Investment

Trade as a catalyst for board gender diversity

South African companies seeking to expand into global trade and investment could become more attractive trade partners by adopting relevant corporate governance practices of countries in the European Union, South Africa’s largest trading partner in 2020, especially in enhancing gender diversity on their boards.

Trade as both an economic exchange and an exchange of corporate governance cultures could also assist European companies to learn from South Africa on bringing race and ethnic diversity into their boardrooms, says Prof Anita Bosch, the Research Chair for Women at Work at Stellenbosch Business School.

The Research Chair’s report Winds of change: Trade as a catalyst for board gender diversity, launched this week, is aimed at assisting European and South African businesses to do business responsibly and examines how board structure, size and directors’ terms of office influence the gender composition of boards. The report is also a resource on board differences for executives intending to trade with European counterparts.

“Trade brings opportunity for change. As North-South trade intensifies, so too does the opportunity for progressive companies and countries to learn from one another about how to create systemic change, particularly so as to encourage gender parity on boards.”

“This report should encourage more directors, institutional investors and shareholders to think deeply about how they use their influence to ensure that boards benefit from the richness of thinking that comes with gender and racial diversity,” Prof Bosch said.

She said that many of South Africa’s trade partners in the European Union, and those in Iceland, Scandinavia and the UK had made great progress in diversifying and including more women on listed companies’ boards, with change in some countries, such as France and Norway, driven by legislated quotas, or voluntary targets in the case of the UK.

“Change in Europe has also been stimulated by generally widespread corporate governance reform promoting diversity and inclusivity on company boards,” she said.

“In South Africa, institutional and other shareholder pressures, the B-BBEE Act, King IV Code revisions and the Johannesburg Securities Exchange (JSE) listing requirements have all placed pressure on companies to address board reform and the country has seen promising progress in reversing gender and racial similarity with increasing levels of black women at board level.”

Prof Bosch said learning from the two-tier board structure used by key trading partners such as Germany and the Netherlands could assist South African companies to enhance gender diversity on their boards. Iceland’s two-tier board structure has remarkably yielded near parity between women and men. 

While South African board structure follows the UK example of a single, unitary board composed of executive and non-executive directors headed by a chairperson, dual-tier structures have a supervisory board elected by shareholders, which appoints and oversees a management board. The supervisory board is similar to a body of non-executive directors, while the management board consists of executive directors. 

“Women’s continued low levels of representation in senior executive roles in South African companies continues to hamper their chances of becoming executive directors, and they are commonly appointed as non-executive board members. Similarly, in European companies with two-tier boards, women are more likely to be appointed to supervisory boards.” 

Prof Bosch said that when comparing statistics, one needs to realise that European board gender diversity numbers are based on supervisory boards. “Similar to South Africa, women remain underrepresented in executive roles in Europe and therefore underrepresented on their second-tier management boards.” 

“With a two-tier board structure, it is thus easier to influence diversity on the supervisory board. Since South Africa has one-tier boards, foreign investors and our trade partners can seek to influence board gender diversity through subtle or direct pressure on South African companies to diversify non-executive directors, in return for monetary investments or export- and import contracts. Similarly, South African companies can exert pressure towards racial and ethnic diversity on European boards,” Prof Bosch said.

She said that women faced a “second glass ceiling” – once appointed to a board, they are unlikely to be appointed as chairs of the key board committees for audit, nominations, and remuneration.

“Significant power and responsibility vests in these committees, especially those chairing them, with direct impact on company policies on financial reporting, board composition and remuneration, even though all board members remain collectively accountable. Studies show that higher female committee representation is reflected in companies having fairer remuneration policies, financial reports of higher quality, and more diverse appointments to boards. Yet, South African companies are struggling to improve on women chairing these committees,” she said.

She said that both one- and two-tier boards should be challenged to place women in more powerful positions on the board, with a target of either a woman CEO or board chair, and targeting female non-executive directors to chair board committees.

Prof Bosch said gender diversity on boards could also be enhanced through training and mentoring of potential female directors in corporate governance and board protocols so that they are equipped to make a meaningful impact, while institutional investors should require progress reports on setting and meeting clear targets for diversity. Support should also be provided to existing board members to develop skills of being purposefully inclusive of new board members.

Prof Bosch co-authored the report with Stellenbosch Business School research fellow Shimon Barit. The report is available as a free download from https://www.usb.ac.za/usb_reports/winds-of-change-trade-as-a-catalyst-for-board-gender-diversity/







Related posts
Investment

Are you creating the right investment legacy for your children?

InvestmentRetirement

Funds focus on impact investing and sustainability at conference

Investment

Motivating our youth could help the unemployment rate

Investment

Off shore investing in turbulent market conditions