Jun 10, 2019 09:05 AM

Laura Cha: Greater Diversity Makes Corporate Boards Stronger

HKEx Chairman Laura Cha speaks at the Caixin Summit in Hong Kong in June 2018. Photo: Caixin
HKEx Chairman Laura Cha speaks at the Caixin Summit in Hong Kong in June 2018. Photo: Caixin

The Asia Pacific region is home to some of the world’s fastest-growing and most dynamic markets. It is also renowned for its ability to innovate, to adapt to changing conditions and to grasp new opportunities as they emerge. From the technological innovations of Japan, to the miracles of the “Four Asian Tigers,” to China’s stunning economic growth and reform, we have watched the region renew itself over and over in the past few decades, building on its strengths and competitiveness as it exerts greater global influence.

The region’s markets have repeatedly acted with resilience and determination to keep them relevant and thriving, even during times when the odds seemed stacked against them. Hong Kong Exchanges and Clearing (HKEx) has been a major contributor to the region’s capital market development. With companies from 15 Asia Pacific markets listed on our exchanges, we continue to see great opportunity to increase our reach and heighten HKEx’s relevance and role against a highly dynamic backdrop.

I believe we now have another opportunity to be champions of change in a field that is personally important to me, one that I think will be defining for the global corporate community in the years and decades to follow.

A successful business almost always plays a meaningful role in its wider community and has strong governance, integrity and purpose at its core. We live in a part of the world, however, where corporate social responsibility (CSR) and general corporate governance standards in business lag international best practices, and I believe this opens a real opportunity for HKEx to lead by example.

As chairman of Asia’s biggest listed exchange group, I am wholly committed to HKEx leading from the front in this regard. I have recently committed a portion of my own HKEx director’s fee to the pursuit of broad CSR objectives as I believe leading by example is both a personal and corporate imperative.

Corporate governance isn’t just some vague approach to running a good company – it is a culture and a clear set of rules and procedures that lead to accountability in the boardroom as well as in management. Good governance is responsible governance and ultimately results in a business that is more resilient, a business that is better placed to capitalize on opportunities presented to it, and a business that will perform better.

As the region’s financial markets become more international and complex, with a wider range of companies listing here, robust corporate governance standards have become crucial to long-term sustainability. In Hong Kong, international investors and businesses already laud our rule of law and our attitudes towards efficiency and implementation. But without better standards of governance, our competitive position could be eroded, and we would no longer be able to attract large companies and, critically, the international investor base that makes Hong Kong Asia’s most vibrant financial market.

Both as a very visible, well-connected business in our own right, and as a frontline regulator of listed companies, HKEx has a powerful podium to drive change — and we intend to use it. We have had corporate governance rules codified in our Listing Rules for 20 years, so they aren’t new to us — but they have taken on a new significance in the past several years.

We introduced our Environmental, Social and Governance (ESG) Reporting Guide into the Listing Rules in 2013 to encourage companies to focus on environmental and social issues, as well as a specific provision for equal opportunity and anti-discrimination policies. ESG reporting was voluntary at the time, but we made it mandatory in 2016 and the provision for equal opportunity and anti-discrimination was enhanced into a “comply or explain” provision.

Diversity is another focus that is close to my heart. I have been an active participant in the region’s business community for a long time and I absolutely know that a diversity of perspectives, ideas and experience enriches a company. I have seen first-hand, for example, the value women bring to an organization as senior executives and as board directors – at HKEx, at Unilever and at HSBC. As the first female Chairman of HKEx in more than 120 years, I am both proud and acutely aware of the journey that we all still need to take.

Too many companies in the region still lag far behind their peers elsewhere when it comes to diversity. In Hong Kong for example, about 34 percent of all firms listed here have no women at all on their boards, while women make up just 12.4 percent of the entire pool of directors. Astonishingly, there are still 10 all-male boards among the 50 companies that make up the Hang Seng Index, while female representation has stayed under 14 percent. We are persistently drawing on talent from the same pool, with some directors holding more than six, eight, or even ten board positions.

We can do better. We must do better.

I am determined to put HKEx at the frontier of the change that is needed. We recently made our commitment to gender equality as enshrined in the UN’s Women’s Empowerment Principles. And in January this year, HKEx upgraded a provision for gender diversity to a rule in the Listing Rules. This means that all companies listed in Hong Kong must have and disclose a diversity policy, along with any measurable objectives for implementing the policy and tracking progress towards diversity.

We have also amended the code on the identification, selection and nomination process to bring more transparency and accountability to the election of directors, including non-executive directors. We believe nomination committees should shoulder responsibility for the selection of the right candidates by considering the different perspectives, skills and experience a candidate would bring to the board.

We should be rightly proud of our business community and financial markets, but rising expectations mean that we collectively and individually need to embrace changes that improve the long-term health of our business community.

We have a real opportunity to show the way in good governance, trust and transparency.

Good corporate governance is not just a box-ticking exercise. It is a critical cornerstone of good business practice. In time, I’m confident that it has the potential to become a defining characteristic of our market.

Laura M. Cha is chairman of Hong Kong Exchanges and Clearing

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