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NO DOUBT, BOARD DIVERSITY IS GOOD FOR BUSINESS!
By: Monette Iturralde-Hamlin, FICD
Chair
ICD Board Diversity and Inclusion Committee
Do you want to improve the performance of your business? Then ensure your Board of Directors is diverse and inclusive, as this fosters better decision-making, oversight, and governance, particularly during challenging times.
The Institute of Corporate Directors (ICD), in its groundbreaking study which covered all active publicly listed companies (PLCs) registered with the Securities and Exchange Commission from 2019 to 2021, determined a clear and positive correlation between a company’s Return on Equity (ROE) and the attributes of these PLC boards, specifically diversity in gender, expertise, and age.
Key findings of the study prepared by the Board Diversity and Inclusion (BDI) Committee include:
1. Companies with female directors outperformed companies without female directors in terms of ROE in 2020 and 2021. This suggests that companies with women on board (WOB) were more responsive to the challenges of the COVID-19 pandemic.
2. Companies that have directors with expertise in specific areas, such as business management and finance, performed better than companies without such experts on the board.
3. Board directors’ seniority in age positively influenced ROE, suggesting that having a few older members in the board could provide experienced perspectives in emerging categories, helping improve overall company performance.
While age in years is a significant predictor of ROE, tenure or length of service in the company is not. As markets trends and business demands continuously evolve over time, newer board directors might have just as much expertise to offer, as well as relatively fresh and dynamic beliefs and principles, as their longer-serving counterparts. There is a need, however, to balance board composition in terms of age to allow for succession, a well-established tenet of good corporate governance.
Overall, the ICD study suggests that board diversity is good for business as it can lead to better decision-making, oversight, and governance. The BDI Committee will continue to track the effects of board diversity on company performance in the Philippines for 2022 and 2023. Click on this link to access the full study.
In parallel, the BDI Committee is working on getting grants for testing a Board Diversity Index Tool jointly developed by Mr. Ricardo Nicanor N. Jacinto, FICD and University of the Philippines Professor Debbie Chua. Offering a holistic perspective, this innovative framework will review four clusters of diversity components: Identity (age, gender, citizenship), Experience (industry, government/civil society, international experience), Expertise (educational attainment, foreign training, licenses/certifications, functional expertise), and Network (family connection, board connection, social/professional connection, tenure). The BDI Tool is expected to provide richer data on the important role that diversity plays in an organization’s success.
Celebrating its 25th anniversary in 2024, ICD is a national association of corporate directors and other stakeholders engaged in corporate governance. The only institution in the Philippines accredited as a corporate governance training body by the Securities and Exchange Commission (SEC), the Insurance Commission (IC), Bangko Sentral ng Pilipinas (BSP), the Governance Commission for Government-Owned or-Controlled Corporations (GCG) and the Career Executive Service Board (CESB), ICD helps professionalize the practice of corporate directorship through its training programs.
