Nominating committees can determine the pace and success of gender equality at a company, says Brunswick’s Ginny Wilmerding
The bedrock of any board is the appointment, rotation and retirement of competent directors – tasks handled by the nominating (or nomination) committee. Pressures for diversity are felt most keenly here, as the committee continually looks for the right mix of skills to cope with business challenges and build value.
I serve on the Steering Group for the 30% Club Hong Kong, founded in 2013 in the footsteps of the original UK launch in 2010. Although board diversity encompasses more than gender alone, our mandate is specific: to bring more women on to Hong Kong corporate boards.
One of my fellow Steering Group members is David Eldon, who was formerly Chairman of HSBC Asia Pacific, and currently chairs the nominating committee of Noble Group, an Asian commodity, mining and shipping company.
“Boards in Hong Kong are coming to grips with gender, partly because of the 30% Club raising awareness of the issues,” Eldon says. He cites a 2015 report by Deloitte as evidence that more needs to be done. “We are still only at 11 percent women on boards, compared to 26.1 percent in the UK.”
Pru Bennett, another Steering Group member, leads BlackRock’s Corporate Governance and Responsible Investment Team in Asia. Bennett is disappointed with the level of disclosure on diversity – including gender diversity – among Hong Kong companies. She encourages those who take the effort seriously to open up.
“It’s an opportunity to highlight for investors and stakeholders the positive action your company is taking to build a diverse, competent and fully functioning board,” she says.
Eldon and Bennett both stress the nominating committee’s critical importance in determining the makeup of the board and, more broadly, the company’s success. The best nominating committees have a clearly defined charter that specifies their core responsibilities. Diversity policies, succession planning, identification of competent candidates, performance evaluation and development, assessment of director independence, and oversight of the company’s corporate governance practices all fall within their mandate.
“Nominating committees should be made up of independent directors who are interested to serve and volunteer themselves for the role,” Eldon says. “The committee’s most fundamental mandate is to ensure that the board as a whole has bought into the need for diversity as a way to manage risk and deliver value.”
The very idea of diversity can frighten some conservative boards in Asia, where large companies are often dominated by controlling shareholders (both family and government) and committees tend to defer to strong chairmen. But Bennett feels a braver approach carries significant rewards.
“Recruiting and developing both family and independent directors who go well beyond basic needs is the secret to building a high-performing and effective board,” Bennett says.
Eldon agrees that good leadership requires a variety of opinions. “An enlightened chairman will welcome this sort of advice and guidance,” he says.
Nominating committees need to think long term about how to ensure there is a pool of competent and diverse candidates. It is essential to identify talented employees, particularly women, and give them opportunities to develop.
“The nominating committee needs to speak up if a company hasn’t got the right people in the pipeline for the future executive director positions,” Eldon says. “They can advocate for a program whereby standout female candidates and employees are encouraged to learn about the industry or sit on outside boards to build up relevant experience.”
Bennett knows that non-executive directors in Asia are often recruited through trusted relationships rather than executive search firms. This can undermine efforts to diversify board representation and reduce directors’ independence.
While she agrees that “competence is more important than independence,” Bennett says controlling shareholders must not sacrifice independence and diversity for loyalty. Directors must be allowed to show their independence through their actions. “BlackRock’s starting point is that there are no independents until proven otherwise,” she says.
Most boards have needs beyond gender and must enlist all of their resources to fill all those gaps.
“A lot of boards are short on young people, tech-savvy directors and women,” Eldon says. “We need to bring in and then mentor newer directors to help them cope confidently with the role.”
Ginny Wilmerding is a Partner in Brunswick’s Hong Kong office and serves on the 30% Club Hong Kong Steering Group. She advises clients on corporate governance, reputation and shareholder value in Asia.
Illustration: Mikey Burton