Hong Kong companies need action, not talk, on diversity

Hong Kong competes on its reputation as a well but lightly regulated market. This philosophy is reflected in the Hong Kong stock exchange’s listing rules, which lay out a world-class standard of corporate governance but interpreted in a light-touch manner. Regulators try to avoid adding onerous requirements to compliance standards, preferring to set out the principles of good corporate governance and allowing companies to “comply or explain”.

The market operator, HKEX, amended the Corporate Governance Code with effect from January 1, introducing a number of changes mainly to improve transparency and to keep the rules broadly in line with international best practice. One key change is an expectation to “promote board diversity, including gender diversity”. This will be achieved not through quotas or targets, as in many markets, but by the publication by each issuer of a diversity policy.

Board diversity has been a hot topic in discussions of corporate governance for a number of years. The debate has mainly focused on how to achieve a higher proportion of women on boards, though more recently other aspects of diversity, such as ethnic background or citizenship, have increasingly been raised. Some countries, particularly in Europe, have mandated gender diversity on boards. Britain has chosen to use voluntary targets, initially of 25 per cent women by 2015 and now 33 per cent by 2020.

Other than fairness, there are strong grounds to argue that diversity on boards, and in management more generally, is an important principle of corporate governance. Research has established a strong link between group diversity and the quality of decision-taking and risk-mitigation. Diverse teams tend to be both more effective and more innovative.