Trading Up: A Diversity Campaign in Hong Kong’s Clubby Business World

The financial services and investment management industry have taken significant strides towards improving gender diversity since then. However, throughout my career as a trader in investment banks and hedge funds I have never had the experience of a female role model or boss. I believe that representation matters, and that young women joining the industry today should be able to benefit from female role models.

Another reason I am passionate about improving gender diversity in this profession is because it will boost performance. I have seen all the positive impacts of diversity in decision-making — whether it is on a trading floor, in an investment committee, or on a company board. It is about better leadership, better corporate governance, and ultimately about increasing corporate performance for companies and their shareholders. It is not only the “right” thing to do in terms of equality, but the smart thing to do in terms of performance. A 2021 Credit Suisse Gender 3000 report shows a pattern of greater diversity coinciding with better EBITDA margins across time, better cash returns, higher margins, higher and less-volatile returns, better credit ratings, and higher equity-market valuations – a sort of “diversity premium”.

So, if we believe that diversity improves decision-making, then it is even more critical now, as companies navigate the challenges presented by the COVID-19 pandemic. In our engagements with investee companies, we have seen that, in this moment of crisis, many corporates are more willing to take advice. They are more willing to hear from shareholders on all kinds of issues. They have a renewed sense of urgency to bolster their businesses to weather the pandemic and related crises, and a renewed sense of urgency to manage their teams in a remote world. As shareholders, we must act in this moment to engage on improving diversity.

Asia’s boards lag the world

While all-male boards are more and more a thing of the past for many companies worldwide, women remain vastly underrepresented in corporate boardrooms and progress to change this trend continues to be slow, especially in Asia.

Around the world women now hold 24 percent of corporate board seats according the 2021 Credit Suisse Gender 3000 report, compared to 20.7 percent in 2019, and the percentage of women in C-suite senior management positions has grown from 17.6 percent to 19.9 percent. Regionally, Asia-Pacific continues to trail other regions in appointing women to corporate boards, despite a few encouraging signs.

In Hong Kong women hold only 14 percent of listed companies’ board seats and a report by the Hong Kong Institute of Chartered Secretaries released this year suggests that progress towards change has been glacial.  In 2011, 10.5 percent of directors of Hong Kong-listed company boards were women, so there has been for an overall improvement of less than 4 percentage points over the last decade. Despite its status as the largest fundraising venue in the world in seven of the past 11 years, when it comes to gender diversity on boards, Hong Kong falls behind Australia/New Zealand, with 33.5 percent female representation on boards; Malaysia, with 27.4 per cent; Singapore (20.1 per cent), India (17.3 per cent), Philippines (16.9 per cent), Thailand (16.2 per cent) and soon, Japan (11.5 per cent). That’s not to mention other global financial hubs to which Hong Kong aspires to benchmark itself, like the UK (35.3 per cent) and the USA (28.1 per cent).

According to BoardEx data, Hong Kong ranks twenty-fifth out of 27 countries for the average percentage of women on boards, with just Russia and Brazil trailing (close) behind. Whereas all of the companies in the S&P 500 have at least one female director, and only seven of the Topix 100 firms have all-male boards, nearly 20 percent of the 60 firms on the main Hang Seng Index, do not have not a single female director on their boards. In fact, at the end of 2020, there were as many white male directors on the Index’s  boards as there were women directors of all backgrounds. Not a single Hang Seng Index boardroom has achieved gender parity. More broadly, among all of Hong Kong’s more than 2,500 listed companies, women hold 14.3 percent of board seats, and nearly one-third of companies have all-male boards.

Boosting female workforce participation, increasing the number of women in leadership positions, including addressing part-time and flexible work options, caregiving responsibilities, board diversity, age discrimination, the gender pay gap, and women’s health taboos would all strengthen our city and community. There is no question that women face professional hurdles beyond the boardroom, at every level of the professional hierarchy and throughout their careers. For example, in August 2018, a Hong Kong Equal Opportunities Commission study found that less than 50 per cent of firms in Hong Kong would hire women with children.

In my own industry, investment management, a 2018 study by Bella Private Markets found that female-owned hedge funds capture only 1.5 per cent of the overall assets allocated to hedge funds. While efforts have been made in the industry, especially in recruitment; getting more women into senior roles, keeping them there, and making them more visible as role models for the next generation all remain challenges for the industry, just like for our investee companies.

However, by focusing on gender diversity on boards, we have something that is tracked and measurable. It is something actionable. And something we can play a role in changing.

Breaking the glass ceiling in Hong Kong

I co-founded the Hong Kong Board Diversity Investors’ Initiative in 2018 when it became clear that gender diversity on Hong Kong boards was not improving on its own, and likely would not improve unless additional steps were taken. There is a perception that what is “good” for the markets will eventually happen – it did not happen here. We have seen in Hong Kong that, without strong incentives and the engagement of all kinds of stakeholders, including government bodies, the exchange and its regulator, corporates, NGOs, industry groups and investors – we will not achieve significant improvement.

In my company, where we have focused on engaging with companies on corporate governance, I had seen first-hand that investors, through engagement and dialogue, can create positive change at their investee companies. My co-founders and I wanted to act to leverage our role as institutional investors to apply pressure to improve board diversity.

Today, we have been joined by money managers, asset managers, pension funds and hedge funds in this effort. Our common aim is to build a constructive relationship with boards and management teams to foster a greater awareness and acceptance of the business value of diversity, reflected in greater diversity on boards and at companies over time.

Hong Kong’s challenges for improving diversity are compounded by corporate ownership structures, with shareholdings frequently dominated by state-owned enterprises and controlling families. Many listed companies are closely held by founding patriarchs and tycoons, with boards comprised of immediate family members and relatives. For some of these corporates, ideal board candidates are those who share existing connections, and value most of all the interests of the controlling shareholders. The basic idea behind the Board Diversity Hong Kong Investor Initiative is that investors – minority shareholders – can contribute to improving diversity by engaging with their investee companies and holding them accountable. By asking our investee companies about their board composition, diversity policies, and director nomination processes, we believe we can impact outcomes.

Within our investor group, we provide a forum for members to share information about engagements with investee companies (on a voluntary basis), and to engage with each other through dialogue and questions. We share case studies and discuss policies on proxy voting for annual meetings, with an increasing number of members adopting policies to vote against management due diversity shortcomings. Helpfully, the massive and growing global focus on environmental, social and governance management is becoming more mainstream in Asia. Even if Hong Kong’s gender diversity on boards is improving at the pace of a snail, it is harder and harder for companies to not address ESG issues. Diversity being a matter of both “S” and “G”, we are seeing more international and local institutional investor sentiment evolving towards the active support of board gender diversity.

But conversations with companies about improving diversity are not always easy, and they take time and effort, especially with the companies that our signatories prioritise for engagement: the companies that have historically had all-male boards. These companies often feel that adding a woman to their board can be seen as a high risk. When these companies finally hear the need for greater diversity, they typically set the bar very high for any female candidate. They look to find a female director candidate to single-handedly fill all of the existing skills gaps on the current board, who will, at the same time, have a great network and broad recognition. When they struggle to identify such a candidate, they inevitably report that the talent pool for female director candidates does not exist, or that they have conducted an extensive and thorough search, but were unable to identify anyone suitable.

The 30% Club Hong Kong Chapter, a supporter of the Board Diversity Hong Kong Investor Initiative, has tackled the pipeline issue head-on through its “Women to Watch” initiative. The program aims to build the pipeline of women leaders for board roles, connecting highly qualified women to the right people and positions, and providing the necessary skills for the transition to the boardroom. Yet, it is clear that many corporates still view improving diversity as a “nice to have”, not a “need to have”.

The path ahead in Asia

The growing global trend towards improving ESG and the rise of social movements focusing on gender and racial diversity and equity have brought these issues into clearer focus over recent years, and globally, we have seen some progress.

In Asia, this has not been sufficient to drive significant change in gender diversity on its own. Policy makers have used incentives in the region. They include quotas and mandatory minimums in India, requiring all listed companies to have a one female independent director by April 2020;  Korean rules requiring all large listed companies to have at least one female director from August 2022; hard targets in Australia, encouraging a minimum 30 per cent for ASX300 companies;   Malaysia’s encouragement of a 30 per cent minimum target  for “large companies” in 2017 which was extended to all listed companies in April 2021; and Singapore’s Council for Board Diversity setting a 30 per cent target in 2019.

Hong Kong and Japan have historically relied on “soft” measures over the last decade. For instance, in 2019, Hong Kong’s stock exchange required IPO applicants with all-male boards to explain their policies and planned measures to achieve gender diversity on the board after listing. But if we rely only on encouraging new listing candidates to have one female director, it would take Hong Kong around 2,400 years to achieve 30 per cent women on boards for all the 2,500 plus listed companies!

But after slow progress, Hong Kong may be on the brink of a massive change. In April 2021, the Hong Kong Exchange (HKEx) issued a new Consultation Paper on the Review of the Corporate Governance Code and Related Listing Rules, that included a question focusing on diversity and the potential end of single-gender (i.e., all-male) boardrooms. The proposed changes would result in an HKEx ban on single-gender boards. Hong Kong’s listed companies would then have a three-year grace period and IPOs would “not be expected to have single gender boards,” effectively creating a quota of one. The impact of this change is sweeping: Between Hong Kong’s existing listed companies and the IPO pipeline, it means hundreds of board seats will be opening for highly qualified women.

As investors we will continue to play our part to help our investee companies prepare for that change. We will advocate for internal pipelines, for real independent directors’ appointments, for transparent nomination policies, and sometimes even propose board candidates in our engagements. We believe that every stakeholder can play a role.

Nasrine Ghozali is chief risk officer at Oasis Management and co-founder of the Board Diversity Hong Kong Investors’ Initiative.