Hong Kong’s progress on gender diversity shows quotas can work

Stricter disclosure rules and investor engagement also have a part to play

When it comes to improving board diversity in Asia, quotas can work, and Hong Kong’s recent experience is a good example.

Improving women’s representation in the boardroom has been on the agenda for companies across the globe for quite some time, and although companies in Asia have taken important steps on this front, progress remains slow. The latest data from the OECD showed that the share of women board members remained below 20% in India, Japan, Mainland China, and South Korea.

But Hong Kong’s experience in the past three years shows positive change can take place over a short space of time. The percentage of women appointed to the boards of firms listed on Hong Kong’s Hang Seng Index rose by just 0.1% to 13.7% over the course of 2020. At that rate, it would take several hundred years, mathematically at least, to reach the widely used 30% target for women’s representation on corporate boards. However, the representation rate rose to 17.1% six months after the Hong Kong Exchanges and Clearing Market brought in rules that would ban single-gender boards (over a three-year period) in December 2021. There are important lessons to be learned here.

The main takeaway from Hong Kong’s experience in improving board diversity—which, incidentally, is consistent with Europe’s—is that quotas can work. While undeniably effective, the approach remains a blunt tool that can open the door to charges of tokenism and virtue-signalling. Nonetheless, it could represent an important first step to get qualified, deserving women executives a seat at the table.

Beyond quotas

An easy way to move the dial further is for stock exchanges and regulators to introduce stricter disclosure rules—for example, to require all listed companies to publish metrics related to gender diversity ratios and communicate their plans to address any observed imbalance.

Furthermore, investors also have an important role to play here. Investors can choose to exercise their rights to vote as a shareholder. It’s common for those with voting shares in a company to integrate board gender diversity into their voting policy and decisions.

Investor engagement is another useful tool that can be used to influence company policies and behaviours. Investors can encourage companies to introduce initiatives to identify high-performing women executives who may have been overlooked and work to ensure their growth trajectory isn’t affected by important life events such as childbirth and maternity leave. For example, we worked with the Asian Corporate Governance Association to publish an open letter to the Tokyo Stock Exchange proposing a series of targets to encourage firms listed on its Prime Market to boost women’s representation at the board level.

Promoting gender diversity at the board level involves changing mindsets that have been forged over time. It’s a challenging task that needs to be handled with great care and sensitivity; however, it’s a cornerstone of good stewardship that can lead to improved sustainability and enhanced profitability.