M’sia first Board Diversity Study and Index to strengthen CG adoption

AS Malaysia moves towards strengthening of corporate governance (CG) through adoption of codes of conduct and guidelines, establishing a holistic and systematised standard for board diversity is essential for corporate Malaysia.

In this light, the Institute of Corporate Directors Malaysia (ICDM) today launched its inaugural Malaysia Board Diversity Study and Index.

Both the study and index were developed by ICDM in partnership with Willis Towers Watson (WTW) with the intention to establish correlations between board diversity and company performance as well as to institutionalise the diversity agenda within Malaysia’s corporate landscape through a benchmarked, accessible, and transparent barometer.

It examined the performance of 312 top public listed companies on Bursa Malaysia from 2017-2019, covering family and non-family businesses across the small, mid to large market capitalisation segments.

The Index measures boards against eight key dimensions of board diversity: gender, age, tenure, independence, culture, international expertise, domain expertise, and industry expertise, after which the aggregate performance of companies is evaluated and ranked against the diverse dimensions.

“The release of the study and idex is a significant milestone for Malaysia, specifically for our country’s CG landscape,” said ICDM’s president and CEO Michele Kythe Lim.

Lim added the Index will serve as a benchmark for Malaysian companies in improving their diversity on boards which is a key strategic driver to improve the overall performance of an organisation.

“It will also help contribute towards a more sustainable, resilient, responsible, corporate Malaysia over the long-term,” she pointed out.

One of the key observations from the study is that a well-constituted board is better placed to achieve sustainable financial performance across key financial performance metrics, suggesting a correlation between board diversity attributes and company financial performance.

Specifically, the study has showcased that greater adoption of diversity attributes across different dimensions have correlation with performance:

  1. Gender: Companies with at least one-third representation of women displayed stronger return on equity (ROE);
  2. Independence: Boards with 30%-50% independent directors showed higher ROE and stronger revenue growth compared to boards with fewer independent directors
  3. Tenure: Companies with long tenure spreads (of more than nine years) showed much lower price-to-earnings (P/E) multiples and revenue growth;
  4. Culture: Boards with representations of more than three cultural backgrounds showed stronger P/E multiples; and
  5. International expertise: Companies whose directors had a mix of domestic, regional, and global experiences had had higher return on equity (ROE), revenue growth and P/E multiples.

“As our corporate landscape continues to evolve and grow, we hope that this study and index will reinforce the importance and essentiality of diversity on boards, as well as serve as a springboard for a more robust and high-performing corporate Malaysia,” Lim added. – April 7, 2021

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