when companies run into trouble. Then on 30-Sep-2004, the requirement to have 3 INEDs came into force. Consequentially the average board size jumped by 0.64 to 8.62 by 1-Jan-2005. That year also saw a dip in the proportion of seats held by women, from 10.25% to 9.75%, and it didn't recover until sometime in 2009.

Of course, these figures are far from representative of the gender mix in the general population and we expect the proportion of women to continue to climb from natural forces, but you need to bear in mind some key factors:

• The average age of directors is currently 53.4. For those who are university graduates, they entered the workforce about 32 years ago, in 1981, or about 1978 for those who are not. That was in an era when gender discrimination was still legal and rampant, and society at large held very different views on the roles of men and women. The graduate intake program of 1981 at major employers would have had a very different gender mix to the graduate intake program of 2013. So for those who are rising on merit rather than family connections, it will take time for the changing intakes in the pipeline of the last 30 years to impact board-room composition. This is reflected in the fact that the average age of male directors is 53.9, while for females it is 49.3 - we will write more about the aging of HK boards in a future article, but in the meantime you can explore the statistics on this page.
• (and we know that this will trigger a flood of e-mails): men and women, on average, are both biologically and psychologically different. They make different value judgements and choices in their lives. They have different hormones and different levels of aggression, amongst other gender differences. Probably a smaller proportion of women than men prioritise climbing the corporate ladder and playing office politics over spending time with their children and families and other options; their value judgments on work-life balance are different. Setting aside the fact that men cannot get pregnant, and with all the back-to-work support that modern employers provide for women, there will still be a significant portion of talented women who choose not to return, or only to work part-time after becoming mothers. For this reason alone, it seems unlikely that the proportion of women on boards will ever get close to 50%.
• Men and women probably have different levels of attraction to business careers, as opposed to other fields. For example, primary school teachers are in large majority female (87% in US and UK, 78% in Hong Kong). This does not prove that schools discriminate against male teachers any more than the board figures prove discrimination against women today. Other factors are in play, including the fact that women who are teachers tend to have work-days and holidays that synchronise with their school-age children, so it is easier to maintain their careers after motherhood than it is for businesswomen.

Does gender diversity improve corporate performance? The next step in this analysis would be to analyse the HK shareholder returns (as measured by the Webb-site Total Returns series) for any correlation with gender diversity. This we have not yet done; others may wish to take it on.

Ultimately companies must choose the best people, and the best mix of people, for their boards, or they will be less likely to succeed in the competitive environment that most of them (other than monopolies) face. Rather like selecting a stock portfolio, you will get a better return/risk ratio if you diversify the portfolio rather than hire 9 identical directors with the same point of view on everything - because then you might as well just have 1 director.

But this must be a choice for companies and their shareholders, and not one imposed by quotas or affirmative action, which would just be discrimination in favour of the minority, whether in gender, race, religion, nationality or any other aspect. If companies were required to appoint a minimum number or proportion of women, then they would of course comply, but it would be a sub-optimal box-ticking exercise, rather like most companies treat the requirement to have "independent" directors. Which brings us on to...

Response to the one-third INED rule: shrink the board

The most recent change in INED requirements is that at least one-third of the board must be INEDs (with the existing minimum of 3), effective 1-Jan-2013. We can see that a number of companies responded to this by trimming their board down from 10 to 9, to avoid having to appoint any new INEDs. Here is what happened:

Keep in mind that most companies have a controlling shareholder who votes in all director elections, so the INEDs are only as independent as the controller wants them to be. See The three wise monkeys of HK boards for more.

© Webb-site.com, 2013

Topics in this story

• Corporate governance - general
• Independent Non-Executive Directors

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