How the Effective Application of Good Corporate Governance Can Enrich Boards Through Gender Parity and Diversity
By Wonuola Abioye, ACG
The quest to close the gender gap has become mainstream with the inclusion of Sustainable Development Goal (SDG)5 of the United Nations Development Programme (UNDP) which aims to ensure women’s full and effective participation and equal opportunities for leadership at all level of decision making in political, economic and public life. According to the World Economic Forum’s Global Gender Gap Report 2020, the data projects that it will take 99.5 years to close the global gender gap. The data was synthesized on four major sub-indexes on the gender gap: Health and Survival; Education and Achievement; Economic Participation and Opportunity; and Political Empowerment. The percentage of gender gap closure as at year 2020 on the four sub-indexes are 97%, 96%, 58% and 25% respectively, bringing the global gender gap index to 69%. The low closure gaps are observed mainly on Economic Participation and Opportunity sub-index at 58% and Political Empowerment sub index at 25%.These low indexes reflect in the corporate space as much as in the political and economic spheres. Women continue to play lower roles than men in leadership and business, which results in lower access and control of resources for women.
Despite the progress made in educational achievements and qualifications, it appears that not much progress has been made to utilize the talent, knowledge and skills of women at C- Suites positions and in the boardrooms.
With good corporate governance in focus, the issue of gender parity and diversity on boards and board committees remains a global issue. The purpose of corporate governance is to ensure effective, prudent and ethical management of corporate entities. Corporate governance is the system of checks and balances, both internal and external to companies, which ensures that companies discharge their accountability to all stakeholders and act in a socially responsible way in all areas of their business activity. The board of each company is saddled with the responsibility of providing the guidance, strategy and accountability of the company to its various stakeholders. It is therefore important that the directors have the competence, knowledge and skills to carry out their duties. Decision making processes are enriched by each board being equipped with the right number and diversity of backgrounds of its directors, regardless of gender.
Principle 2 of the Nigerian Code of Corporate Governance 2018 provides that
‘the effective discharge of the responsibilities of the Board and its committees is assured by an appropriate balance of skills and diversity (including experience and gender) without compromising competence, independence and integrity.’
Gender parity and diversity on boards matter. However, it is not yet a reality for boards globally. There are more women entering the workforce annually, but the numbers are not reflective of progress through the ranks. Principle J of the UK Corporate Governance Code 2018 provides that
‘appointments to the board should be subject to a formal, rigorous and transparent procedure, and an effective succession plan should be maintained for board and senior management. Both appointments and succession plans should be based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.’
Despite the substantial number of women in the workforce, there appears to be a gap in professional preparation and grooming of women for senior-level executive and board member positions in corporate institutions. This has translated to an exclusion from decision-making and exercise of power in the corporate space for women. Consequently, this exclusion can be quite disadvantageous to companies.
There are several benefits that corporate entities stand to gain in implementing gender parity in relation to good corporate governance. Studies have shown that gender parity on boards leads to better corporate and financial performance of companies. Not everyone agrees on this. However, there is a rise in international investors showing interest in the gender and diversity on boards of companies they are interested in. Diversity on boards shows the depth of the decision-making process and their level of enrichment. A 2007 study by Joy, Ph.D et al published by Catalyst shows a strong correlation between women representation on boards and improved financial performance on the ROE, ROS and ROIC of Fortune 500 companies. Having more women on boards is also advantageous in terms of customer insights. Women make more consumer purchase decisions than men. In these times where corporate entities need to easily read the pulse of the market and have clear insights in social and consumer trends, a diverse board including women is important. A study by McKinsey & Company measuring organizational excellence on the criteria of leadership, direction, accountability, coordination and control, innovation, external orientation, capability, motivation, work environment and values showed that companies with three or more women in senior management positions scored more on each criterion than companies with no women at the top. These correlations between organizational performance and having women in senior management positions and in boardrooms have become attractive markers that investors look for.
In countries where some measure of gender diversity has been achieved, it has been legislation-driven providing gender quotas for boards. This is seen in countries like France, Germany, Iceland, Belgium, Italy, India, Pakistan and some states in the United States of America, such as California. However, recommendations by corporate governance codes are usually not enough. In a study of over 8,000 companies focused on women in the boardroom, Deloitte found that women hold 16.9% of board seats worldwide, 5.3% of chair roles and 4.4% of CEO roles are held by women and 12.7% of CFO roles are held by women. The report reflects that barriers to gender diversity on boards persist globally. It is worse in parts of the world, particularly Africa and Asia, where culture, unconscious bias, lack of sponsorship and traditional gender roles persist. According to the UNDP, the countries with the highest biases are Pakistan, Qatar, Nigeria, Zimbabwe and Jordan.
The Proverbial Glass Ceiling
The phrase ‘glass ceiling’ has been in general usage in the last two decades. It is an intangible barrier within the hierarchy of a company that prevents women or minorities from obtaining upper level positions. It illustrates that asides proving their capabilities, women have to get to an unmarked point in their careers where they have to ‘overwork’ to shatter the glass ceiling or give up. No woman ever broke the ‘glass ceiling’ alone; it is usually removed by those in the c-suite and boards for different reasons such as lack of options, overwhelming evidence of performance and most times, sponsorship. These grounds are often based on chance and not deliberate assessments for board positions. This is the gap that good corporate governance can fill. Where there are no policies in place, the processes for women breaking through the glass ceiling into senior management functions and the boardroom will lack transparency and, in its absence, progress cannot be measured.
In Nigeria, obvious progress is being made as more women are breaking through the glass ceiling one way or another, particularly in the banking sector. Tier 1 banks such as Guaranty Trust Bank, Access Bank and First Bank have not only improved on the gender diversity of their respective managements and boards but also have females chairing their boards. This shift has been mainly regulator driven. The Central Bank of Nigeria (CBN) in 2012, under its former Governor, HRH Sanusi Lamido Sanusi, issued the Sustainable Banking Principles mandating banks to increase women representation on their management teams to 40% by 2014.In spite of these remarkable strides, the corporate space in Nigeria, including the banking sector, remain largely dominated by men. The Deloitte report found that out of 138 companies surveyed in Nigeria only 17.4% had women on their boards and only 5.8% had women chairing their boards. Therefore, there is still a long way to go to attaining gender parity on boards in Nigeria.
Beyond legislation and regulator-driven quotas, an effective nomination and governance committee made up of independent non-executive directors (INED) should be in place in each organization and should be given access through the company secretary to profiles of potential board members, from within and outside the company. Deliberate and intentional efforts is required to break the glass ceiling and increase the visibility and representation of women in boardrooms so as to enhance value for companies. In companies where good corporate governance principles are practiced, frequent board evaluations and succession planning are key annual board activities which ought to throw up qualified women or minorities for board consideration from time to time, and if it does not, then there is clearly a need to revisit the organization’s Diversity policy.
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About the Author
Wonuola Abioye is an Associate with the Chris Ogunbanjo Nominees’ corporate secretarial practice. She has a background that cuts across litigation, corporate advisory and company secretarial practices. She has a keen mind and is interested in commercial and financial matters. Wonuola is an active member of the Nigeria Bar Association and ICSA, The Chartered Governance Institute.