Will singling out listed companies with all-male boards start a trend?
IF A company isn’t bothered about its reputation, it’s safe to assume that the company isn’t meant to be around for long.
Most businesses care about what others think of them. That’s because they deal all the time with customers, lenders, suppliers, employees, investors, government agencies and other stakeholders.
We tend to avoid doing business with those perceived to be anything less than trustworthy, competent, responsible and sturdy. Even a whiff of unsavouriness or recalcitrance, real or imagined, can very quickly ruin goodwill built over many years.
It’s this power of reputation that makes naming and shaming an effective regulatory instrument. It’s an incentive for businesses to toe the line; failure to do so may result in them being publicly held up as bad examples.
And when the prime minister himself talks about naming and shaming, it’s surely a signal of some sort.
That happened on Tuesday at the Invest Malaysia conference. In a keynote address that combines an economic report, a policy review, an investment roll call and a political diatribe, Datuk Seri Najib Tun Razak brought up the government-driven efforts to improve gender diversity at the decision-making levels of the public and private sectors.
“The female labour force participation rate has increased from 46% in 2009 to 54.3% last year. That’s over 700,000 more women in the workforce,” he said.
“And I am delighted to be able to announce that Malaysia has reached its target of women making up 30% of top management – that’s 1,446 women, out of a total of 4,960 in top management excluding CEOs, as of December 2016.”
But the Government wants to move beyond that, setting a target of women making up at least 30% of the directors of listed companies by 2020. “Because we know that when women succeed, we all succeed,” he added.
However, he lamented that 17 of Bursa Malaysia’s top 100 companies have all-male boards.
“This just is not good enough, and I call on these companies to immediately address this lack of diversity. I would like to announce that, from 2018, the Government will name and shame listed companies with no women on their boards,” he warned.
This is an intriguing idea because at the moment, there are no laws or rules to compel a listed company to appoint a woman director.
Naming and shaming is usually associated with offenders or defaulters, and not with those who ‘merely’ fail to comply with policy objectives or good practices.
Perhaps there will soon be a change in the stock exchange’s listing requirements that will make it mandatory for a listed company to have at least one woman as a board member.
If that happens, Bursa Malaysia has the basis to publicly reprimand and fine companies that ignore this requirement in the same way it already does for some breaches of its rules. The public reprimand certainly has a name-and-shame element.
But even without any amendment to the listing requirements, Najib’s announcement of the intention to name and shame next year should have jolted the listed companies without women directors.
Some people may consider the absence of gender diversity in the boardroom as a minor issue, but nobody likes to be singled out as one of the few who haven’t done the right thing.
We can be sure that many of these listed companies will soon be looking around for women candidates to take up board seats. This demonstrates the deterrent effect of naming and shaming.
But why stop here? There are many other things that some listed companies do or don’t do that should be highlighted because they’re as unacceptable as not having a single woman director, or arguably worse than that, although there’s no violation of the law or the rules.
For example, many companies continue to have executive chairmen although the idea of one person playing the roles of CEO and chairman has long been frowned upon.
Issued in March 2000, the first Malaysian Code on Corporate Governance said: “There should be a clearly accepted division of responsibilities at the head of the company, which will ensure a balance of power and authority, such that no one individual has unfettered powers of decision.”
Where the roles are combined, the Code recommended that there be a “strong independent element” on the board. It also recommended that a decision to combine the roles of chairman and CEO should be publicly explained.
That position has since toughened. The latest version of the Code, published in April this year, simply expects different individuals to be chairman and CEO of a listed company.
“Separation of the positions of the chairman and CEO promotes accountability and facilitates division of responsibilities between them,” says the current Code. This division should be clearly defined in the board charter, it adds.
And how about those companies with independent directors who have served for many years?
The Code has an interesting way of dealing with this. It sets nine years of service as the limit. “If the board intends to retain an independent director beyond nine years, it should justify and seek annual shareholders’ approval,” it explains.
But after the independent director’s 12th year, he can only stay on in that capacity if shareholders give the greenlight through a two-tier voting process. But the best policy, says the Code, is to limit the tenure of independent directors to nine years.
Maybe listed companies would be nudged into regularly refreshing their board lineups if they risk being named and shamed for over-relying on the same independent directors.
The same treatment may be applied in several other circumstances, such as when companies glaringly overpay CEOs and directors, or when they have too many non-independent directors.
Maybe next year will be the start of the name-and-shame game.
Executive editor Errol Oh is curious about the listed companies’ reasons for not appointing women directors.
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